Arguing that small companies and jobs would grow if credit unions could do more commercial lending, credit unions think they have their best chance ever of persuading Congress to raise the cap on loans they can make to businesses.
Credit unions, which are like banks in many ways but are not-for-profit cooperatives owned by their members, contend that the federal law that limits their business loans to 12.25% of assets is hindering their ability to lend to small-business owners. They want to raise the limit to 27.5% of assets.
"I think it's needed to help lift up many of the small businesses in Wisconsin," said Brett Thompson, chief executive of the Wisconsin Credit Union League. "Many of those businesses have found their lines of credit and their credit sources eliminated from their banking relationships, and more and more are seeking to get credit from Wisconsin credit unions."
Thompson, who was in Washington, D.C., lobbying lawmakers last week, said passage of legislation raising the cap on credit union lending would create almost 5,000 jobs in Wisconsin in the first year. He's hoping the bill will be voted on before the lame-duck Congress ends its term Jan. 3.
"It's a way of helping small businesses and to turn our economy around at absolutely no cost to taxpayers," Thompson said.
Not so fast, say bankers, who are the main rivals of credit unions.
Banks contend that because credit unions' are exempt from income tax, additional lending by credit unions will cut into profits by banks that do pay corporate income tax.
"We feel strongly the public needs to know that the government is going to lose revenue by letting these tax-subsidized credit unions have even more expanded powers," said Rose Oswald Poels, chief executive of the Wisconsin Bankers Association.
P. Michael Mahoney, chairman and chief executive of Park Bank in Milwaukee, said there is not much growth in small-business lending right now because of uncertainty about the economy and a lack of demand by businesses. He said allowing more business lending to credit unions would reduce loans by income-tax-paying banks.
"When the community banks have reduced volume, they are going to have reduced income and they are going to pay less taxes. And if that volume goes to somebody who doesn't pay taxes, that means a reduction in tax revenue for governments," Mahoney said. "The last I heard, the government was trying to increase revenue."
Thompson said the tax issue raised by bankers is faulty because many community banks are Subchapter S corporations, which means profits earned by the bank are taxed at the individual shareholder level, not at the corporate level. Thompson also said credit unions have increased lending much more than banks since the recession.
Bankers have long been bothered by the income tax exemption enjoyed by credit unions. They see it as an unfair advantage that allows credit unions to pay higher interest on savings and offer lower rates on loans.
Banks assert that more credit unions are growing into large financial institutions -- much larger than many community banks -- with the aid of their tax exemption, which was affirmed by Congress during the Great Depression when they were viewed as an alternative for consumers to banks.
Credit unions say the tax exemption is based on their structure as not-for-profit cooperatives operated by and for their members.
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