Community banks have taken their gripes about credit unions infringing on their territory to court, filing a lawsuit against a federal regulator.
In March, the National Credit Union Administration issued a final rule on business loans that are made by federally insured credit unions.
The final rule was intended to provide credit unions with more flexibility and autonomy in soundly making commercial and business loans.
The rule, Member Business Loans; Commercial Lending, is scheduled to go into effect on Jan. 1, 2017.
But
a lawsuit filed on Wednesday by the Independent Community Bankers of America against the NCUA could put the kibosh on the rule.
According to the Washington-based trade group, the rule
would allow tax-exempt credit unions to exceed limitations on commercial lending activity established by Congress while at the same time relaxing regulatory oversight — putting the financial system at risk.
“By allowing a credit union to exclude nonmember commercial loans or participations (i.e., loans originated by another credit union to a borrower who is not a member of the credit union purchasing the loan or participation) from its calculation of the member business loan cap, the NCUA has provided the credit union industry with a huge loophole it can easily exploit to increase commercial lending in violation of the law,” the ICBA stated.
The final
rule contradicts the plain language of the Federal Credit Union Act, as amended by the Credit Union Membership Access Act, which expressly limit the the amount of commercial loans that may be held on credit union balance sheets, the association said. The laws also clearly define member business loan as any commercial loan.
The ICBA claims that the rule
expands the federally funded competitive advantages tax-exempt credit unions enjoy over community banks.
According to the ICBA, the NCUA is currently considering expanding the field of membership for credit unions to any congressional district — which in the case of Alaska could include towns located more than a thousand miles apart.
“Only Congress has the authority to set credit union laws, and the NCUA has ignored the debate on Capitol Hill to satisfy large, growth-oriented credit unions that are subsidized by the American taxpayer,” ICBA President and Chief Executive Officer Camden R. Fine said in the statement. “ICBA and the nation’s roughly 6,000 community banks believe that the credit union industry should not be allowed to continue expanding its lending authority as long as it remains exempt from taxation and the federal financial regulations that taxpaying community banks are obligated to meet.”
The National Association of Federal Credit Unions President and CEO Dan Berger said in a news release that the lawsuit is just another move in the ICBA’s campaign of misinformation and attempted intimidation.
The NAFCU highlighted a Small Business Administration study that indicated credit unions increased their business lending during the financial crisis even as banks’ business lending slowed.
“NCUA’s revised member business loan rule is a well-considered approach to making it possible for more credit unions to serve their members’ needs by eliminating red tape and remaining within the letter and the spirit of the law,” Berger said in the statement. “During the crisis, the banks weren’t complaining about member business lending, they were avoiding new business loans altogether.
“Credit unions, by contrast, stepped up.”
