Bill to let credit unions make more business loans is tabled in USA

Legislation to widen the scope of credit unions to make business loans has been put before the US House of Representatives.

The bi-partisan Credit Union Residential Loan Parity Act would ensure that loans to finance the purchase of small apartment buildings from both credit unions and banks are considered residential real estate loans.

It was introduced on 10 January by US representatives Ed Royce (Republican, California), Jared Huffman (Democratic, California), Don Young (R, Alaska), and Peter DeFazio (D, Oregon).

The bill’s purpose is: “to amend the Federal Credit Union Act to exclude a loan secured by a non-owner occupied 1- to 4-family dwelling from the definition of a member business loan, and for other purposes”.

This would remove such loans from the the member business lending (MBL) cap currently imposed on credit unions. If enacted, the bill would allow credit unions to lend an additional $11bn to small businesses, freeing up much-needed private sector financing for commercial businesses and rental housing.

“The Act unleashes billions of dollars of capital for small businesses at no cost to taxpayers and drives local economic investment,” said Rep Royce.

“Credit unions are vital to local communities and their economies,” added Rep. Huffman. “The Act is a common-sense, bipartisan fix that ensures credit unions are able to do their job and assist small businesses in accessing capital, and making investments in local economies, while boosting the construction and housing sectors.”

“This legislation is good for business and good for consumers,” said Rep. Young. “Not only does it free up capital and expand access to responsible home lending, it provides community lenders with some commonsense regulatory relief.”

Related: Does regulation place an extra burden on credit unions?

“Credit unions should not be constrained by arbitrary regulations that impair their ability to serve members who wish to invest in small residential properties,” said Rep. DeFazio.

The legislation comes as the credit union movement is looking to expand into new areas of business to keep pace with rapid economic, technological and demographic changes.

At the World Credit Union Conference, held in Belfast last July, the sector was urged to take advantage of mobile platforms to reach a younger demographic and expand the range of its lending.

The event also saw speakers lament the regulatory burden on credit unions in the wake of the 2008 financial crisis.

Bill Hampel, chief economist and chief policy officer of the Credit Union National Association (CUNA), told delegates:““Credit unions are subject to this regulation even through they didn’t engage in such abusive behaviour.”

A survey by CUNA of 53 credit unions from 28 states found that the the regularity burden accounts for 19% of the total operating expenses, leading the organisation to call for more proportionate regulation.