R Street seeks to dispel credit union business lending myths

WASHINGTON (Nov. 26, 2012) — As Congress prepares to vote on S. 2231, a measure that would liberalize member business lending rules for credit unions, R Street Institute President Eli Lehrer has written to lawmakers seeking to dispel misimpressions about the industry and the impact the legislation is expected to have.

Under S. 2231, sponsored by Sen. Mark Udall, D-Colo. and 21 co-sponsors,  the cap instituted in 1990s on the amount of lending that credit unions can do to their small business members would rise from the current 12.25 percent of assets to 27.5 percent of assets.  Research by R Street suggests the change would free up to $13 billion in capital and spur creation of as many as 140,000 jobs.

The bill and its House companion — H.R. 1418, sponsored by Rep. Ed Royce, R-Calif. and 142 co-sponsors –- have been the subject of intense lobbying by banking industry lobbyists who claim that it would significantly reduce bank lending. However, Lehrer notes the Small Business Administration found that only 19 percent of small business loans made by credit unions displace similar bank loans.

“Credit unions write different kinds of loans than banks do,” Lehrer wrote. “Roughly half of credit union lending, indeed, gets devoted to very narrow business categories —organic farms, taxicab companies—that have great difficulty getting bank credit.”

Moreover, Lehrer dispelled claims that credit unions are “tax subsidized,” noting that they are “democratically governed non-profits owned and controlled by their members.”

“These are attributes that they share with almost all other non-profits,” Lehrer wrote. “They do not issue capital stock or earn profits and, as such, it’s obvious that they should have non-profit status.”

Full text of the letter can be found at:

www.rstreet.org/wp-content/uploads/2012/11/letter-on-mbl.pdf

R Street is a non-profit public policy research organization that supports free markets; limited, effective government; and responsible environmental stewardship. It has headquarters in Washington, D.C. and branch offices in Tallahassee, Fla.; Austin,Texas; and Columbus, Ohio. Its website is www.rstreet.org.

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