Access to credit is an essential component of a market system, and the tightening of credit markets in the course of the economic downturn has businesses and entrepreneurs struggling to sustain themselves and grow. Small businesses have suffered the most. Small- and medium-sized businesses are a key engine of the economy, creating between 60 and 80 percent of new jobs. The lack of credit for small businesses slows economic recovery, so efforts need to be made to get credit flowing where it is needed and best utilized.
New sources of lending outside the traditional banking sector may present a new source of money for these businesses. One of these alternatives is member business lending by credit unions.
Credit unions are nonprofit, cooperative financial institutions owned and controlled by their members. They offer credit services, including small business loans, for their member businesses. Since 1998, however, credit unions have faced an arbitrary legal cap on the amount of member business loans they may write. New legislation now being considered would change, but not eliminate, these caps.
Opponents of expansion argue credit unions should not be allowed to operate like banks. The American Bankers Association and other groups claim the expanded range of products credit unions offer are closer to the mutual savings bank model and should be regulated so that credit unions don’t gain an unfair competitive advantage.
Supporters of the expansion of member business lending say raising the cap would open up new avenues of credit to small business where traditional banks have been unwilling to invest. The Credit Union National Association estimates the proposed loosening of restrictions on member business lending could spur creation of more than 140,000 new jobs.
The following articles examine credit union member business lending, the proposed changes to the lending cap, and its possible effect on the nation’s credit markets.
Can Credit Unions Fill the Gap in Small Business Lending?
http://outofthestormnews.com/2010/11/30/can-credit-unions-fill-the-gap-in-small-business-lending/
This article from Out of the Storm News examines the current debate over credit union member business lending and asks if member business lending can fill the gap in small business lending.
Another Fight Brews Over Member Business Lending
http://www.cutimes.com/2011/06/13/another-fight-brews-over-member-business-lending
The Credit Union Times discusses recent developments in legislation that would lift caps on credit union member business lending.
Easing of Credit Union Restrictions Could Create 100,000 Jobs
http://news.heartland.org/newspaper-article/2009/11/30/easing-credit-union-restrictions-could-create-100000-jobs
This article by Heartland Institute Senior Fellow Eli Lehrer discusses the possible effects of an increase in the cap on member business lending.
Can Credit Union Member Business Loans Meet the Need for More Credit to Small Businesses?
https://heartland.org/publications-resources/publications/can-credit-union-member-business-loans-meet-the-need-for–more-credit-to-small-businesses
This paper from the North Carolina Banking Institute examines whether credit unions can effectively serve the small business market through their member business lending products.
Cheney to Congress: CUs Will Help Those Ignored by Banks
http://www.cuna.org/newsnow/11/wash061611-6.html
Credit Union National Association President/CEO Bill Cheney argues in a letter to Congress that by increasing the lending cap for credit unions would allow them to provide small businesses access to much needed credit without putting taxpayer funds at risk.
Lawmakers Push to Allow Credit Unions to Give More Business Loans
http://news.heartland.org/newspaper-article/2010/02/15/lawmakers-push-allow-credit-unions-give-more-business-loans
This FIRE Policy News article by Jennifer G. Hickey discusses the push for credit unions to expand member business lending and the opposition from the banking industry.
Member Business Lending: A Study by the Michigan Credit Union League
https://heartland.org/publications-resources/publications/member-business-lending-a-study-by-the-michigan-credit-union-league
This study from the Michigan Credit Union League evaluates the value of member business lending for credit unions and makes recommendations for individual unions.
Credit Unions Make Friends—But Not with Bankers
http://stlouisfed.org/publications/re/articles/?id=406
This article from the St. Louis Federal Reserve examines the legislative and legal history of the battle between credit unions and the banking industry over how and when credit unions are allowed to lend to consumers.
ABA Issues: Credit Union Regulation
http://www.aba.com/Issues/Issues_CreditUnion.htm
This issue update from the American Bankers Association discusses the banking industry’s opposition to expanded member business lending. It argues that additional regulation is needed if credit unions are to expand their services.
Unleash the Credit Unions
http://www.frumforum.com/unleash-the-credit-unions
This Frum Forum article by Eli Lehrer examines efforts in Congress to raise the cap on business lending by credit unions. Lehrer contends opening up credit union lending could provide new loans to businesses that are now unable to find them, helping to grow the economy.
A Brief History of Member Business Lending and Credit Unions
http://www.creditunions.com/article.aspx?articleid=4124
This article from Credit Union Strategy & Performance examines the history of small business and credit unions and the possibilities for change in the next legislative session.
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
