Credit Union Bill Would Increase Deficit, Not Lending
Sometimes in Washington, the facts get in the way.
Credit unions are once again pleading with Congress to increase their business lending authority. Sound good? Not so fast. This legislation from Sen. Mark Udall (D-Colo.) will shift small business lending from tax-paying community banks to tax-dodging credit unions.
They say it will increase small business lending. Don’t believe it.
The credit unions are pushing bad public policy by distorting the facts. Their lobbyists have lost sight of their industry’s historic mission and continue to promote a harmful agenda that would take business away from tax-paying community banks that serve small towns and neighborhoods across America. Most Americans do not remember that the historic mission of a credit union is to provide credit to people of limited means. This includes small consumer loans, car loans, etc. The mission does not include making sophisticated business loans where their industry has no demonstrated expertise.
Texans Credit Union in Richardson, Texas is a prime example of why credit unions should not be in this line of business. Texans is currently in receivership because its management and its regulators were ill-equipped to monitor the scope and volume of the business loans Texans was making in North Texas. As a result, Texans has millions of dollars of bad business loans on its books.
The proposed legislation would truly provide increased lending ability for only approximately 30 of the 7,000 credit unions across the United States. It would shift loans that are already in the pipeline at community banks to credit unions that don’t pay taxes. You simply can’t be for community banks if you support the credit unions’ mission creep. Most credit unions I have visited with are not interested in this legislation. They want to stick to their original mission. This is truly a piece of legislation that benefits a select few.
It’s important to remember that credit unions already have ample small business lending authority. This legislative proposal applies only to a new breed of credit union with little resemblance to the mom-and-pop variety that first inspired the industry’s tax exemption. These “morphed” credit unions are not satisfied with making small business loans. If they were, they would have no need to raise their member business lending cap, since credit unions today can make as many loans under $50,000 as they want. These aggressive institutions want to go after the corporate loans that tax-paying community banks make every day.
If Congress does the bidding of this small minority of aggressive credit unions, it could be the beginning of the end for community banks. One doesn’t have to be an economist to know that an industry subsidized by the federal government will easily out-price one that pays roughly one-third of its revenue in taxes, a typical bank’s tax burden. Or to know that this is a classic example of a catering to a special interest group.
Understand this fact. Credit unions pay no tax! If Congress sanctions the exodus of commercial loans from an industry that pays taxes to one that does not, the U.S. Treasury will go even deeper in the hole. This costs everyone increased taxes as opposed to those parties that borrow, take the risk and pay the interest. A similar bill in the last Congress would have cost taxpayers $354 million in lost revenues over the next 10 years. The bill currently under consideration by the US Senate will cost even more – just as lawmakers are trying to address our country’s historic budget deficits.
Fortunately, there is a more reasonable option for credit unions that would like to expand their business lending – convert to a mutual savings bank charter. Some have already taken advantage of the flexibility this option provides.
This is a far more sensible than promoting more tax-dodging that runs up the national debt and damages community banks that are the backbone of their local economies.
The Texas Bankers Association (www.texasbankers.com), founded in 1885, is a statewide association that represents 86 percent of Texas banks, from the smallest to the largest banks in the nation.