Increase in credit union cap could free up $10B in business loans

Credit union activists are trying to encourage lawmakers raise the credit union lending cap – a move that could allow credit unions to give out $10 billion in additional loans for business formation and other uses.

Lending by credit unions is currently capped at one-eighth of the credit union’s total assets – a regulation designed to encourage credit unions to practice responsible lending practices. The cap has not been an issue in the past, but recent increases in credit union lending have left many approaching the limit. The National Credit Union Association says that business lending by credit unions has risen 10 percent in 2009, while lending by banks decreased.

BNET reports that credit unions’ loss rate for business loans has averaged 0.15 percent, compared with a 0.82 percent rate for banks.

The American Bankers Association has spoken out against the change, saying that because credit unions are tax exempt organizations, the move would give credit unions an unfair advantage over smaller community banks who compete with credit unions.

The NCUA told the Wall Street Journal that as of March, its members had more than $35 billion dollars in outstanding business loans, and that roughly 16 percent of its members were on track to hit the 12.25 percent lending threshold.