October 22, 2014

Time to Raise the MBL Cap for Credit Unions?

Fred Becker, President and CEO of the National Association of Federal Credit Unions (NAFCU), is calling upon Senate leaders to pass a bill to raise the credit union member business lending cap (MBL) from 12.25 percent of assets to 27.5 percent. Increasing this cap would allow credit unions to make more capital available for small business loans, which can be a profitable part of a credit union’s portfolio.

MBL cap

The bipartisan Credit Union Small Business Jobs Bill, S. 2231, introduced by Senator Mark Udall (D-CO), and retiring Senator Olympia Snowe (R-ME), would increase the MBL cap from 12.25 percent of assets to 27.5 percent for eligible credit unions.

When Congress passed the Credit Union Membership Access Act in 1998, it created restrictions on the ability of credit unions to offer member business loans by a credit union’s member business lending to 12.25 percent of total assets. Research has proven that the cap hinders credit union lending to small business and does little, if any, harm to banks and other institutions.

In January 2001, the Treasury Department released a study, “Credit Union Member Business Lending” which found that ‘Business lending is a niche market for credit unions. Overall, credit unions are not a threat to the viability and profitability of other insured depository institutions.’

Last year, the SBA’s Office of Advocacy also found that bank lending was largely unaffected by changes in credit union business lending, and that credit unions have the ability to offset declines in bank business lending during a recession (James A. Wilcox, The Increasing Importance of Credit Unions in Small Business Lending, Small Business Research Summary, SBA Office of Advocacy, No. 387. Sept. 2011).

Becker suggests raising the MBL ceiling in combination with legislation to extend full coverage of noninterest-bearing transaction accounts. Banking trades are seeking extension of the “transaction account guarantee” program that was implemented under the Dodd-Frank Act. NAFCU advocated parity for credit unions, which was included in the final Dodd-Frank bill. Currently, $1.4 trillion in noninterest-bearing account balances covered under Dodd-Frank are in line to lose their federal coverage. The 100 percent deposit and share insurance coverage for these accounts is set to expire on Dec. 31 at midnight.

In a letter to Senate Majority Leader Harry Reid (D-NV), and Minority Leader Mitch McConnell (R-KY), Becker wrote:

“This would certainly have unintended consequences on smaller financial institutions and could very well lead to businesses shifting funds away from their community-based financial institutions.”

NAFCU believes that combining the two measures into one:

“. . .would not be a win-win proposition for the American people and our economy.”

I agree.  Credit unions have the capital to help America’s small businesses thrive. The outdated MBL cap limits their ability to help stimulate the economy by providing credit to startups and expanding small businesses.

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1 Comment ▼

Rohit Arora


Rohit Arora Rohit Arora, CEO and Co-founder of Biz2Credit, is one of the country's leading experts in small business finance. Since its founding in 2007, Biz2Credit has arranged $800M in small business loans and has helped thousands of entrepreneurs. Rohit was named Crain's NY Business "Entrepreneur of the Year 2011."

One Reaction

  1. What was the justification for the cap in the first place? It seems arbitrary.

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