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Credit Unions’ Statutory Lending Cap Blocks Underserved Consumers

cash-moneyCredit unions are in a better position to assist underserved consumers, but a lending cap imposed on credit unions by the U.S. Treasury is keeping these institutions from better serving consumers.

In a recent letter, the Credit Union National Association (CUNA) told the Treasury that they have the ability to provide capital for underserved consumers better than online marketplace lenders. However, credit unions are limited and burdened by the 12.25 percent cap on lending by the Treasury.

The letter discusses credit unions' views on online marketplace lending, credit unions’ continued growth in member business lending, and the lending cap burden.

“As Treasury begins its review of online lending, it is critical that it understand the compliance burdens currently imposed on credit unions by the National Credit Union Administration, Consumer Financial Protection Bureau (CFPB) and other financial regulatory bodies,” the letter stated. “Credit unions of all asset sizes are severely struggling to comply with ever-increasing regulatory requirements.”

CUNA agreed with the Treasury's analysis that consumers, small businesses, and “promising new enterprises” experience challenges with credit accessibility, but the association is not sure if online marketplace lending is the solution.

“Credit unions are not-for-profit financial cooperatives with the statutory mission of meeting the credit and savings needs of consumers, often in low-income or underserved populations,” the letter said. "Low-income credit unions are often the only insured depository institutions serving low-income and underserved areas.”

Credit union business loan portfolios have increased significantly from 2004 to 2014, but could be doing more if it weren’t for the 12.25 percent cap.

“As a result of this arbitrary limit that has been in place since 1998, many credit unions are rapidly approaching the cap while others choose not to engage in business lending because of the cap,” the letter noted.

About Author: Xhevrije West

Xhevrije West is a writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.
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