Under current law, credit unions’ member business lending portfolios cannot exceed 12.25% of total assets. This severely constricts credit unions’ ability to make business loans to their member depositors, and in response to the COVID-19 crisis, the US Congress is considering
legislation to temporarily lift the cap so that credit unions have more flexibility in supporting local small businesses.
This bill goes a step further and eliminates the cap permanently. Proposals to do so in the US have been unsuccessful, largely because of strong pushback from big banks. The original cap was imposed in the late 1990s as a concession to bankers.
The credit union industry has grown in the years since the Great Recession, largely due to mistrust in the banking industry. And the reason for this is simple: unlike banks, credit unions do not have customers; they are member-owned and any income generated is used to fund projects and services that benefit the community and the interests of its members. While they lack the infrastructure of large banks, they offer members access to better rates and more ATM locations.
Eliminating this cap will simultaneously eliminate barriers for small and local businesses and promote credit unions as an attractive alternative to big banks, and provide credit unions more flexibility to help their members and small businesses weather the ongoing pandemic.
