ALEXANDRIA, Va.—The banking industry is making its opposition to expanded business lending powers for credit unions clear in a wave of comment letters to NCUA that pushes responses to what may be the highest total ever received by the agency.
A review by CUToday.info of the first 100 comment letters indicates that banker letters outnumber CU comments by almost 10 to one, likely taking the total past 3,000, NCUA estimated.
One banker even likened the risk from the NCUA MBL proposal to “lighting a match” on credit unions.
The agency told CUToday.info that as of Tuesday morning the comment total had reached 2,885, with more letters in the pipeline to be processed. The comment deadline was Aug. 31.
Previously, the highest comment total was more than 2,170 for the first risk-based capital proposal.
As CUToday.info previously reported, in their comment letters credit unions have been telling NCUA that the proposed revisions to its member business lending regs are much needed and well-written, but that they also believe the proposal could use some additions and adjustments, according to a sample of comment letters submitted to the agency.
Banks, on the other hand, told the agency any MBL expansion is over-reach and will even put the share insurance fund at risk. Many of the bank comments are form letters.
Common themes in the banker letters include:
- The proposed changes are far too lenient.
- Credit unions lack the expertise to increase their business loan portfolios, which they state the proposal allows CUs to do.
- MBLs have been a key reason for CU failures.
- NCUA has not proven its abilities to effectively supervise expanded CU MBL lending.
- The proposed rule places taxpayers at risk.
- The proposal is contrary to established legislation that limits the focus of credit unions to consumer lending.
James Clapp, chairman of the board at Middletown Valley Bank in Middletown, Md., wrote that he is concerned “the proposed rules will permit credit unions to expand into commercial lending, exposing taxpayers to new risks. It is my understanding that credit unions have proven ill-equipped to make such loans and has not established that it is prepared to supervise its institutions.”
Rick Kunze, president of State Bank of Table Rock in Roca, Neb., characterized the NCUA proposal as providing “credit unions with the opportunity for a large taxpayer-subsidized expansion into commercial lending activities.”
Arguing that the proposal creates “serious” safety and soundness concerns, Kunze wrote, “NCUA has not established that it is prepared to supervise institutions with expanding business loan portfolios, and the credit union industry has proven ill-equipped to make such loans. At least five credit unions since 2010 have failed at the hands of poorly run business loan programs, accounting for a quarter of all losses to the insurance fund during that period. In 2010, member business loans were the primary or secondary contributing factor for the supervisory concern for nearly half of the credit unions with CAMEL ratings of 3, 4, or 5 that made business loans.”
Kunze said NCUA’s proposal is “contrary to congressional intent to limit business lending by credit unions and that the agency is overstepping its regulatory reach by expanding business lending loopholes.”
Tim Barnes, president of Hometown Bank in Corbin, Ky., wrote that if the MBL proposal would become a final rule that doing so would be “akin to lighting a match to the credit union industry thus weakening the current financial marketplace.”
A Different Perspective
Not surprisingly, credit unions are taking a much different view in their comments. The perspective of Neil Marshall, SVP and CFO at Kern Schools FCU in Bakersfield, Calif., for instance, differs markedly from that of the bankers.
Marshall wrote that the proposal “establishes much-needed regulatory relief without exposing credit unions, small businesses, or the National Credit Union Share Insurance Fund (NCUSIF) to unnecessary risk.”
Marshall shared his support for the proposal eliminating the waiver process, removing prescriptive underwriting criteria, personal guarantee requirements, and “unnecessary constraints” in Part 723 of the current rule.
Barry A. Shaner, CEO of Directions Credit Union in Sylvania, Ohio, said, “Moving from prescriptive rules more suited to a homogeneous process, to a principle based approach is logical, and will undoubtedly help us do more to serve the small businesses in our communities as we are able to be more flexible in meeting their needs.”