WASHINGTON–The American Bankers Association and the Independent Community Bankers of America have sent a letter to the House opposing what the groups called the “use of the congressional spending process as a back door for a credit union-backed provision to further expand their member business lending privileges.”
The bankers are expressing opposition to what has been a long-time effort by credit unions to get an exemption for business loans secured by a 1-to-4-family dwelling to include those dwellings that are not primary residences — thus allowing credit union loans to finance rental housing businesses without counting toward the 12.25% MBL asset cap.
In the letter to the leadership of the Committee on Appropriations, the two bank groups said providing credit unions with the exemption would “result in a revenue loss to the U.S. Treasury and increase the federal budget deficit. The proposal has not been considered or debated before the Committee of jurisdiction. We strongly urge you to reject this very controversial proposal.”
The letter goes on to say that “credit unions were created and given a tax subsidy for the purpose of serving individuals of modest means with a common bond, primarily through consumer lending. To ensure adherence to this mission, Congress imposed a cap on member business loans of 12.25% of assets. The cap includes many exemptions, including any loan fully secured by a 1-to-4 family dwelling that is the primary residence of a credit union member. This exemption allows a member to tap their home equity to finance a business. The proposal being suggested by credit unions would expand the exemption significantly by removing the condition the 1-to-4 family dwelling be a member’s primary residence. In effect, it allows rental housing loans to be exempt from the cap.”
The letter states that rental housing loans are business loans as their purpose is to “generate income,” and that such loans are “clearly distinct from consumer lending.”
“Congress must not allow credit unions to further encroach into business lending, altering the fundamental character of their charter and expanding their already significant tax subsidy,” the bank groups told Congress. “At a minimum, a change of this significance should not be considered without observing regular order and appropriate debate. We urge you not to be misled by the argument that the proposal would merely create parity in loan classifications between credit unions and commercial banks. Banks classify loans secured by non-owner occupied 1-to-4 unit dwellings as real estate loans on their call reports. The call report and the MBL cap cannot be meaningfully compared. What’s more, banks are taxed while credit unions are tax subsidized. This critical distinction should guide all consideration of credit union powers expansion initiatives.”