Credit Union Lending Cap

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A bill that would allow credit unions to lend more to businesses has been introduced in Congress. Scott Earl, CEO of the Arizona Credit Union League, will talk about the bill.

Ted Simons: A bill has been introduced in Congress that would allow credit unions to lend more to businesses. The bill is supported by the Arizona Credit Union League, which says the new law will help create jobs. Here to talk about the bill is Scott Earl, CEO of the Arizona Credit Union League. Good to have you here.

Scott Earl: Great to be here.

Ted Simons: Promoting lending to small business act. What's it all about?

Scott Earl: Credit unions is a not for profit cooperative. I think the first was organized 1929 here in the state. We traditionally made business loans to our members and but we're under a 12.25% cap -- 12.25% of our total assets is the most we can have in business loans. That's hamstrung us a little bit and with the worsening economy, small business finds it tougher to find credit, lines of credit loans and we believe we can step up and make a difference there.

Ted Simons: This would raise the cap to 25%.

Ted Simons: There's a bill in the house and senate promoting lending to America's small business act and enhancement act in the senate. They raise the cap to 25%. That cap raising, we believe in the first year, would mean here in the state of Arizona, would mean an additional $120 million in new capital would be available to small businesses. And that could mean as many as 1300 jobs. At the national level, as much as $10 billion and 108,000 jobs.

Ted Simons: And the max limit as far as the loans are concerned jumps from 50 to 250,000 before --

Scott Earl: Before it starts to count toward the cap.

Ted Simons: The law which puts you at 12.25.

Scott Earl: Yeah.

Ted Simons: Folks thought it was necessary then. Why not now?

Scott Earl: From our inception ‘til 1998 there was no limit on what we could do in business lending. In 1998, there was a credit union membership access act passed. That defined a few things about how credit unions attracted membership and how they set up their fields of membership in the process of all the horse trading that went on back then, this was put in place. Primary at the urging of the banking lobby.

Ted Simons: Ok. The banking lobby is not particularly enamored with the fact that credit unions are not for profit and tax exempt. Is it fair for the credit unions to get this much involved in business lending?

Scott Earl: I think the bottom line, we're still just lending to our members, there's no profit motive for us and we believe that that tax exemption flows to the credit union members and can flow through to small businesses. It's a win for small businesses.

Ted Simons: Critics of the bill say if a small business needs a certain amount of money, they can go to the banks. The banks right now are restrictive in lending for a variety of reasons, which we're aware of, but still restrictive considering the climate. Why should we feel confident that the credit unions will sail the waters any easier?

Scott Earl: I think one of the reasons that banks are reluctant to lend right now, in many cases, regulators are stepping in saying you've got too much concentration in business lending. We're in the opposite position. A majority of our loans are in consumer loans. This allows us to diversify our portfolio and at the same time help small business.

Ted Simons: The idea -- you can see the storm clouds from those who would oppose this, staying banks got in trouble with risky lending and not enough oversight. Whatever the reasons are. What keeps credit unions from again, going down that path?

Scott Earl: I think credit unions have proved we're prudent business lenders. Our numbers stand on their own. Let me share those with you quickly. If I can find them in my notes. You know, even in these tough economic times our lending loss rate are lower than even our consumer loans. In -- and we have much smaller delinquency. You can compare that to our counterparts at the banks. September '09, which is the most recent figures, banks delinquency was at 2.28%. Ours at .44%. We're doing the loans and doing them right and we've got the money to lend. And if congress allows us to move the cap and those dollars become immediately available. $10 billion nationally and no cost to the taxpayer, that's what is great about this bill. It's a simple no cost to the taxpayer. Today, President Obama did a press conference saying he wanted to give $30 billion of the tarp money to help them lend to small business. That's a plan to some may support but at the same time we've got an option that's $10 billion right now that doesn't cost the taxpayers anything.

Ted Simons: And yet another concern here would be that you've got these not for profit co-opts and some folks call them the best secret in banking right now in terms of investment and these things. And sailing off choppy waters and I don't know what metaphor I can use now. Or cliché. But why do you want to -- is there a chance of overreaching here?

Scott Earl: That's a good question. I don't believe so. I think the credit unions that can do it will do it well. Those that don't feel comfortable will stay out of it. The safety net, we're run by volunteer boards of directors. If you use a credit union, you're an owner and can be on that board. That board sets the direction for that credit union. The course. And if they're not comfortable with business lending, it's not going to happen. That's a great safety net.

Ted Simons: Timetable for the legislation?

Scott Earl: There's a committee hearing on February 12th, Friday, February 12th, and they're going to be talking about small business lending and we'll testify there and we're starting to feel momentum on this bill. But congress needs to hear from us by next Friday. If a small business owner is interested in getting this passed, they need to write a letter to Barney frank. And if you need help you can go to our website.

Ted Simons: You got it in, you son of a gun. Thanks very much for being here. We appreciate it.

Scott Earl:CEO,Arizona Credit Union League;

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