Research & Commentary: Credit Union Member Business Lending and Bill S. 2231

The U.S. Senate is considering a bill that would lift—but not eliminate—the current cap on credit unions’ ability to lend to businesses. Credit unions have made business loans since they began in the United States during the nineteenth century, but since 1998 they have been limited to lending 12.5 percent of their assets to member businesses. The bill by Sen. Mark Udall (D-CO) and Sen. Rand Paul (R-KY) would raise the cap to 27.5 percent.

Opponents of the bill contend it would not necessarily expand lending capacity, would hurt banking interests, might destabilize credit unions, and violates the historical purpose of credit unions.

Supporters of the proposal say raising the cap on credit union member business loans would open up new avenues of credit to small business where traditional banks have been unwilling to invest. According to the Small Business Administration, credit unions often lend to types of businesses that can’t get bank loans. The Credit Union National Association estimates the proposed loosening of restrictions on member business lending could spur creation of more than 108,000 new jobs. Proponents also say increased member business lending won’t hurt major banks: With those banks already controlling about 95 percent of the depository institution services market, they are unlikely to sustain a mortal wound if a burdensome regulation on their competition is lifted.

The following articles examine credit union member business lending, the proposed changes to the lending cap, and the proposal’s possible effect on the nation’s credit markets.