December 19, 2012 —
After the Great Recession hit the economy in 2008, commercial lenders became much more cautious about lending money, especially to small businesses. Since then, the economy has recovered a bit, but the credit crunch for small businesses continues.
In many communities, credit unions stepped in to fill some of the void. But current law dictates that credit unions can lend only 12.25% of any assets they hold. Senator Kirstin Gillibrand would like to make it easier for them to lend a bit more to small businesses, so she has sponsored legislation that would lift the limit to 27.5% over several years.
On a conference call with reporters on December 7, she said, “Credit unions are not-for-profit and they are membership based, which helps to guard them against the kinds of losses that major banks have seen in lending and investment operations. Credit unions also have a long history of scrutinizing borrowers and have low delinquency rates as a result. Because deposits have been on the rise as people move their savings from the stock market to savings accounts, they also now have cash on hand to lend to small businesses.”
On the call with Gillibrand was Linda Armyn, senior vice president with Bethpage Federal Credit Union, who said that over the past three years, her organization has seen lending increases of over 30% each year. But they have been bumping up against the limit, so in order to comply with the law they have been selling off some of their loans to other lending institutions.
Also on the call was Phil McGuire, who owns car dealerships in Ithaca, NY. He said that after the recession, commercial banks “didn’t walk but ran from” companies like his, and so he turned to a local credit union, which lent him the money he needed to expand. But that organization will be running up against the lending limit in about three months, so action on the bill is needed soon.
Gillibrand was asked if the move to allow credit unions to lend more would be opposed by commercial banks. She said no, because the credit unions “are not trying to make money, they’re just trying to get credit. So it’s a very different type of arrangement that I do not feel overlaps with business opportunities from community banks.”
There are credit unions in Sullivan County in New York and Wayne and Pike counties in Pennsylvania. Gillibrand said there are 40 credit unions in the Hudson Valley, with 570,000 members, and the change in the limit could increase lending in the region by $230 million.