While he was in Congress, Campaign for Liberty Chairman Ron Paul championed repealing all federal laws and regulations that prevent credit unions from competing on a level playing field with banks.
One example of the type of regulation that Congressman Paul opposed was the "member business lending rule," a Clinton-era law that prohibits the amount of business loans a credit union may make to members (under federal law, credit unions are created to serve a distinct population-- for example members of the military have their own credit union, as do members of Congress and their staffs. Some private businesses may also operate a credit union for their employees and their families-- members of that population become part owners of the credit union when they own up to 12.5% of the credit union assets. Federal regulations expanded the rule beyond what was required by the law to apply the caps to business loans made to non-members.
Last year, the the National Credit Union Administration (NCUA), which regulates credit unions, ruled that the business lending rule should not apply to non-member business loans (federal regulations obeying the limitations placed on them by Congress is a weird concept I know, but bear with me here).
Unfortunately, there are concerns that Congress or the new administration may reinstate the caps on credit union business lending. One reason for this is that lobbyists for banks spend a lot of time and money trying to kill anything that lifts restrictions on credit unions.
In fact, bank lobbyists have actually used their influence to kill regulatory relief legislation that would benefit their clients because the legislation also provided relief to credit unions.
Small community banks are especially fierce opponents of credit unions, as they view credit unions as their chief competitors-- even though these banks suffer more from federal regulations that tilt the playing field to favor large banks than from having to compete with credit unions.
Of course, the solution is to repeal all regulations and subsidies on financial institutions--including deposit insurance.
Campaign for Liberty has co-signed the following letter to then President-elect Trump and Vice-President elect Pence urging their support for continuing to allow credit unions to make unrestricted business loans to non-members:
Dear President-Elect Donald Trump and Vice President-Elect Mike Pence,
As conservative, libertarian, and free-market organizations concerned about government regulatory overreach, we applaud the steps you and your transition team are taking to root out regulations that provide little value and obstruct job growth.
Many of us have provided your team with our own lists of horrific rules that your administration should halt. Yet it has come to our attention that some may be recommending that you repeal a bipartisan deregulatory measure that advances our goals of less government of and more freedom.
We urge you to preserve the member business-lending rule of the National Credit Union Administration (NCUA). In 1998, then-President Bill Clinton signed legislation that unwisely capped the amount of business loans credit unions may make to members to 12.25 percent of the credit unions’ assets. And Clinton’s regulations went beyond what the law requires to limit the loans credit unions may make to non-member businesses as well.
For years, many Center-Right groups, as well lawmakers such as Sen. Rand Paul (R-KY) and Reps. Darrell Issa (R-CA) and Bill Posey (R-FL), have supported bipartisan efforts to loosen arbitrary limits on business lending by credit unions.
In March of this year, the NCUA, with unanimous support from members of both parties, relaxed this rule so that the cap no longer applied to business loans outside credit unions’ membership. The new rule also reduces many burdensome paperwork requirements. But some bank lobbyists are pushing to rescind this rule, because they don't want their credit union competitors to be free of this red tape.
We recognize that America’s banks face enormous burdens from the Dodd-Frank mandates, burdens hat harm credit unions as well. But with regard to the NCUA rule, we urge you to reject the bank lobby’s overtures, and stand with the Center-Right coalition and American small business in supporting this deregulatory rule.
The big winners from this recent rule will be small business entrepreneurs— the real job creators responsible, according to several studies, for the bulk of net new jobs. Many of these entrepreneurs have a difficult time getting capital elsewhere.
According to Pepperdine University economist David M. Smith, “credit unions grant a greater percentage of business loans to small business owners” than banks do. Yet Smith finds that credit unions have overall success and failure rates for their business loans that are virtually the same as those of banks.
This rule would also advance your goals of strengthening domestic energy and manufacturing and helping veterans. Many prominent credits unions were formed by employees of energy companies and manufacturers such as General Electric, Chevron and Dow, and since two of the largest credit unions focus their efforts largely on military populations, veteran-owned businesses are also likely to reap particularly large benefits.
We urge you to give your full backing to this rule, as well as join many Republicans in Congress in supporting bipartisan legislation to further deregulate business lending by credit unions.
John Berlau Senior Fellow, Competitive Enterprise Institute
Lisa B. Nelson CEO, American Legislative Exchange Council (ALEC)
Grover Norquist President, Americans for Tax Reform
Norm Singleton President, Campaign for Liberty
Andrew F. Quinlan President, Center for Freedom and Prosperity
Adam Brandon President, FreedomWorks
George Landrith President, Frontiers of Freedom
Andresen Blom Executive Director, Grassroot Hawaii Action, Inc.
Heather R. Higgins President and CEO, Independent Women's Voice
Pete Sepp President, National Taxpayers Union
Eli Lehrer President, R Street Institute
Karen Kerrigan President & CEO, Small Business & Entrepreneurship Council
David Williams President, Taxpayers Protection Alliance
Congressman Ron Paul
Financial Services Committee Hearing on “The Need for Credit Union Regulatory Relief and Improvements”
March 6, 2008
Mr. Chairman, I applaud you for calling this hearing. The topic of credit unions is one which has been important to me and my district, but has taken on an even greater importance in recent months. With the financial crisis affecting banks resulting in a decrease in lending, credit unions can play an important role in alleviating the effects of the subprime crisis .
In order to ensure that credit unions can play this important role, this committee should pass CURIA, which is sponsored by Capital Markets Subcommittee Chairman Kanjorski and Mr. Royce. I am proud to have joined them as an original cosponsor .
The regulatory relief in CURIA will enable credit unions to better serve the more than 89 million Americans who are credit union members. One important issue is the ability of credit unions to diversify their investment options. CURIA would allow federal credit unions to invest in investment grade bonds and double the amount that federal credit unions can invest in credit union service organizations.
Another aspect which is of particular interest is that of enabling credit unions to cater to underserved areas. This would enable credit unions to offer their products and services to those people who either have never been served by or who are no longer served by other financial institutions.
Due to litigation by the banking industry, several credit unions in my home state of Texas have been told that they can no longer take on new customers in underserved areas, and are at risk of losing customers from further low-income areas due to the threat of future litigation.
At a time when many low-income consumers are in danger of foreclosure on their homes and feeing the squeeze of inflation when they receive their paychecks, the last thing we should do is to impose new regulations such as requiring credit unions to comply with the Community Reinvestment Act. We in Congress should be doing all we can to ensure that these consumers are not unduly restricted in their borrowing or refinancing options.
Consumers are best served in the marketplace by a multiplicity of sellers. Banks and credit unions each have unique products and services that they can offer to customers, and both banks and credit unions need to realize that the financial marketplace is not a winner-take-all affair.
Membership in a credit union and holding of a bank account or loan are not mutually exclusive activities. By reducing the regulatory burden facing credit unions and ensuring a level playing field, healthier market competition will ensue, allowing consumers access to the products and services they need.
In a time of market turbulence, liquidity problems, and less willingness to the lend on the part of banks, credit union regulatory relief can go a long way towards helping consumers in need. I therefore urge my colleagues to pass HR 1537, the Credit Union Regulatory Improvements Act.
Tags: regulations, Banks, credit unions