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Expanding commercial lending authority for credit unions is nonsense

We read a number of comments to an op-ed by Nessa Feddis of the American Bankers Association that was recently published in The New York Times and it's apparent there's a great deal of confusion among readers about credit unions. There's a great deal of confusion about them among Members of Congress as well. Here are some key points that help explain why bankers are opposed to an expansion of credit union commercial lending authority.

  • Federal credit unions pay only real and personal property taxes. They do not pay federal or state income tax, and that gives them a distinct competitive advantage over other tax-paying lenders, like community banks. Maybe that doesn't bother you, but it should. It's not a zero-sum game and if Washington needs more revenue they're going to get it from somewhere – like from you and me. That's not right.
  • Some readers say credit unions are “not-for-profit.” Those people simply don't understand that “not for profit” is a tax status; it's not a way of doing business. No business, of any kind, could stay in business if it wasn't profitable. Of course credit unions intend to make a profit. They just don't pay any federal income tax on such profits.
  • With respect to giving credit unions more business lending authority remember that credit unions are not prohibited from making small business loans now. In fact, they can make as many small-business loans of $50,000 or less as they want, without any limitation.
  • More importantly, the effort to increase commercial lending authority by credit unions won't enable them to provide loans to startups. Good lenders provide debt financing, not venture capital or equity financing, and there's a huge difference.
  • Credit unions have an aggregate business lending cap of 12.25 percent of all assets under existing law, and there are no credit unions in Oklahoma even close to the existing cap. There's plenty of room for them to make any type of prudent small business loan today.
  • Credit unions were never intended to be simply an alternative, tax exempt commercial bank.

Credit unions should stick to their original purpose of serving low- to moderate-income persons rather than trying to expand into areas about which they know very little.

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