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Increased credit union lending: Gillibrand says yes, banks say no

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Senator Kirsten Gillibrand is pushing for legislation that would give credit unions more flexibility to lend to small businesses.

The controversial Small Business Lending Enhancement Act would almost double the lending cap placed on credit unions, currently limited to 12.25 percent of their total assets.

Although the recession is over, Gillibrand says bank credit for small businesses is still restricted, and raising the cap on credit union lending could be a partial remedy for that.

Passing the act would mean that credit unions could gradually increase their lending capability through a tiered system, with a new upper cap of 27.5 percent.

Senator Gillibrand says passing this act would increase small business loans by $10 billion nationally, within the first year of enactment.

“For New York’s 422 credit unions, that boost to small business lending means more than 11,000 new jobs right here in our state without costing taxpayers a dime.”

CEO of the Credit Union Association of New York, Bill Melin says the bill is really about helping small business owners through freeing up needed capital.

Melin says the bill is important because small businesses are struggling to get loans from traditional banks.

“Many small business owners are telling us that available capital has been depleted substantially during the recession.”

Not everyone agrees on the bill:

However, the banking community strongly opposes the move, saying it is an unnecessary “power grab”.

Jason Kratovil of the Independent Community Bankers of America says the banking community disagrees with the figures being presented by supporters of the legislation.

"The claims that they make about job growth and economic stimulus are based on some incredibly faulty conclusions and assumptions, and the need is frankly being met by community banks and large banks who are very active in this space."

Many banking organizations claim that allowing credit unions to increase their loan capacity would result in billions of dollars of lost tax revenue because of credit unions’ tax-exempt status.

Kratovil says a new study released supports this claim.

“Additional commercial lending by tax-subsidized credit unions would decrease tax revenues because taxes that would otherwise have been paid by commercial banks making those loans would not be paid. The most recent estimate by the Congressional Budget Office pegs the lost revenue at nearly $16 billion.”

But, Credit Union Association of New York CEO Bill Melin says credit unions would not be poaching existing loans from banks, but would be serving an underfunded market that struggle to gain loans.

“They would have to show us that these loans were going to be made by a bank, but now they’re not going to be made by a bank they’re going to be made by a credit union. Well, the evidence doesn’t support that, the evidence supports that the bankers have contracted their lending during the recession.”

Melin says the loans that credit unions are making are ones that business owners could not get at a bank.

Again, the banking community contradicts this statement.

Kratovil says that community banks make a substantial amount of small loans throughout the country.

“Community banks make approximately two thirds of all of, (I believe it’s) the under $100,000 loans, made in the country.”

Gillibrand's breakdown for New York state:

The legislation has raised spirited comment from both sides, and Senator Gillibrand is pushing to have a vote on the bill before the end of the year.

Gillibrand claims that the legislation would create strong job and economic growth in the region.

Speaking today the senator made the following estimates of impact from the reforms:

·  Increased small business lending by $10 billion nationally, in the first year, and up to 100,000 jobs.

·  11,000 jobs in New York state would be created without the use of taxpayer money.

·  Western New York’s 100+ credit unions could increase lending potential by more than $9 million.

·  Rochester-Finger Lakes’ 40 credit unions could see an increase in lending potential of $80 million.

·  Central New York’s 35 credit unions could see an increase in lending potential of $40 million.

·  Southern Tier’s 15 credit unions could see an increase in lending potential of $150 million.

·  Capital Region’s 40 credit unions could see an increase in lending potential of more than $120 million.

·   North Country’s 20 credit unions could see an increase in lending potential of more than $2 million.

·   Hudson Valley’s 40 credit unions could see an increase in lending potential of more than $230 million.

Despite controversy around the issue, some sources indicate there is a slim chance this bill will make it through the senate in the current climate.