WASHINGTON—A credit union executive testifying before a House committee said the CFPB’s proposed section 1071 rulemaking will negatively impact small business lending by adding compliance burdens, costs and friction to small business relationships.
Mike Wilson, chief experience officer of Members 1st Federal Credit Union in Pennsylvania, shared that perspective, testifying before the subcommittee on behalf of NAFCU before the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access.
After pointing out that the nation’s 4,800 federally insured credit unions serve a “different purpose and have a fundamentally different structure than traditional banks,” Wilson told the subcommittee CUs also face an “artificial barrier” to being able to do all that they can to help small businesses.
“When Congress passed the Credit Union Membership Access Act in 1998, it put in place restrictions on the ability of credit unions to offer member business loans,” Wilson stated in prepared remarks. “Credit unions had existed for nearly 90 years without these restrictions.”
Wilson pointed out that Congress codified the definition of a member business loan and limited a credit union’s member business lending to the lesser of either 1.75 times the credit union’s actual net worth or 1.75 times the minimum net worth of a well-capitalized credit union (12.25%).
“CUMAA also established, by definition, that only business loans above $50,000 count toward the cap. This number was not indexed and has not been adjusted for inflation in the nearly 25 years since enactment, eroding the de minimis level,” he explained. “Where many vehicle loans or small lines of credit may have been initially exempt from the cap in 1998, many loans that meet the needs of small business today are now included in the cap due to this erosion.”
To put the matter into perspective relative to inflation, Wilson explained what cost $50,000 in 1998 costs over $92,000 today, using the most recent consumer price index data.
“That is more than an 80% rate of inflation that is completely ignored by current law and greatly hamstrings a credit union’s ability to meet its members’ needs,” he said.
“Wilson noted the government-guaranteed portions of Small Business Administration loans do not count toward the member business lending cap, but the non-guaranteed 5 portions do.
“This could ultimately lead to a situation where a credit union may be an excellent, or even preferred, SBA lender and ultimately have to scale back participation in Small Business Administration programs as it approaches the arbitrary cap,” Wilson said. “This would likely hit SBA Express loans first, as those have lower guarantees and, thus, may have a bigger impact on money available below the cap. As such, we would urge Congress to support legislation to modify or remove the arbitrary cap on credit union member business lending.
“At the very least, Congress should update the $50,000 threshold to reflect inflationary changes over the last quarter century,” continued Wilson.
Wilson outlined the effort Members 1st has put into developing its business lending program to support its communities.
“We started our member business lending program in 2003, and last year we did $350 million in business lending. We hold $90 million in business deposits,” Wilson explained. “We have over 3,600 business loans on the books with nearly $1 billion in balances. We are proud of our work in Central Pennsylvania.”
Wilson told the subcommittee that during the pandemic his credit unions was the ninth-largest Paycheck Protection Program lender in the credit union space.
“We are also a participant in the 7(a) loan program through the SBA,” he mentioned.
After sharing that while institutions under $10 billion in assets are exempted from the CFPB’s oversight and enforcement, nevertheless smaller institutions are impacted by CFPB rulemaking, he said.
“The legislative purpose of Section 1071 is to facilitate enforcement of fair lending laws and to enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses. NAFCU and credit unions support this goal,” Wilson said, noting concerns with the proposed rule.
“NAFCU has a series of concerns about the proposal and its impact on access to credit from credit unions for small businesses that we have shared with the Bureau,” said Wilson, noting the information had been presented to the subcommittee.
Wilson concluded by stating that while NAFCU supports the goal of ensuring access to capital for women-owned, minority-owned and small businesses, “we believe the costs associated with instituting the proposed Section 1071 small business data collection rule will overshadow any hypothesized improvements in supervisory efficiency or market transparency. Congress also enacted Section 1022 of the Dodd-Frank Act, which requires an assessment of the effectiveness of each rulemaking at the CFPB, and even included a specific exemption provision with Section 1071 itself. The Bureau should exercise the authority granted by Congress to provide small lenders such as credit unions relief from a number of burdens stemming from the Section 1071 rulemaking. The alternative is to impose yet another data collection regime that is certain to exacerbate the cumulative toll of regulatory burden endured since the last financial crisis, particularly for smaller community financial institutions like credit unions.”
It’s Called Fresh for a Reason. And We Offer Home Delivery. For Free!
The biggest, best and freshest news reporting in credit unions remains free in ’23! Each morning CUToday.info delivers its daily Fresh Today news update offering the latest headlines and breaking news right to your email, with the easy-to-read headlines format allowing you to click on the stories that interest you most in order to learn more.
If you haven’t yet signed up for the new email solution on which CUToday.info has partnered with ResponseGenius, you can do so here. Signing up requires less than one minute of your time—and it’s free!
Please note that after signing up you may need to go to your Spam/Junk folder and mark the morning headlines email as safe. CUToday.info does not provide its list of readers and emails to outside parties, and we will not be contacting you to sell you an extended warranty or sending you any links so you may cash in on an inheritance you didn’t know was coming.
And did we mention it’s free?
Please note and/or make your IT department or email administrator aware the emails will be coming from the domains CUTodayinfo.com and CUTodayinfoReply.com