CU Small-Business Effort Wins Schumer's Backing

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Byline: Robert Barba

With the banking industry wounded from the financial crisis, credit unions are hoping lawmakers will finally pass a bill allowing them to expand their business lending.

The credit unions scored a key ally last week, when Sen. Charles Schumer, D-N.Y., said he planned to offer a bill that would scrap a 1998 law capping credit union small-business loans at 12.25% of their total assets.

There is no companion yet in the House, and any such legislation could face an uphill fight. However, some industry observers argue that credit unions have a good chance, since banks, which have fought off credit union expansion bills in the past, are deeply unpopular in the current political environment.

"The banking industry is in a tough position. ... I don't think they have the same pull that they have had historically," said Oliver Ireland, a partner at Morrison & Foerster LLP. "You have to conclude that lawmakers are unhappy with banks and not with credit unions. ... It may work in their favor."

Credit unions have fought for more than eight years to repeal the law, winning the support of key House members.

The efforts have not gained much traction in the Senate, but credit union representatives hope Schumer's support will change that.

"The potential for its passage has never been better," said John P. Magill, senior vice president of legislative affairs for the Credit Union National Association.

"It is now backed by a very senior influential member of the United States Senate. He is for it. He sees the need for it, and his track record of getting things passed is strong."

Schumer made a case for the bill last week by citing the banking industry's woes.

"With so many large banks in bad shape," credit unions need to be able to offer more small-business loans, he said in a press release.

"The situation facing these businesses right now is much worse than a matter of them simply being denied new loans. They are being strangled by having existing lines of credit pulled. A threat like this to small businesses could upend the livelihood of millions of workers and be catastrophic for the larger economy."

Bill Hampel, the CUNA's chief economist, estimates that eliminating the cap could result in nearly $10 billion worth of loans in the first year, because of interest from credit unions close to the cap, as well as those that were scared away from the business because of it.

Banking advocates argue that the economic crisis is not a good time for credit union expansion.

"We need people who have experience and a track record in business lending, not novices," said Ron Ence, vice president of congressional relations for the Independent Community Bankers of America. …