WASHINGTON (7/10/12)--A proposal by the world's largest credit union to purchase business participation loans from smaller credit unions nearing their member business lending (MBL) limit does not mean there is less need for Congress to raise the MBL cap, the Credit Union National Association (CUNA) told the Washington Post Monday.
Loan participations in no way "obviates the need for Congress to raise the cap," said John Magill, CUNA executive vice president of governmental affairs. CUNA and credit unions are urging Congress to increase the MBL cap to 27.5% of assets from 12.25%. Doing so would help inject $13 billion in new small business loans into the economy and help create 140,000 new jobs, said CUNA.
Vienna, Va.-based Navy FCU, which has $49 billion in assets, unveiled its commercial loan participation program, C-Pal, in which it would purchase a portion--from 50% to 90%--of another credit union's business loan. The other credit union would service the loan, said the Post. As of first quarter, Navy Federal held 1,061 business loans with a total value of $179 million--or less than 1% of its total assets, said the article.
CUNA's Magill noted that "even if a credit union the size of Navy Federal bought up enough credit union business loans to take it to its own cap, that would only be about a year or two years' worth of small-business loan growth."
National Credit Union Administration Chairman Debbie Matz told the publication that underwriting standards for loan participations must meet or exceed the standards that purchasing credit unions use in originating their own loans, but loan participations can be a valuable tool for credit unions seeking to diversify their portfolios.