U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

72–613 PDF 2012

H.R. 1418: THE SMALL BUSINESS 

LENDING ENHANCEMENT ACT OF 2011 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

OCTOBER 12, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–72 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

LARRY C. LAVENDER, Chief of Staff 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SHELLEY MOORE CAPITO, West Virginia, Chairman 

JAMES B. RENACCI, Ohio, Vice Chairman 

EDWARD R. ROYCE, California 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JEB HENSARLING, Texas 

PATRICK T. MCHENRY, North Carolina 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

CAROLYN B. MALONEY, New York, 

Ranking Member 

LUIS V. GUTIERREZ, Illinois 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

GREGORY W. MEEKS, New York 

STEPHEN F. LYNCH, Massachusetts 

JOHN C. CARNEY, JR., Delaware 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

October 12, 2011 ............................................................................................... 1 

Appendix: 

October 12, 2011 ............................................................................................... 51 

WITNESSES 

WEDNESDAY, OCTOBER 12, 2011 

Grinnell, Gary, President and Chief Executive Officer, Corning Federal Credit 

Union, on behalf of the National Association of Federal Credit Unions 

(NAFCU) ............................................................................................................... 29 

Hanson, Michael C., President and Chief Executive Officer, Massachusetts 

Credit Union Share Insurance Corporation (MSIC) ......................................... 33 

Kelly, Albert C., Jr., President and Chief Executive Officer, SpiritBank; and 

Chairman-Elect, American Bankers Association, on behalf of the American 

Bankers Association (ABA) ................................................................................. 28 

Marranca, Salvatore, Director, President, and Chief Executive Officer, 

Cattaraugus County Bank; and Chairman, Independent Community Bankers of America, on behalf of the Independent Community Bankers of America (ICBA) ............................................................................................................. 26 

Matz, Hon. Deborah, Chairman, National Credit Union Administration 

(NCUA) ................................................................................................................. 7 

York, Jeff, President and Chief Executive Officer, Coasthills Federal Credit 

Union, on behalf of the Credit Union National Association (CUNA) .............. 31 

APPENDIX 

Prepared statements: 

Grinnell, Gary ................................................................................................... 52 

Hanson, Michael C. .......................................................................................... 70 

Kelly, Albert C., Jr. .......................................................................................... 77 

Marranca, Salvatore ......................................................................................... 88 

Matz, Hon. Deborah ......................................................................................... 95 

York, Jeff ........................................................................................................... 120 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Capito, Hon. Shelley Moore: 

Additional information provided by the Credit Union National Association 

in response to questions raised at the hearing ........................................... 150 

Written statement of the Credit Union Supplemental Capital Coalition .... 158 

Letter from the National Association of REALTORS® ................................. 196 

Hinojosa, Hon. Ruben: 

CRS Report for Congress entitled, ‘‘Should Credit Unions Be Taxed?’’ ....... 197 

CRS Report for Congress entitled, ‘‘Credit Union Member Business 

Loans’’ ............................................................................................................ 218 

Letter from the Credit Union National Association ...................................... 225 

Letter from the Independent Bankers Association of Texas ......................... 229 

Written responses to questions submitted to Gary Grinnell ........................ 232 

Written responses to questions submitted to Albert C. Kelly, Jr. ................ 235 

Written responses to questions submitted to Jeff York ................................ 237 

Page

VI 

Luetkemeyer, Hon. Blaine: 

Written responses to questions submitted to Hon. Deborah Matz ............... 242 

Grinnell, Gary: 

Various letters submitted for the record ........................................................ 243 

(1) 

H.R. 1418: THE SMALL BUSINESS 

LENDING ENHANCEMENT ACT OF 2011 

Wednesday, October 12, 2011 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:05 p.m., in room 

2128, Rayburn House Office Building, Hon. Shelley Moore Capito 

[chairwoman of the subcommittee] presiding. 

Members present: Representatives Capito, Renacci, Royce, Manzullo, McHenry, McCotter, Pearce, Westmoreland, Luetkemeyer, 

Huizenga, Duffy, Canseco, Grimm, Fincher; Maloney, Hinojosa, 

McCarthy of New York, Baca, Scott, Meeks, and Carney. 

Also present: Representative Sherman. 

Chairwoman CAPITO. This hearing will come to order. I would 

like to inform members of the subcommittee that we are expecting 

a long series of votes, four votes, around 5 p.m., this evening. It is 

my intent to complete this hearing before we leave for votes, so I 

will ask Members and witnesses to adhere to the set time limit for 

statements and questions so all Members who are present can ask 

questions. I appreciate everybody’s cooperation, which I am sure I 

will get. 

First of all, I would like to thank Mr. Royce for his leadership 

in offering the legislation before the subcommittee today. He has 

long been a champion for providing regulatory relief for credit 

unions, and I commend him for his efforts. 

Credit unions across the country serve many different populations. The Federal charter for credit unions was created by the 

Federal Credit Union Act of 1934, and since then, credit unions 

have grown across the Nation, serving members through either a 

single common bond, multiple common bonds, or through community credit unions which are limited to a specific geographic region. 

There are currently 7,950 credit unions across the Nation, serv- ing 90 million members, with nearly $679 billion of deposits. These 

institutions primarily serve consumer credit needs of their members, but some credit unions do engage in business lending for their 

members. 

The Credit Union Membership Access Act of 1998 limits the credit union’s aggregate member business lending to the lesser of 1.75 

times the credit union’s net worth, or 12.25 percent of the credit 

union’s total assets. The legislation before the subcommittee seeks 

to raise this cap to 27.5 for credit unions who meet specific criteria. 

2 

I look forward to our witnesses’ testimony on the merits of this 

proposal. I am specifically interested in learning more about the 

breadth of credit unions involved in member business lending, why 

more credit unions are not currently involved in member business 

lending, and the cost and benefits of increasing the cap on credit 

union member business lending. 

I would like to thank our witnesses for participating in this afternoon’s hearing and I look forward to the testimony. I would now 

like to recognize our ranking member, the gentlelady from New 

York, Mrs. Maloney, for the purpose of making an opening statement. 

Mrs. MALONEY. I want to thank the chairwoman for calling this 

important hearing. This is an issue that I look forward to learning 

more about, and I also want to welcome you, Chairwoman Matz, 

and thank you for being here. 

Credit unions are a vital element of our financial system. They 

provide critical financial services to their members, and I am privileged to represent a number of thriving credit unions in my district 

which serve unique populations. United Nations Federal Credit 

Union serves the employees of the United Nations across the world 

in some areas where there are no financial institutions. The entertainment industries—the Actors Federal Credit Union—to name a 

few, and just this past year, the first credit union to be created in 

New York in 60 years was created in my district at the Queens 

Bridge Houses, the largest public housing project in the City of 

New York. 

Member business lending is a service that credit unions provide 

to their small businesses. The average loan size is about $220,000, 

and credit union business lending has a slightly lower delinquency 

rate than FDIC-insured institutions lending to small businesses, 

according to one report that I read. 

In my State, there are 111 credit unions that offer member business lending, often in underserved neighborhoods where there are 

no other financial services. And I have heard from many of them 

that raising the cap—which they support—on credit unions has the 

potential to put out more liquidity, employ more people, and help 

more projects go forward. This sounds encouraging, yet financial 

institutions and community banks have grave concerns about raising the cap. 

They argue that raising the cap would give credit unions an unfair advantage over banks because credit unions serve special underserved areas, and enjoy a special tax status that banks do not 

have. Some banks state that this increased activity would allow 

them to deviate from their mission of serving members of modest 

means and makes them functionally equivalent to banks. They also 

argue that few credit unions are near the cap, and the ones that 

do engage in member business lending do not have the expertise 

to lend to this segment in a safe and sound manner. 

These are some of the issues that I hope we can explore today. 

I look forward to learning more about this issue. I expect a lively 

discussion, and I know that the banks in my district and the credit 

unions in my district are deeply divided over this issue. So I look 

forward to the witnesses and I look forward to the debate and I 

look forward to exploring this issue more. 

3 

I congratulate all of the Members who have worked hard on this 

issue for many years, and I yield back the balance of my time. 

Chairwoman CAPITO. Thank you. 

I would like to recognize Mr. Royce for 2 minutes for the purpose 

of making an opening statement. 

Mr. ROYCE. Thank you, Madam Chairwoman. Let me explain the 

intent of the bill. It is to expand access to credit for creditworthy 

borrowers. And I think if you look at the New York Federal Reserve study in October, they say that three-quarters of small businesses looking for credit in the summer of 2010 were turned down 

or received only some of the financing that they requested. Threequarters. And then you have the Wall Street Journal story, smaller 

businesses seeking loans still come up empty, and that story cites 

an 8.6 percent drop from last year in terms of the business lending. 

Also, I want to point out that unlike previous versions of this 

bill, this is not a blanket increase in the member business lending 

cap. In order to qualify, a credit union must be well-capitalized. It 

must have at least a 5-year history of sound member business lending experience. It must be operating near the cap for at least a 

year, and it must receive the approval of their regulator, the 

NCUA. 

It is also worth noting that this plan differs from other proposals 

we see from the government because, whether it was a trillion dollar stimulus bill that failed to meet expectations or the recently 

created Small Business Lending Fund (SBLF) program, I just want 

to point out that the Journal reported that of the $4 billion disbursed by Treasury through SBLF, over half has come back to the 

Treasury in the form of TARP repayments. One participant even 

labeled it a shell game. 

So what this does is it allows us, without borrowing the money, 

the ability to free up capital that is currently sitting on the sidelines, and economists say it will allow up to $13 billion to be lent 

to small businesses, which in turn could create 140,000 jobs. 

In closing, I don’t believe this legislation will be a cure-all, but 

I do believe it is an idea worth considering given the current state 

of the economy. In the way we have crafted the bill, I would urge 

its support. Thank you. 

Chairwoman CAPITO. Thank you, Mr. Royce. 

I would like to recognize Mrs. McCarthy for 2 minutes for the 

purpose of making an opening statement. 

Mrs. MCCARTHY OF NEW YORK. I would like to thank Chairwoman Capito and Ranking Member Maloney for holding this hearing on H.R. 1418, the Small Business Lending Enhancement Act, 

companion to a Senate bill introduced by Senators Udall and 

Snowe. 

I believe all my colleagues will agree that we need to promote 

initiatives that will spur job growth and move us further towards 

our efforts towards the economy. In doing so, we must look at ways 

to provide business growth and access to credit, especially for our 

small business community hit the hardest by the financial crisis. 

Small businesses are the engine of our Nation’s economy, and by 

enhancing their access to credit and lending opportunities, jobs will 

be created. 

4 

The legislation before us today will enable credit unions to further assist American small businesses to increase their member 

business lending authority only after meeting certain qualifying 

criteria, as my colleague Mr. Royce has said. We must do all we 

can to promote economic growth and job creation, and this bipartisan, bicameral legislation provides an opportunity for credit 

unions to fill the lending void for our small business community. 

This is something that certainly I think is worth exploring. It is 

certainly something I support. With that, I yield back the balance 

of my time. 

Chairwoman CAPITO. The gentlelady yields back. 

Next, I would like to recognize Mr. Westmoreland for 1 minute 

for the purpose of making an opening statement. 

Mr. WESTMORELAND. Thank you, Chairwoman Capito, for yielding and for holding this hearing. 

Credit unions are a vital part of our Nation’s financial sector. 

They serve their members well and are in touch with their local 

communities. I belong to a credit union. They are good people. 

Right now, the most important thing credit unions and banks can 

do, however, is to work together. They can and must find common 

ground. Neither one of these groups are going to get the reforms 

that they need with the other standing in the way. 

I encourage the witnesses here today in both industries to look 

at themselves and identify their priorities, identify the common 

ground, and work for compromise that will help both industries 

create jobs and get more money into the hands of small businesses. 

Additionally, I want to charge the National Credit Union Administration and all the banking regulators to work to take a hard look 

at all their regulations and see where changes can be made to encourage financial institutions to lend. After all, putting capital into 

the hands of entrepreneurs and business owners, large and small, 

is the only way to get our economy back on track and get more 

Americans back to work. 

Thank you, Madam Chairwoman, and I yield back. 

Chairwoman CAPITO. Thank you. 

I would like to recognize Mr. Hinojosa for 2 minutes for the purpose of making an opening statement. 

Mr. HINOJOSA. Thank you. Chairwoman Capito, thank you for 

holding this important and timely hearing today as our Nation continues to climb out of the worst economic recession since the Great 

Depression. New Federal laws and regulations are changing the 

structure and face of the financial services industry. Today, however, Members of Congress on this subcommittee turn our attention 

one more time to debate whether it is wise to increase credit 

unions’ commercial lending limit from 12.25 percent of their assets 

to 27.5 percent of their assets. I doubt that such a change would 

help improve our economy and that credit unions have the capital 

to engage in complex commercial lending. 

In 1998, Congress instituted a member business lending cap of 

12.25 percent of assets in order to ensure credit unions stay focused on their mission of serving their membership. This is intended to allow credit unions to help their members start small 

businesses, as opposed to allowing credit unions to make complex 

and very large commercial loans. 

5 

A large number of credit unions remain undercapitalized. As of 

June 2011, 381 credit unions are on the NCUA’s watch list, and 

five corporate credit unions are in conservatorship. Certain data 

coming across my desk indicates that approximately 6,900 community banks are adequately capitalized and could make, but apparently are not making, commercial loans. If community banks are 

unable or unwilling to make commercial loans at this time, why 

should we believe that credit unions can make up the difference 

when, as noted, over 381 of them are on the watch list? 

I realize that many will disagree with my statements. I welcome 

a productive dialogue on the commercial lending limit currently imposed on credit unions and legislation that would increase it from 

12.25 percent of assets to 27.5 percent of assets. 

And with that, Chairwoman Capito, I yield back the remainder 

of my time. 

Chairwoman CAPITO. Thank you. 

I would like to recognize Mr. Luetkemeyer for 2 minutes for the 

purpose of an opening statement. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

Today, we are examining legislation that would more than double a credit union’s ability to make business loans, despite the fact 

that there are presently few credit unions that engage in member 

business lending, and even fewer that are at the current 12.25 percent cap. 

Also, an interesting fact to be aware of in this discussion is that 

between 2008 and September 2010, member credit unions that offered business loan products actually decreased from 1,942 to 

1,758, an almost 10 percent drop. 

History tells us that Congress enacted limits on credit union 

business lending in 1998 in order to ensure the safety and soundness of the credit union industry and to maintain their focus on 

their lending mission. As we know, credit unions enjoy a more favorable tax status than banks and are required to comply with different, and in some cases less onerous regulations. Each has its 

own niche to service. Each has its own set of rules. 

The question then is, do credit unions really need to get out of 

their niche? In my discussion with credit unions in my State, it 

would appear that a few big national credit unions are pushing for 

this expansion, while the rest really aren’t all that interested. 

Many of those largest credit unions are bigger and more complex 

than the average community bank or credit union in Missouri. It 

kind of reminds me of the difference in business models between 

Wall Street banks and the community banks. 

I remain unconvinced that the issue at hand is truly one of access to credit, as there is plenty of capital and willingness to lend 

in the financial services industry, whether it lies in the fact that 

few businesses are interested in growing in this economic climate. 

Instead, they are hunkering down and trying to just survive because of the uncertainty caused by the punitive nature of our tax 

policy and regulatory policy. 

Both the banks and the credit unions have a niche in the financial services industry that they serve. Both do a good job of servicing their customers in that niche. This bill, however, appears to 

me to be an effort by the credit union industry to try and move into 

6 

another area without having to play by the same rules others in 

that niche have to play by, and that causes great concern for me. 

Thank you, Madam Chairwoman. I yield back. 

Chairwoman CAPITO. The gentleman yields back. 

I would like to recognize Mr. Scott for 2 minutes for the purpose 

of making an opening statement. 

Mr. SCOTT. Thank you, Madam Chairwoman. 

This is, indeed, an important bill, but the fundamental question 

we have to ask ourselves up front is: What is in the best interests 

of the overall economy? What is in the best interest of small businesses especially? 

We currently have a problem of getting money out and lending 

it to small businesses. Is this the sole domain of the banks? Do we 

need to expand the capacity of credit unions? I don’t know the complete answer to that. Hopefully, we can get that answer today. 

I think it would be a good point if we could determine and get 

our hands around an assessment of just how many small businesses have been turned away from banks and have been, as a result of that, received by the credit unions. I think we have to measure this very carefully. Both our banks and our credit unions are 

very important players in our economy, and I think when we make 

this decision on whether or not or how far to extend the capacity 

of credit unions in terms of their total assets in terms of their capacity of lending, the decision has to be made based on what is in 

the best interests of the consumer, what is in the best interest of 

small businesses, and what is in the best interest of creating jobs. 

And I think in order to do that, we really have to get our hands 

around the entire issue. And the big question is, where have banks 

failed to respond to small businesses? It is important that we get 

that accurate information so that we can make the most accurate 

and the most intelligent decision as far as going forward with this 

bill, and I am interested in working on it. I am interested in asking 

the questions to get to the answer, and hopefully, I think, if we can 

get some good data to show that need, it will be very beneficial for 

both the banks and the credit unions, but most importantly, it will 

be a great benefit to our small business community. 

With that, Madam Chairwoman, I yield back. 

Chairwoman CAPITO. Thank you. 

I would like to recognize Mr. Canseco for 1 minute for the purpose of making an opening statement. 

Mr. CANSECO. Thank you, Madam Chairwoman. 

If there is one thing to take away from the title on the focus of 

today’s hearing, it is that lending to small businesses has been severely hampered in recent years, and the economy and our ability 

to create jobs is suffering as a result. As I travel the 23rd District 

of Texas and talk to banks, credit unions, and small businesses 

looking to grow, the one word I keep hearing is ‘‘uncertainty:’’ uncertainty over new rules; uncertainty over the economy; and uncertainty over our Nation’s enormous debt. 

It has become very clear that a large reason lending to small 

business is hurting right now is from an onslaught of regulation 

that has frightened or forbidden lenders from taking any risk. This 

is threatening the ability of consumers to choose from a vast array 

of financial services and products and lenders. It is a monumental 

7 

problem which could be helped through regulatory relief for all 

types of lenders, especially those in small communities, and I look 

forward to hearing from today’s panel on how we can help fix this 

problem. 

Thank you, and I yield back. 

Chairwoman CAPITO. Thank you. 

That concludes our opening statements. 

I would like to welcome our first panel, which has one special 

witness, and I would like to recognize you for the purpose of giving 

a 5-minute opening statement, the Honorable Deborah Matz, who 

is chairman of the National Credit Union Administration. Welcome. 

STATEMENT OF THE HONORABLE DEBORAH MATZ, CHAIRMAN, NATIONAL CREDIT UNION ADMINISTRATION (NCUA) 

Ms. MATZ. Thank you, Chairwoman Capito, Ranking Member 

Maloney, and members of the subcommittee. 

I appreciate this opportunity to discuss credit union member 

business lending legislation, regulation, and supervision, and the 

significance for small businesses. As you may know, credit unions 

have always offered member business loans, even before the cap 

was imposed in 1998. Over time, this lending has evolved with the 

needs of entrepreneurs who deserve greater, not fewer, affordable 

credit options. 

Today, credit unions have more than $36 billion in outstanding 

loans to member-owned businesses. Member business lending provides three tangible benefits: 

First, it allows small businesses to obtain reasonably priced 

loans. Simply put, more competition benefits the marketplace and 

has positive effects on credit availability and costs. 

Second, prudent member business lending diversifies a credit 

union’s portfolio. This improves the ability to withstand economic 

cycles. 

Third, member business lending supports communities. It spurs 

job growth and expands consumer access to goods and services. 

As the prudential regulator, NCUA recognizes that member business lending poses unique risks and requires specialized oversight. 

In response, NCUA has tailored rules to emphasize sound underwriting, solid collateral, and tested management. These criteria 

form the foundation of prudent lending. 

Like other loans, member business loan performance is cyclical. 

Recent trends reflect the economic downturn. Member business 

loan delinquencies stood at 53 basis points in 2006, peaked at 3.93 

percent in 2010, and has since improved by 29 basis points. While 

delinquencies and charge-offs increased during the recent downturn, these increases primarily resulted from the severe decline in 

real estate values in the five sand States: Arizona; California; Florida; Nevada; and Utah. 

Nationwide, more than 2,100 credit unions make member business loans. Such lending has increased by 44 percent since 2007 

despite the downturn, but these statistics don’t capture the fact 

that member business lending serves an important market segment: small businesses; and entrepreneurs. 

8 

On the whole, credit union loans are much smaller than other 

business lenders. The average member business loan is only 

$222,000. Of course, this average represents a wide range of loans 

for a variety of purposes. For example, credit union loans for commercial and industrial purposes, such as building or equipment, 

averaged just $128,000. Similar bank loans averaged more than 

five times larger. Credit unions are frequently the only lenders 

making small loans to expand an auto repair shop, start a day care 

center, or open a bodega. Member business loans also support local 

restaurant owners, farmers, and other self-employed entrepreneurs 

who may have nowhere else to turn for credit. 

However, credit union member business lending is constrained 

by a cap. Currently, more than one in five credit unions making 

member business loans that are subject to the cap have reached 50 

percent or more of this ceiling. 

To expand credit union service to small businesses, Congressman 

Royce and Congresswoman McCarthy have proposed H.R. 1418. 

The bill’s tiered approach would allow healthy, well-capitalized 

credit unions, meeting high standards, to increase lending in small, 

manageable increments. Authority to exceed the first tier would 

not be automatic. Credit unions would have to meet stringent 

standards that place a premium on a proven track record of successful management. 

Let me assure you, if Congress increases the current cap, NCUA 

would promptly revise our regulations to ensure that these changes 

would not threaten credit union safety and soundness. NCUA 

would also remain vigilant in carrying out our supervisory authority. The proposed bill, together with our responsible regulatory approach, would allow credit unions to prudently grow their member 

business lending. In doing so, credit unions would diversify loan 

portfolios and reduce concentration risks. H.R. 1418 would require 

less than adequately capitalized credit unions to suspend business 

lending. This safeguard mirrors NCUA’s current rule. 

In sum, H.R. 1418 is a well-conceived, balanced approach to making more capital available to small businesses while ensuring that 

these loans are made prudently, and consistent with each credit 

union’s abilities. Entrepreneurs work hard, take risks, and put people to work, but to fulfill their dreams, they need capital. Credit 

unions have long met these capital needs. It is discouraging to hear 

stories from well-managed, well-capitalized credit unions which 

have to turn away long-time member businesses because of the cap. 

H.R. 1418 would permit credit unions to empower more enterprising individuals and safely meet the needs of more small businesses that are expanding and creating jobs for their communities. 

Thank you, and I look forward to your questions. 

[The prepared statement of Ms. Matz can be found on page 95 

of the appendix.] 

Chairwoman CAPITO. Thank you very much. 

And I will begin the questions. 

Let me just, in point of clarification, I think you said in your 

statement that 2,100 credit unions are now doing member lending; 

is that correct? 

Ms. MATZ. That is correct. 

9 

Chairwoman CAPITO. Okay. And then you said only one in five 

are over the 50 percent cap; is that correct? 

Ms. MATZ. Yes. 

Chairwoman CAPITO. And then you went on to say that they are 

turning down—that there are credit unions that are turning 

down—and you and I talked about this before. Would it be accurate 

to say that not many of these are up against the cap, or very few 

are up against the cap, and so I guess I am kind of wondering why 

the cap—what you think the cap would need to be raised to—if 

people aren’t even pushing up against the cap that exists right 

now. 

Ms. MATZ. The cap constrains all credit unions, those that are 

making business loans and those that haven’t begun. Credit unions 

that haven’t started making business loans, but want to, have told 

me that they don’t do it because of the cap, because they don’t 

want to make the significant investment in hiring commercial lenders and in purchasing the infrastructure if they are limited by a 

cap. 

I recently had some credit union CEOs in my office. I asked them 

the question you just put to me, and I got some interesting responses. There was one credit union which has $220 million in assets. He is currently at only 25 percent of the cap. He has made 

$6 million in business loans, but he knows that he has only $18 

million left. So he figures that in 3 years, he will be at his cap. He 

had a commercial lender who resigned, and he made the decision 

not to replace her because he feels that with 3 years left, he is not 

really going to be ramping up. He is going to be splitting the work 

between the remaining employees and not really generating a lot 

of new business. Mostly, he will try to fill the needs of existing 

members. 

I heard something similar from someone who had a $100 million 

credit union. She also had $6 million in loans that she made, but 

her cap was a little over $12 million, and she said that she is now 

only making loans to existing members who have business loans 

and need additional loans for expansion, because she knows she is 

going to get near the cap and that she doesn’t want to turn business away. 

With all of this in mind, my impression is that the cap affects 

all credit unions that are making business loans or that want to 

make business loans. 

Chairwoman CAPITO. Okay. Can a credit union loan to a nonmember—a business loan to a nonmember? 

Ms. MATZ. No. 

Chairwoman CAPITO. No, okay. So that doesn’t happen. I didn’t 

think so. 

You also mentioned in your statement that member business 

lending had increased by more than 44 percent, and I believe Mr. 

Luetkemeyer in his statement or somebody mentioned that it was 

principally just the very, very large credit unions that are doing a 

lot of the business lending. Was a lot of that occurring in the larger 

credit unions, the increase in business lending over the last 4 

years? 

Ms. MATZ. The largest credit unions have the most capacity, but 

there are credit unions of all sizes making business loans, however 

10 

more of them make loans if they are over $50 million, and certainly 

the larger they are, the more capacity they have to make business 

loans. 

Chairwoman CAPITO. Right. To make the investment, because as 

you and I talked on the phone, they have to hire commercial lending specialists that can analyze the risk, etc. 

Ms. MATZ. Right. 

Chairwoman CAPITO. And the delinquency rate is low for member business lending at credit unions. Could you talk a little bit 

more about that? I know you said it had risen over the last several 

years, but if you could just expand on that? 

Ms. MATZ. I wouldn’t classify it as low, but it is trending down, 

and it is lower than the bank delinquency rate for comparable levels of delinquency, but I don’t get all that concerned about delinquency because once you see the delinquency, we supervise it, we 

will get in and get the credit unions to manage it. Delinquencies 

don’t necessarily result in charge-offs, and charge-offs don’t necessarily result in losses if the loans were well-collateralized, and if 

they were underwritten well. 

As you know, I look at delinquency as a trigger as to whether 

the credit union needs to change something about the way it is 

doing business, but it is not something that alarms me, and it is 

not necessarily related to their losses. 

Chairwoman CAPITO. Are more—and you might have said this in 

your statement—credit unions entering the member business lending arena or exiting it right now, with this cap the way it is? 

Ms. MATZ. It depends on the timeframe you are looking at, but 

we have had an increase over the past several years of credit 

unions making business loans. 

Chairwoman CAPITO. Thank you. My time has expired. Mrs. 

Maloney? 

Mrs. MALONEY. Thank you. Do credit union members have the 

ability to encourage or prevent their credit union from originating 

member business loans? 

Ms. MATZ. No. 

Mrs. MALONEY. They don’t? So if this bill were to become law, 

how can NCUA, or your organization, ensure that the credit unions 

will continue to maintain prudent safety and soundness standards? 

Ms. MATZ. If this becomes law, we will develop regulations that 

tier the increase. Under the proposed legislation, a credit union 

could increase their loans by 30 percent each year. We will probably develop some sort of tiering which gears the increase to certain levels of accomplishment. 

We also have been looking at revising our member business rule 

to perhaps increase the experience level of the senior member business lending official. So we will develop stringent regulations to enforce the legislation and make sure that it is done safely. 

Mrs. MALONEY. In your view, what are the most important reasons for Congress to consider this bill and pass it, the Small Business Lending Enhancement Act? 

Ms. MATZ. It enhances safety and soundness because of the 

tiered approach. It permits credit unions to make loans and to 

make them in a safe and sound manner. It also fills a very important need in the community. I encourage credit unions to think 

11 

about making business loans because it diversifies their portfolio. 

Credit union portfolios are made up almost exclusively of autos and 

mortgages, and often they are long-term, fixed-rate mortgages 

which have interest rate risk. So having a percentage of member 

business loans on their books diversifies their portfolios and that 

in itself is a safety and soundness measure. 

In addition, they are filling a need in the community. As you know, these are very small loans. The average is $222,000, and it 

is sometimes difficult for small businesses to get that size loan 

from another financial institution. 

Mrs. MALONEY. In your view, how many credit unions would 

meet the requirements listed in the bill and be eligible to lend up 

to the 27 percent of assets? 

Ms. MATZ. Of the credit unions that are 80 percent or more, I 

think about half of them. I don’t remember exactly, but I think 

about half of those that are up against the cap would immediately 

qualify to go above it, but I don’t have the exact number. 

Mrs. MALONEY. How does the credit union decide to go into lending business loans and to begin lending in that area? I know that 

many of my credit unions in underserved areas do not. 

Ms. MATZ. It is really a business decision between the management and the credit union board of directors, if they have the need 

in their community, they feel that they can make the investment, 

they have enough capital, and they are well-managed enough and 

can get approval to start making the business loans. It is really an 

individual decision made by the board and the management. 

Mrs. MALONEY. You mentioned, or it was in your testimony that 

raising the member business lending cap would increase diversity 

in the lending portfolio; is that correct? 

Ms. MATZ. Yes. 

Mrs. MALONEY. And why is that important? 

Ms. MATZ. Because credit unions are concentrated in auto loans 

and mortgage loans, and a great many of these mortgage loans 

tend to be fixed-rate mortgage loans, so in that, there is interest 

rate risk. This is an opportunity to diversify their portfolio and get 

some of that interest rate risk off of their books. 

Mrs. MALONEY. Thank you. My time has expired. Thank you for 

your testimony. 

Ms. MATZ. Thank you. 

Chairwoman CAPITO. Thank you. I would like to recognize Mr. 

Renacci for 5 minutes for questions. 

Mr. RENACCI. Thank you, Madam Chairwoman, and thank you, 

Chairwoman Matz, for being here. 

I am trying to get a handle on demand. What is the demand of 

small business loans? What is the demand—the community banks, 

when I talk to them, say there is not enough demand today, and 

the loans that they are seeing may not be as creditworthy as they 

are allowed to assume or finance. 

So the question I would have for you is—and I know in your conclusion you said that this bill has the potential to increase the access of small businesses to capital, promote job growth, and diversify credit union portfolios. I agree with the third position. I am 

trying to get a handle on the first two. If the demand isn’t there, 

where is the borrowing capacity that credit unions are looking for? 

12 

If the small community banks can’t finance that loan, why are the 

credit unions able to do it? 

Ms. MATZ. I am not in a position to address the community bank 

situation, but credit union member business lending has been going 

up, and since 2006 it has gone up by 44 percent. It has gone up 

even in this past year. So there is a demand for credit union loans 

and— 

Mr. RENACCI. I am going to interrupt you there, but I am trying 

to get to that point. What type of loans—are these loans that the 

community banks aren’t able to do? 

Ms. MATZ. In some cases, they are. In some cases, I am told that 

credit unions have made loans that have not been made by banks, 

probably because of the size, because they are very small loans. 

They are not because of the risk quality of the loans, because the 

credit unions do good underwriting, but generally I believe it is because of the size. 

But to the point that was made before by I think Mr. Westmoreland, I often hear from credit unions about credit unions and banks 

working together. I hear from so many credit unions that, aside 

from the squabbling on the national level, that in their communities they do work with the banks and that they send members 

to banks if they can’t make the loan, and frequently the banks will 

send them members for loans that they feel they can’t make. So I 

think there is some reciprocity actually in the communities. 

Mr. RENACCI. I still am a little bit—and again, in your testimony, 

you said that it has increased 44 percent. Give me some examples. 

Give me five or six examples of credit unions, what they have lent 

to in the business community that maybe could not be handled by 

a community bank or a small community bank. Again, I am getting 

back to the demand situation. 

Ms. MATZ. I don’t know if these can or can’t be handled by the 

community banks, but what I am told is that they might make 

loans to someone who is starting a day care or opening or expanding a restaurant or young people who might be starting some business in their community, small businesses generally in the community. 

Mr. RENACCI. So you don’t believe there is any chance that the 

creditworthiness is an issue; you think it is very similar from— 

Ms. MATZ. Delinquency rates for credit unions are a little bit 

lower than they are for banks, so I don’t believe that creditworthiness is the issue. 

Mr. RENACCI. I know back in Ohio, in my district and also in the 

State, when I have talked to the credit unions—and I am a big supporter of all proponents. We have to get dollars back out to small 

business owners, but when I keep hearing small business owners 

cannot borrow money because of regulations and some of the overburden of regulations—I have personally seen options where the 

only way that a bank could lend money to a small business owner 

or to one of the businesses you have talked about, is they have to 

put up a hundred percent cash as collateral or there have to be certain collateralization of those mortgages. 

So I question where credit unions—and most of the credit unions 

in Ohio said that they are not up against these limits. There are 

only a few. There are some. And so the question really comes down 

13 

to, do the credit unions—this doesn’t seem to be a capacity problem 

for all of them. It seems to be a capacity problem for just a few; 

is that correct? 

Ms. MATZ. Yes, that is correct. But the cap has been a limiting 

figure for all credit unions that make business loans, because they 

are mindful of the cap. So they, as I said before, in some cases, if 

a staff person leaves, they won’t fill the position or they won’t really market, they will just deal with repeat customers because they 

are mindful of the cap. They don’t want to get close to the cap and 

then have to turn away business. 

Mr. RENACCI. Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. And I would like to recognize 

Mr. Hinojosa for 5 minutes for questions. 

Mr. HINOJOSA. Chairwoman Matz, Congress created the Corporate Credit Union Stabilization Fund you proposed. It allows 

credit unions to spread the entire cost of replenishing the losses experienced by the conservatorship of the corporate credit unions 

over a 7-year period. Had Congress not created the Corporate Credit Union Stabilization Fund, credit unions would have been forced 

by law to recapitalize the losses from the recent crisis in 1 year, 

thereby endangering many credit unions and their membership. It 

is my understanding, as I noted in my opening remarks, that a 

number of those credit unions remain undercapitalized. 

As of this year, June 2011, I believe you placed 381 credit unions 

on your watch list, and 5 corporate credit unions have been put in 

conservatorship. I also noted certain data indicates that 6,900 of 

those community banks are adequately capitalized and could make, 

but they are not making commercial loans for some reason. If community banks are unable or unwilling to make those loans at this 

time, why should we believe that the credit unions can make up 

the difference? 

Ms. MATZ. Credit unions have been increasing their business 

loans. As I said before in my testimony, since 2006, business lending in credit union— 

Mr. HINOJOSA. I cannot hear you. Can you speak a little louder? 

Ms. MATZ. Business lending in credit unions has increased 44 

percent since 2006. So they have been increasing their business 

lending. 

Mr. HINOJOSA. Why should Congress alter the member business 

lending cap it imposed on the credit unions back 15 years ago? 

Ms. MATZ. I’m sorry, I didn’t— 

Mr. HINOJOSA. Why should Congress alter the lending cap it imposed on the credit unions in 1998? 

Ms. MATZ. It will provide more opportunity for credit unions to 

make business loans, which serves an important need in their community. These are loans that are very small. The average is 

$222,000. They are made to small businesses that are members of 

the credit union. So they fill an important need in the community. 

But as a regulator, I think it is important because it helps to diversify their portfolios. And I think that it provides an extra measure 

of soundness, of diversity to their portfolio, which is another safety 

and soundness measure. 

Mr. HINOJOSA. How do you feel about Congress taking and reforming the Act that allows the credit unions to make loans and 

14 

consider changing the tax exemption that you have, or that they 

have, and letting you all pay taxes? 

Ms. MATZ. Tax exemption is an important issue, but it is really 

a decision that Congress has to make. As a potential regulator, I 

just focus on safety and soundness. And if credit unions were 

taxed, it would have a very serious adverse impact on their safety 

and soundness, because the only way credit unions can raise capital is through retained earnings. They can’t sell stock. They can 

only have retained earnings from within their membership. If they 

were limited to their retained earnings and they were taxed, their 

net worth would be reduced significantly. So it would have a very 

serious impact on their safety and soundness. 

Mr. HINOJOSA. I yield back. 

Chairwoman CAPITO. The gentleman yields back. I would like to 

recognize Mr. Royce for 5 minutes for questions. 

Mr. ROYCE. Thank you. 

Chairwoman Matz, would you pull the microphone close to you 

there, just pull it up close. Okay. 

One of the things you say in your testimony is that empirical results suggest that each dollar of new member business lending by 

credit unions generated 81 cents of an entirely new credit source 

for small businesses. So lending to small business is higher when 

credit unions are making small business loans. You say that most 

credit union member business lending is not simply taking the 

place of small business lending that banks would have done anyway. In other words, if that dynamic is going on, is that because 

many of these loans are smaller loans? 

Ms. MATZ. Yes, that is my understanding. 

Mr. ROYCE. That is what drives it, and that in turn, your argument is that this drives access to credit in a way that otherwise 

wouldn’t occur? 

Ms. MATZ. That is correct. 

Mr. ROYCE. Without—maybe explain for a little bit the problem that the credit unions under the $45 million in assets have when 

making member business lending loans, given that such programs 

have a certain economy of scale, right? 

Ms. MATZ. Yes. 

Mr. ROYCE. And so you are up against the 12.25 percent cap. Two-thirds of credit unions are under this $45 million in assets. 

For those above, they have generally had the member business 

lending programs, but the cap then is a factor in them making the 

decision in terms of member business lending, right? 

Ms. MATZ. That is right. 

Mr. ROYCE. Because of the economies of scale? 

Ms. MATZ. That is correct. 

Mr. ROYCE. Let me ask you another question. As the regulator 

tasked with ensuring credit unions remain safe and sound, do you 

believe credit unions have the experience and expertise for this 

type of member business lending? 

Ms. MATZ. Definitely, yes, and I think that their track record indicates that. Their delinquencies are competitive. Their charge-offs 

are not very high. Between 2009 and 2010, 55 credit unions failed, 

and only one of those failures was related to business lending. So 

I think they have a very good track record. 

15 

Mr. ROYCE. Let me ask you another question. Are you concerned 

that raising the cap would open the credit unions up to additional 

risk? 

Ms. MATZ. No, I am not. I think that the tiered approach provides an excellent way for credit unions to increase their lending 

in a very safe and sound way. We would be supervising it very 

carefully, and they would have to meet some very significant 

thresholds in order to get beyond the 12.25 percent. 

Mr. ROYCE. And the methodology here is also this isn’t a blanket 

increase for all credit unions; there is a series of criteria that would 

have to be met in order to qualify—they would have to show they 

had this expertise. As I understand the way it would work, they 

would have to get the approval— 

Ms. MATZ. That is correct. 

Mr. ROYCE. —in order to move forward? Let me ask you another 

question. We have alternative programs out there, but one of them 

was the $30 billion Small Business Lending Fund. Now, for those 

of us here, we know how that was supposed to work, but the Wall 

Street Journal just ran a piece last October 6th that says that more 

than half of the money that has gone out has come back to the 

Treasury so that those institutions can get out from under the 

TARP restrictions and higher rates. One of the participants even 

called this a shell game. 

The advantage with respect to the approach we are doing here 

is that we are not taking Federal—we are not going out and borrowing additional Federal funds to do it. We are trying to take a 

focused area of expertise that certain credit unions have on small 

business lending and expand that cap in a way that for the segment of the market where what, three-quarters—I am going 

through the study by the Fed—three-quarters of small businesses 

are saying they don’t have access, they were turned down in terms 

of the credit that they were seeking in 2010, or they received only 

some of the financing that they requested. Would this help meet 

that demand? 

Ms. MATZ. Very much so. Our chief economist has estimated that 

the passage of the legislation that you have introduced would add 

$5 billion in new lending. 

Mr. ROYCE. And that is a lot of jobs that would go with that $5 

billion? 

Ms. MATZ. A lot of jobs. 

Mr. ROYCE. Madam Chairwoman, my time has expired. Thank 

you, Chairwoman Matz. 

Chairwoman CAPITO. The gentleman’s time has expired. I want 

to recognize Mrs. McCarthy for 5 minutes for questions. 

Mrs. MCCARTHY OF NEW YORK. Thank you, Madam Chairwoman. 

I know we have all asked you to speak a little bit louder. You 

have a very soft voice so all of us up here are really struggling to 

hear your answers. So if you could speak right into the microphone, 

it would help not only us, but everybody behind you, to hear you. 

If you could really discuss a little bit deeper the adjustments in 

regulations and oversight from when the NCUA first adopted rules 

and regulations regarding member business lending prior to the 

lending cap, up to currently with the lending cap in place. 

16 

Ms. MATZ. The rules that we have put in place? 

Mrs. MCCARTHY OF NEW YORK. Yes. 

Ms. MATZ. We have had numerous iterations over the years in 

the regulations overseeing business lending, we have limits on how 

many loans can be made to one borrower, on the experience level 

of the business lenders on how much collateral is required, and on 

personal guarantees. So we have put in place a number of regulations to make sure that business lending is done in a safe and 

sound way, that it is underwritten well and well-collateralized. 

Mrs. MCCARTHY OF NEW YORK. So if this legislation moves forward, what kind of legislation do you see coming down—or how do 

you basically look to put regulations out there for safety and soundness to make sure that this is being carried through in the intent 

of what the bill is looking for? 

Ms. MATZ. I could see NCUA coming through with regulations 

dealing with the 30 percent annual increase, so that credit unions 

that made the cut to the second tier couldn’t automatically go up 

to 30 percent increase in their business lending. There would be 

additional thresholds for them and additional qualifications that 

they would have to have in order to get there. We probably would 

also increase even further the experience required of their senior 

commercial business lender. 

Mrs. MCCARTHY OF NEW YORK. Just to kind of follow through on 

that. With the developments that have occurred within the member 

business lending, which calls for enhanced migration of risk, should 

the member businesses’ lending cap be raised; how will NCUA ensure proper risk management; and what criteria would be used to 

approve a credit union for additional member business lending authority? 

Ms. MATZ. The criteria put into the legislation would be a very 

good start, that a credit union would have to have made business 

loans for 5 years. They would have to be well-capitalized, which 

means they would have to have at least 7 percent capital. They 

would have to be at 80 percent or more of their cap for a year, and 

they would have to demonstrate that they have sound management 

and sound underwriting experience. So those are very significant 

hurdles for a credit union to overcome in order to get into the second tier. 

Mrs. MCCARTHY OF NEW YORK. Thank you. I yield back my time. 

Chairwoman CAPITO. The gentlelady yields back. Mr. Luetkemeyer for 5 minutes for questions. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

Chairwoman Matz, do you know what a participating loan is? 

Ms. MATZ. Pardon? 

Mr. LUETKEMEYER. Do you know what a participating loan is? 

Ms. MATZ. I do. 

Mr. LUETKEMEYER. That is where you sell off part of the loan because you either can’t make it, it is too big or— 

Ms. MATZ. That is correct. 

Mr. LUETKEMEYER. Do credit unions participate? 

Ms. MATZ. Yes, they do. 

Mr. LUETKEMEYER. How long do participation loans—or do you 

know, what part of the loans or percentage of the loans that these 

17 

credit unions are making right now that are at the cap, do you 

know what percentage they participate at? 

Ms. MATZ. I don’t know the answer to that. I can get that for 

you. 

Mr. LUETKEMEYER. I would appreciate that, if you would. That 

is something that perhaps many of the Members may not realize 

is another alternative. Instead of raising the cap, existing credit 

unions could participate out with other members, other credit 

unions in the area, or with even banks or whoever they want to, 

they could participate out the balance of the loan, and everybody 

would share. You could even sell it, without recourse, where there 

would be no undue liability back from the loan itself; is that not 

correct? 

Ms. MATZ. They could, but they probably wouldn’t be inclined to 

do that with the small loans. If you have a small loan for $220,000, 

you probably wouldn’t be inclined to participate that out. 

Mr. LUETKEMEYER. If you have a neighboring credit union that 

really doesn’t make a lot of business loans, doesn’t have the expertise to do that, yet you have the ability to do that and you have 

a good customer that you don’t want to lose, you wouldn’t make the 

loan and participate out part of it to a neighboring credit union, 

they wouldn’t take it? 

Ms. MATZ. No, they wouldn’t be able to. If they don’t have the 

expertise, they are not allowed to make or participate in business 

lending. 

Mr. LUETKEMEYER. So they can’t participate? 

Ms. MATZ. That particular credit union could not. 

Mr. LUETKEMEYER. Interesting. Okay. One of the other things 

about this business lending model that you have is that loans 

under $50,000, SBA-guaranteed, are not included in your business 

lending statistic; is that correct? 

Ms. MATZ. That is correct. 

Mr. LUETKEMEYER. So therefore, it would seem that the necessity 

of this bill today to raise the cap is for larger loans; would that be 

the way to infer that? 

Ms. MATZ. Larger than $50,000. The average is $222,000, which 

is still a very small loan. 

Mr. LUETKEMEYER. Okay. The larger the loan, the more the risk, 

is where I am going. 

Ms. MATZ. That is correct. 

Mr. LUETKEMEYER. The larger the loan, the more the risk, the 

more you have to lose, and the more careful you have to be in making that loan. 

Ms. MATZ. Definitely. 

Mr. LUETKEMEYER. So it looks to me like we are making the cap 

bigger so we can make bigger loans and take on more risk. 

Ms. MATZ. No, not necessarily. Credit unions tend to make small 

loans. So they can make more small loans, not make fewer— 

Mr. LUETKEMEYER. But they can also make bigger loans— 

Ms. MATZ. They could make bigger loans. 

Mr. LUETKEMEYER. That is the point I am getting to. Okay. You 

also made the comment a minute ago that you were asking some 

of your credit unions to diversify. 

Ms. MATZ. Yes. 

18 

Mr. LUETKEMEYER. And asked them to make some business 

loans. Do you ask a bank to loan when they may not know how 

to service these loans? 

Ms. MATZ. No, I don’t ask them to make loans. I suggest that 

they consider getting into the member business lending to diversify 

their portfolio. It would only be if they have the proper experience 

on their staff and make the investments and have to get approval 

to make business loans. 

Mr. LUETKEMEYER. Don’t you think that is a little risky to ask 

them to jump into something they don’t know anything about? 

Ms. MATZ. I am not asking them to do it. I am suggesting it as 

an option for them. 

Mr. LUETKEMEYER. Okay. You indicated a while ago, also with 

regard to interest rate risk—let me go on to something else here 

quickly before I run out of time. 

You also made a comment about the amount of money for loans 

that you have to loan out. I am kind of curious, where does the 

money come from for the credit unions? Does it come strictly from 

deposits that are made in the credit union, or do the larger credit 

unions go out into the marketplace and take loans out or go into 

the marketplace and take up some securities, or they get money 

from other places? 

Ms. MATZ. It is money from their members. 

Mr. LUETKEMEYER. Only money from their members? They don’t 

go out to anyplace else in the marketplace to get any kind of funds? 

Ms. MATZ. No. 

Mr. LUETKEMEYER. And I am also kind of curious; you made the 

comment a while ago with regards to I think Mr. Hinojosa’s question on why you couldn’t be taxed and then be able to survive. And 

I thought it was kind of interesting because you act like the only 

way you can pay your taxes is take it out of your existing earnings, 

and I think that—is that a fair statement? 

Ms. MATZ. Yes. 

Mr. LUETKEMEYER. If you are like a mutual insurance company, 

they are owned by their insurance holders, their policyholders; 

same thing as a credit union, by their members. Therefore, all you 

do is raise the price of your product to pay your taxes, and you still 

pay your dividends and get you enough retained earnings to be 

able to do all that; would that work? 

Ms. MATZ. You are correct. Yes, they could raise their fees. 

Mr. LUETKEMEYER. Okay. Very good. With that, just one final 

comment. I appreciate you commenting a while ago with regards 

to the banks and credit unions working together. It is actually— 

in most communities, it actually works that way. It seems like 

when we get to the regulatory time here, we get in each other’s 

faces. But I think we have a great working relationship with most 

of the credit unions and banks in our area. Hopefully, we can continue that. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. Mr. Scott for 5 minutes. 

Mr. SCOTT. Thank you. Chairwoman Matz, is that correct? 

Ms. MATZ. Yes, it is. 

Mr. SCOTT. I want to talk about the need, for a moment, for the 

legislation. Could you tell me how many small businesses have 

19 

been denied a loan from a bank that was able to secure one instead 

from the credit union? 

Ms. MATZ. I wish I could. We don’t keep records on that. 

Anecdotally, I hear about it, but we don’t have any data on it. 

Mr. SCOTT. What sort of data do you have, then, to justify the 

demand for this legislation? It seems to me that it would be very, 

very helpful if we had that sort of information. I think that might 

be something going forward, and if we want to increase the cap, 

what are the justifiable means to do so? Where is the demand for 

that? It just seems to me that would be the most significant empirical evidence, to show that you have these people coming and they 

have been denied by the bank—they can’t get the service from the 

banks, so that is why we need to do that. Is there anything that— 

any information you have that could give us that justification? 

Ms. MATZ. What we know is that member business loans are increasing. Credit unions are making more business loans, and that 

there are credit unions that aren’t making business loans or that 

are making fewer business loans than they might ordinarily make, 

because they do not want to approach the cap or they don’t want 

to make the investment because of the cap. 

Mr. SCOTT. Speaking of that, how many credit unions are close 

to the cap? 

Ms. MATZ. There are just over 400 credit unions that are over 50 

percent of the cap. So it is about one in five of credit unions that 

make business loans are over 50 percent of the cap. 

Mr. SCOTT. So tell us, what is the sense of urgency for this legislation is that if we can—I am looking for some things here that we 

can really hang our hat on to show the need, the necessity for this, 

that will help small businesses. 

Ms. MATZ. The urgency is that it is a great way to serve their 

communities. Small businesses create jobs. The small businesses 

and the communities are having a hard time getting capital elsewhere, and credit unions are meeting that need. 

Mr. SCOTT. You said that having capital—that is what I am getting at. We are getting to the point that I am trying to get at. What 

do you base that on? Just—what they say to you in— 

Ms. MATZ. The Fed study that Mr. Royce pointed out which indicated that three-quarters of the small businesses said they have 

trouble getting access to capital. 

Mr. SCOTT. All right. Now, you also say that this will create jobs. 

How many jobs? Where does that information come from? How is 

that substantiated and how many jobs? 

Ms. MATZ. Our chief economist has indicated that this legislation 

would add about $5 billion in new lending. I don’t have the information on how many jobs that equates to, but it would put $5 billion into the hands of small businesses. 

Mr. SCOTT. There are roughly I think 16 percent of existing credit unions right now who are exempt from making these loans; is 

that correct? 

Ms. MATZ. Yes. 

Mr. SCOTT. Why is that? 

Ms. MATZ. They are exempt either because they have the designation of a low-income credit union, and low-income credit unions 

are exempt from the cap because they were chartered for the purVerDate Nov 24 2008 14:51 May 25, 2012 Jkt 072613 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\72613.TXT TERRIE
20 

pose of making business loans, or because they historically have 

made business loans, and they were grandfathered in in 1998 when 

the cap was put into place. 

Mr. SCOTT. And given—what would be your assessment if this— 

for the future of credit unions, if this bill is not passed? How detrimental would this be to your— 

Ms. MATZ. It would really limit their ability to enter a new and 

important market. It would curb their ability to enter that market, 

which I feel is an important market for them. As I said, from a 

safety and soundness point of view in terms of diversifying their 

portfolio and moving away from some of the interest rate risk, it 

is very important. 

Mr. SCOTT. All right. Thank you very much. 

Chairwoman CAPITO. Thank you. Mr. Huizenga for 5 minutes for 

questions. 

Mr. HUIZENGA. Thank you, Madam Chairwoman. I appreciate 

the opportunity and I thank you. 

I have been here—how long exactly have we been here, a little 

over an hour, and I have been listening to the questions and the 

answers, and I am still not sure—and I want to give you an opportunity—maybe I am just not hearing it, except I feel like I have 

kind of heard both sides of this issue, and the direct question I 

have is: Is there or is there not a need in the increase for the cap 

from your perspective? 

Ms. MATZ. There is. 

Mr. HUIZENGA. You believe there is. Okay. So despite the very 

small number of credit unions that are either at their limit or near 

their limit, you believe that there is a distinct need for this to happen to make sure that there is sufficient credit out and available? 

Ms. MATZ. There is, because I believe it is inhibiting all credit 

unions, not just those that are at or near the cap. It is inhibiting 

those that are significantly below the cap because they are afraid 

of getting close to the cap, and it is inhibiting credit unions that 

aren’t making business loans at all because they are concerned 

about making the investment and not having the economies of 

scale to make that investment back. 

Mr. HUIZENGA. Okay. Right. That is fair enough. 

The other element that I am kind of curious about is why do you 

think, if there is such a fairly small number of entities or credit 

unions that are accessing this and there doesn’t appear to be such 

significant competition out there, why do you think that there are 

people who are afraid of raising this cap? In a way, I sort of feel 

like my kids are coming and telling me, hey, we are going to stay 

up and we are going to catch Santa. And my answer to them is, 

knock yourself out, go ahead, stay up as late as you want, kids, because I know at 10:30, they are falling asleep. It doesn’t matter, 

and in a way, if there is no need or lack of demand for this, then 

what is the harm in authorizing an increase in this loan cap. So 

I am just curious if you can address that a little bit. 

Ms. MATZ. I don’t see any harm in increasing the cap. I advocate 

for it. I think it is important. I think it will not detract from safety 

and soundness. I think it will increase the safety and soundness, 

and as a regulator I say that. But in addition, it will provide capVerDate Nov 24 2008 14:51 May 25, 2012 Jkt 072613 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\72613.TXT TERRIE
21 

ital to small businesses and create jobs, but as a regulator, I am 

concerned about the safety and soundness. 

Mr. HUIZENGA. And you believe that that can be addressed— 

Ms. MATZ. I do. 

Mr. HUIZENGA. —the safety and soundness element? 

Ms. MATZ. Yes, I do. 

Mr. HUIZENGA. So even despite the fact that there does not seem 

to be significant demand for this, at least as far as the numbers, 

you think it is significant enough? 

Ms. MATZ. I think the number is kind of invisible, because you 

look at the numbers that are near the cap, but that doesn’t tell you 

all the credit unions that are holding back or not doing it because 

they are put off by the cap. 

Mr. HUIZENGA. So just to play devil’s advocate on this, even despite the advantages that have been granted legislatively, some of 

the things that have been talked about here, the tax-exempt status 

and those kinds of things, and it is a different playing field—I am 

not going to make a judgment as to whether it was even or equal 

or whether all those other things, that there is a reason for the 

chartering the way that it was in the legislation—you still believe 

this, that this is something that is important to do? 

Ms. MATZ. Yes, I do. 

Mr. HUIZENGA. Okay. I appreciate that. Thank you, Madam 

Chairwoman. I yield back. 

Chairwoman CAPITO. Thank you. Mr. Meeks for 5 minutes. 

Mr. MEEKS. Thank you, Madam Chairwoman, and thank you, 

Chairwoman Matz. 

Let me just follow up on that. If the caps were to be raised, what 

would you anticipate the difference being? What would you anticipate the functioning of the various credit unions? What would they 

do differently than they are doing now with the caps raised? What 

do you see? Let me just ask you that question before I give you the 

answer to it. 

Ms. MATZ. More credit unions would make more loans. They 

wouldn’t hold back. They wouldn’t be afraid of approaching the cap. 

So, as I said, if you have a credit union that is $100 million and 

can make $12 million in loans and they are already at $6 million, 

so she is at 50 percent and she is telling me that she is slowing 

down, she doesn’t want to get to the cap, if that cap were raised, 

she is telling me she could just keep making loans. And so even 

those that aren’t even very close to the cap are are feeling that 

they cannot keep making loans, and then there are those who have 

chosen not to make business loans at all because they don’t want 

to make the investment. 

Mr. MEEKS. So as Mr. Scott was trying to find out, he was trying 

to get specific data. Are you telling us that it has been the general 

feeling that there have been a number of credit unions that have 

articulated to you that they would do substantially more and 

couldn’t, because they fear the demand from individuals who are 

coming into their credit unions for these loans and they wish they 

could give them to them, but they don’t because it doesn’t fit their 

own business model because of the cap; is that correct? 

Ms. MATZ. That is correct. 

22 

Mr. MEEKS. And so I think that what we are also—let me just 

ask this question before I go there. You said that there were three 

categories of individuals, about 60 percent that are exempt from 

the cap. One was low-income communities, if the credit union was 

in a low-income community; is that correct? 

Ms. MATZ. It is a credit union whose members are 51 percent low 

income. 

Mr. MEEKS. Okay. And of those members, then that credit union 

can offer business loans? Because I know some can and some can’t, 

Ms. MATZ. They can, yes. 

Mr. MEEKS. They can? And you also indicated earlier in your testimony that there were some credit unions, because they did not 

have the experience nor had they ever done it before, they could 

not offer business loans; is that correct? 

Ms. MATZ. That is correct. 

Mr. MEEKS. If there is someone now who cannot offer business 

loans currently, what would they have to do if, in fact, in the future 

they wanted to offer business loans? What would be their requirements to go from one level to the other? 

Ms. MATZ. They would have to hire an experienced business 

lender, and they would have to have a business plan and policies 

for how they would make their business loans, how they would underwrite them, how they would collateralize them, and it would 

have to be approved by NCUA. 

Mr. MEEKS. Wearing your hat as a regulator then, would be how 

you would make sure that there is not additional risk going out 

there in regards to the loans that are being given by the credit 

unions; is that right? 

Ms. MATZ. Yes. 

Mr. MEEKS. We know that, for example—well, let me ask this 

question first, because I didn’t understand the whole definition of 

net growth, because I have had some credit unions come to me who 

are fairly successful, and they have complimented you on saying 

that there should be some supplemental capital. But net growth, 

from what I understand, excludes supplemental capital and, therefore, could possibly punish healthier credit unions for attracting 

new deposits because that is not—can you tell me about that definition and how can we discuss the need for supplemental capital 

further, and what is NCUA’s plan for seeking legislation necessary 

to provide that kind of relief? 

Ms. MATZ. You are entirely right. The definition of net worth is 

retained earnings divided by assets. So the more deposits credit 

unions get, the larger the denominator gets, and that pulls down 

the net worth. So, even though it seems counterintuitive, when 

members have confidence in the credit union and they put their deposits in the credit union, it can pull down their net worth. So that 

is why there are many credit unions that feel that they need to 

have access to supplemental capital. And I agree with that if they 

are a healthy credit union and that the supplemental capital would 

be so that they do not have to discourage deposits. 

Mr. MEEKS. So my question to you: Do you think that something 

should be done with that definition regulatorily, or is it good to 

keep it the way it is because it has more soundness? What are your 

thoughts on that? 

23 

Ms. MATZ. I think it should be modified. 

Mr. MEEKS. Thank you. I agree with you. 

Chairwoman CAPITO. The gentleman’s time has expired. Mr. 

Grimm for 5 minutes. 

Mr. GRIMM. Thank you, Madam Chairwoman. I appreciate and 

thank you, Madam Chairwoman. 

I do have to disagree with my colleague, Mr. Huizenga. I think 

you put the rugrats to bed early because Santa Claus gets tired 

and wants time to eat the cookies and stuff like that. Santa Claus 

is getting older and older, as you know. 

But I think Santa Claus is a member of a credit union. There has 

to be a credit union for all of those bunny rabbits, all those things 

that are around. 

Ms. MATZ. I am sure there is a field of membership for Santa 

Clauses. 

Mr. GRIMM. A lot of my questions have been answered already. 

Just to—there is one thing that seems to disconnect, not whether 

it is good or bad. Just we do hear—and I just came from another 

hearing in Oversight with community banks that demand is down 

overall, and that seems to gibe with what I am hearing from a lot 

of the small business owners that I speak to who simply say, I can’t 

risk expanding my business right now because I have no idea what 

is going to happen as a result of the new health care law. I can’t 

predict what our tax rates are going to be tomorrow, because there 

is constantly this banter between raising them and lowering them. 

So the overall uncertainty is leading, I think, to the many small 

businesses holding what they have and corporations sitting on cash 

and waiting for some of this uncertainty to dissipate. 

Why do you think—and to some extent, I am asking you to speculate, and this isn’t a court of law, so I can ask you to do that. Why 

is it different for the credit unions to see—I think it has gone up 

44 percent since 2007? 

Ms. MATZ. Six. 

Mr. GRIMM. Since 2006. 

Ms. MATZ. Since 2007, that is correct. 

Mr. GRIMM. I am good with numbers, memorizing them. So why 

do you think that it seems to be different than what I am hearing 

from the small businesses and from the local banks for credit 

unions? It is an anomaly, if you will. 

Ms. MATZ. I can only speculate. Credit unions tend to have a 

good relationship with their members, and so if the member needs 

a loan, particularly a small loan, they will go to the credit union 

for it. I don’t have an answer for it, but that is just my guess. 

Mr. GRIMM. Is it plausible that to a small extent, some of the 

issues I have been hearing from the local banks, community banks, 

is that the regulators have been particularly onerous, and as they 

clamp down and really look to second-guess almost every loan they 

do, they are denying anything that is even remotely questionable, 

and loans that probably should be approved are not being approved 

and maybe that is some of the overflow business that you are seeing—is that just a possibility? 

Ms. MATZ. I can’t comment on my colleagues at the FDIC. I hear 

the same thing from credit unions, also. I think there is always a 

natural tension between regulators and those that they regulate. 

24 

But I really, I don’t know why the situation is like it is with the 

banks. 

Mr. GRIMM. And one last question. I understand why someone 

would be reluctant to spend a lot of capital if they think that they 

are going to reach their limit and they won’t—it is scalable and I 

understand that. But what happens when they reach their limit? 

Are they looked at differently? What is the reality? Can you just 

explain to the committee the reality of hitting your limit? We keep 

talking about hitting the limit. Could you just articulate what that 

means in real life for a credit union? 

Ms. MATZ. It means that they can no longer make business loans 

when they hit that limit, and even at 80 percent, they are telling 

me they are turning new members away because they want to use 

that capacity for existing members who have business loans who 

need more or larger loans to expand. 

Mr. GRIMM. Okay. So if I can just make sure that I understand 

it. You want to be able to make sure that you are servicing your 

current members, and if you get close to that limit, extending credit to new members, there may be an existing member that you 

have done a tremendous amount of business with who needs to go 

back to the well, so to speak, and now you don’t have that liquidity, 

that access for them, and now you’re denying members, which is 

just not good business for any business; am I correct? 

Ms. MATZ. Correct. 

Mr. GRIMM. Thank you so very much. I appreciate it. 

Chairwoman CAPITO. Thank you. Mr. Carney for 5 minutes. 

Mr. CARNEY. Thank you, Madam Chairwoman, and thank you, 

Chairwoman Matz, for coming in today and helping us with this. 

I have been listening to this for over an hour now, and I am a little 

bit confused. Some of the questions that I ask I am sure will be 

redundant or repetitive for others. I am trying to understand the 

logic of all this. 

Before 1987, there weren’t regulations on credit unions as it related to these types of loans. I am just reading from background 

materials. 

Ms. MATZ. Yes, there were no regulations; that is correct. 

Mr. CARNEY. Right. So then there were regulations put in place 

because there were failures, my background material indicates, 

caused by risky loans on businesses; is that correct? Are you familiar with the pre-1987 experience? 

Ms. MATZ. I am not all that familiar with it, but what I am surmising is that the NCUA saw that credit unions were starting to 

make business loans and there were no regulations. So in order to 

make sure that they were being done in a safe and sound manner, 

regulations were implemented. 

Mr. CARNEY. So NCUA developed those regulations and set limitations, presumably? 

Ms. MATZ. Yes. 

Mr. CARNEY. Those regulations, according to this background 

material, were put into law in 1998. Is that when the cap— 

Ms. MATZ. The cap was put into law in 1998. 

Mr. CARNEY. Okay. 

Ms. MATZ. Yes. 

25 

Mr. CARNEY. And so is the logic there that the cap—the purpose 

of the cap was to prevent the risky business loans that caused the 

problem prior to 1987? 

Ms. MATZ. I don’t know why the cap was put in place. 

Mr. CARNEY. Because your testimony basically is that business 

lending is, frankly, good for the safety and soundness of the credit 

unions; is that correct? 

Ms. MATZ. Yes. I don’t know why the cap was put in place, but 

I don’t believe it was done for safety and soundness reasons. 

Mr. CARNEY. And so today, we have this cap. It doesn’t appear— 

there are kind of two ways you can look at the cap. One is that 

credit unions are bumping up against the cap and want to lend 

more. That doesn’t seem to be the case, although you indicate that 

business decisions have to be made as to whether to make investments to do appropriate lending above that. But it doesn’t appear 

that enough credit unions are at that point yet; is that fair? 

Ms. MATZ. All credit unions that are interested in doing member 

business lending are affected by the cap, regardless of where they 

are in relation to the cap. 

Mr. CARNEY. But your own view is that the cap really is unnecessary; in fact, it hurts safety and soundness; and in fact, we have 

low-income credit unions which operate in areas where with people—or I guess members with their—50 percent of which are below 

a certain income level that don’t have any cap? 

Ms. MATZ. That is correct. 

Mr. CARNEY. Does that make any sense? From that perspective, 

is income some kind of determinant of whether those loans are 

paid back or not? 

Ms. MATZ. I don’t think it is in relation to it. It is really their 

credit history, not necessarily their income. Low-income borrowers 

can be perfectly good credit risks. 

Mr. CARNEY. So is it your view that there shouldn’t be any cap 

at all? 

Ms. MATZ. That would be my preference, but I certainly support 

the legislation as it is written, with a doubling of the cap. 

Mr. CARNEY. And that goes to probably my last question, which 

is, where did the—maybe I should ask one of the sponsors—27.5 

percent cap come from and what is magical about 27.5 percent? 

How do we get—maybe I should ask, how did we get 12.25 percent 

in the first instance? 

Ms. MATZ. I don’t know how we got the 12.25 percent, but I am 

told that the 27.5 percent came from negotiating for Treasury support of the legislation, and they wanted to have the 27.5 percent. 

Mr. CARNEY. So it looks like I have time for one more question. 

There have been a lot of questions asked of you of the need—small 

businesses needing this. And I am wondering if this is competitive 

space with small community banks, or is it space where the credit 

unions fit a particular niche, in your view? 

Ms. MATZ. I do hear from credit unions that they are making 

loans that banks in their community did not or would not make. 

But there is also the Small Business study which was released a 

couple of weeks ago, which indicated that for every dollar in loans 

credit union make, 81 cents is new money. So there might be some 

competition with banks, but it seems like it is very limited. 

26 

Mr. CARNEY. Thank you. My time has expired. 

Chairwoman CAPITO. Thank you. I believe Mr. Manzullo has no 

questions, that is correct. So, Madam Chairwoman, we will dismiss 

you. Thank you for your testimony and your answers to our questions. The first panel is dismissed. 

I would now like to call up the second panel of witnesses. I will 

introduce them individually once they get set up. In the meantime, 

I would like to ask unanimous consent to insert the following statements into the record: the Credit Union Supplemental Capital Coalition; the National Association of REALTORS®; and the Consumer 

Bankers Association. Without objection, it is so ordered. 

I want to thank you all. That was a pretty quick transition there. 

So I am going to introduce everybody individually for the purposes 

of making a 5-minute opening statement. 

Our first witness on the second panel is Mr. Sal Marranca, director, president, and chief executive officer, Cattaraugus County 

Bank, on behalf of the Independent Community Bankers of America. If you could pull the microphone close, everybody, when you 

give your testimony. Welcome, and you are recognized for 5 minutes for an opening statement. 

STATEMENT OF SALVATORE MARRANCA, DIRECTOR, PRESIDENT, AND CHIEF EXECUTIVE OFFICER, CATTARAUGUS 

COUNTY BANK; AND CHAIRMAN, INDEPENDENT COMMUNITY 

BANKERS OF AMERICA, ON BEHALF OF THE INDEPENDENT 

COMMUNITY BANKERS OF AMERICA (ICBA) 

Mr. MARRANCA. Thank you, Chairwoman Capito, Ranking Member Maloney, and members of the subcommittee. I am Sal 

Marranca, director, president, and CEO of Cattaraugus County 

Bank. I am also chairman of the Independent Community Bankers 

of America. 

Cattaraugus County Bank, a 110-year-old bank, is a State-char- tered community bank with $180 million in assets located in Little 

Valley, New York. I am pleased to represent community bankers 

and ICBA’s nearly 5,000 members at this important hearing to testify on legislation that would expand credit union powers by raising 

the cap on member business loans. 

We strongly oppose the Small Business Lending Enhancement 

Act, H.R. 1418. Congress should not expand credit union business 

lending powers unless it also is prepared to tax credit unions and 

require compliance with the Community Reinvestment Act. The tax 

exemption is directly linked to their original mission of serving individuals of modest means. After decades of ‘‘mission creep,’’ resulting in multibillion-dollar credit unions, the tax exemption can no 

longer be justified. 

Credit union business lending is an immediate threat to my 

bank. I am not afraid to compete with other taxpaying lenders, 

even larger banks, but the credit union exemption creates an unfair advantage and distorts the market. I have lost business lending opportunities with established customers to credit unions who 

underpriced my competitive rates. 

H.R. 1418 would allow the NCUA to approve member business 

loans up to 27.5 percent of the credit union’s assets, more than 

double the current cap of 12.25 percent. The cap was not set arbiVerDate Nov 24 2008 14:51 May 25, 2012 Jkt 072613 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\72613.TXT TERRIE
27 

trarily, but was intended to ensure that commercial lending would 

be no more than a marginal part of a credit union’s lending. 

The credit unions have portrayed H.R. 1418 as an effort to make 

more credit available for small businesses and create jobs. This is 

simply not the case. Demand for credit is very weak in the current 

credit environment. My bank and thousands of community banks 

stand ready to assist our small business customers as demand for 

credit returns. 

It is also true that only a small number of credit unions are at 

or near the current member business lending cap, just over 2 percent of the approximately 7,300 credit unions according to the 

NCUA. Over 70 percent of credit unions report no member business loans at all. 

Those credit unions that are at or near the cap are the largest 

and most complex credit unions, and the business loans they make 

are often multimillion-dollar deals, not small business loans. There 

is ample capacity for the remaining 98 percent of credit unions to 

expand their member business lending. What is more, there are 

numerous exemptions to the member business lending cap, including any loan of less than $50,000, SBA loans of up to $5 million, 

and nonmember loans and loan participations purchased from another credit union. 

Some advocates of H.R. 1418 claim that expanded credit union 

commercial lending would come at no cost to taxpayers. The Joint 

Committee on Taxation, OMB, and CBO have all identified credit 

lending as a tax subsidy. That is why the bipartisan Policy Center’s 

Debt Reduction Task Force recommended eliminating the tax exemption. We urge the Joint Select Committee on Deficit Reduction 

to consider that as well. 

What is the cost of the subsidy? The most comprehensive analysis to date was done by the nonpartisan Tax Foundation which 

valued the subsidy at $32 billion over a 10-year budget window. 

The credit union tax exemption also deprives State and local governments of revenue, many of which are facing deep cuts to essential services to remain solvent. Repeal of the credit union exemption is warranted, not only for the sake of deficit reduction, but as 

a matter of tax equity. If credit unions expand their business lending powers and become the equivalent of banks, tax exemption can 

no longer be justified. 

Thank you again for convening this important hearing. As a community banker, I feel the direct impact of credit union commercial 

lending. ICBA strongly urges the committee to reject calls for new 

powers and tax-subsidized credit unions that will not, despite assertions to the contrary, expand small business credit or create 

jobs. 

I look forward to answering your questions. Thank you. 

[The prepared statement of Mr. Marranca can be found on page 

88 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. Albert C. Kelly, Jr., president and chief 

executive officer, SpiritBank; and chairman-elect, American Bankers Association. Welcome. 

28 

STATEMENT OF ALBERT C. KELLY, JR., PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, SPIRITBANK; AND CHAIRMANELECT, AMERICAN BANKERS ASSOCIATION, ON BEHALF OF 

THE AMERICAN BANKERS ASSOCIATION (ABA) 

Mr. KELLY. Thank you, Chairwoman Capito, and Ranking Member Maloney. My name is Albert Kelly. I am president and CEO 

of SpiritBank in Bristow, Oklahoma, and chairman-elect of the 

American Bankers Association. Thank you for the opportunity to 

testify today. 

ABA is strongly opposed to recent efforts by the credit union industry to expand the business lending authority of credit unions. 

This effort, most recently embodied in H.R. 1418, would allow 

qualified credit unions that are within 80 percent of their member 

business lending cap to significantly increase their business lending at the expense of making consumer loans. This increase in 

business lending would shift some business loans to tax-exempt 

credit unions from tax-paying banks, causing an increase to the 

Federal deficit just when Congress is looking for ways to reduce the 

government debt. 

Under current law, credit unions have an aggregate member 

business lending cap of 12.25 percent of assets. Business loans 

under $50,000 do not even count against this cap, nor do many 

other types of business loans. These exemptions mean that credit 

unions already have an unlimited ability to fund small business 

loans without the need to seek increases in their member lending 

limits. 

This proposed increase is only directed at larger loans and would 

benefit only a few large, aggressive credit unions which are already 

effectively tax-exempt banks. Just 96 credit unions out of 7,292 are 

within 80 percent of their congressionally mandated cap. This is 

just over 1 percent of the entire credit union industry. 

There are good reasons for a limit on credit union business lending. Business lending is riskier than consumer lending, and thus 

poses a safety and soundness risk to the Credit Union Insurance 

Fund. In fact, business lending was found to be a major contributor 

to failure in 7 of the 10 costliest credit union failures. Also, the 

credit union tax exemption was created to serve people of modest 

means, possessing a common bond. 

Instead of raising the member business loan cap, there is another 

alternative. Credit unions that want to engage in expanded business lending can switch to a mutual savings bank charter. This 

charter provides the flexibility credit unions desire and preserves 

the multimember focus that is the trademark of a credit union 

charter. In fact, the members of HAR-CO Federal Credit Union recently approved switching to a mutual savings bank charter. Another credit union, Technology Credit Union, has just begun that 

process. 

The decision to become a mutual savings bank is based upon the 

opportunities provided by this charter. Unfortunately, the NCUA 

has erected obstacles, making it extremely difficult for a credit 

union to exercise its choice to become a mutual savings bank. Some 

credit union trade associations actively oppose credit union conversions. Removal of the NCUA’s opposition to conversion would be a 

far better alternative to enable more business lending, and since 

29 

mutual savings banks pay taxes, conversions would help to reduce 

the Federal deficit. 

Make no mistake about it, H.R. 1418 would allow a credit union 

to look and act just like a bank, without the obligation to pay taxes 

or have bank-like regulatory requirements such as the Community 

Reinvestment Act or examinations by the FDIC. 

I understand that the argument for this expansion is based on 

making loans that create jobs. I have had the opportunity to talk 

with bankers all over the United States, and I can tell you that in 

my community and around the country, banks are making all the 

loans that can be made. Additional lending by tax-exempt credit 

unions will either take loans away from tax-paying banks or will 

add risk that will translate into failed loans and failed institutions, 

not increased employment. 

The correct path to increase business lending is not expanded 

flexibility for credit unions but conversion to a mutual bank charter. 

Thank you for the opportunity to share ABA’s thoughts on credit 

union member business lending. I am happy to answer any questions. 

[The prepared statement of Mr. Kelly can be found on page 77 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our third witness is Mr. Gary Grinnell, president and chief executive officer, Corning Credit Union, on behalf of the National Association of Federal Credit Unions. Welcome. 

STATEMENT OF GARY GRINNELL, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CORNING FEDERAL CREDIT UNION, ON 

BEHALF OF THE NATIONAL ASSOCIATION OF FEDERAL 

CREDIT UNIONS (NAFCU) 

Mr. GRINNELL. Good afternoon, Chairwoman Capito, Ranking 

Member Maloney, and members of the subcommittee. My name is 

Gary Grinnell. I am testifying today on behalf of NAFCU. 

I appreciate the opportunity to share my views with the committee on H.R. 1418 and credit union member business lending. We 

hope you will agree that raising the artificial and outdated cap on 

member business lending is overdue and a necessary pro-growth 

step that will help small businesses and communities recover from 

the current economic crisis. 

H.R. 1418 is about jobs: saving jobs; and creating jobs. Who could 

be opposed to that? It is important to note that credit unions have 

a nominal market share of the small business lending universe, approximately 5 percent; clearly, not a threat to the domination of 

banks in this market. A 2011 SBA study indicates that credit union 

business lending increased during the recent financial crisis while 

banks decreased. This is evidence that credit unions continued to 

meet the capital needs of their business members, even during the 

most difficult times. 

Corning Credit Union currently exceeds 80 percent of its cap, 

and we forecast that we will reach the cap by mid-2012 if Congress 

does not act. 

During the recent economic downturn, as banks stopped lending 

to their clients, Corning Credit Union has been able to fill an imVerDate Nov 24 2008 14:51 May 25, 2012 Jkt 072613 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\72613.TXT TERRIE
30 

portant role to provide these businesses with funding they need to 

continue to grow and create jobs. We even helped a bank employee 

when she couldn’t get help from her own industry. This member is 

a commercial lender who works at a community bank. She also 

owns rental properties. After a bank informed her that they would 

not renew her commercial mortgage after the initial 5-year balloon 

period, she wasn’t even able to obtain financing from her employer, 

let alone other banks in the area. She came to Corning Credit 

Union, and we were able to refinance her investment property 

loans. 

Mayor Bill Saffo of Wilmington, North Carolina, turned to us 

after he received numerous calls at his office from small business 

owners desperate to obtain financing. The banks, both local and national, have aggressively moved to slash access to credit in this 

market. The mayor recognized that Corning Credit Union is one of 

the few financial institutions that buck this trend. I ask permission 

to insert a letter from Mayor Saffo in support of H.R. 1418 into the 

hearing record. 

I have also brought with me a stack of letters from small businesses that we have helped with loans. These letters tell stories of 

how bankers have turned their backs on small businesses and how 

they appreciate the member-focused customer service that they get 

at Corning Credit Union. These letters are asking for your help in 

making sure that Corning Credit Union and others like us will be 

able to meet their business loan needs in the future. I ask that 

these letters also be inserted into the record. 

Due to our strong balance sheet, we have almost $300 million 

available to lend, but our hands are tied because of the arbitrary 

cap. We should emphasize that these are not taxpayer dollars or 

government stimulus. It is cash from our depositors that can be 

used as a source of credit-productive purposes, such as helping 

small businesses in our communities. 

In response to some of the criticisms of H.R. 1418, I think it is 

important that some key points are made. First, an examination of 

call report data indicates that credit unions with MBLs actually 

have lower business loan losses than banks. 

Second, credit unions make the small loans many banks don’t 

want to make. The average size of a credit union MBL is $222,000. 

Third, the banking industry also argues that the credit union 

MBL cap should not be raised due to the credit union tax exemption. What the banking industry conveniently forgets to mention is 

that a large number of banks do not pay corporate Federal income 

tax because of their Subchapter S status and that the value of their 

tax break is estimated to be just over $2 billion for 2010, which is 

significantly greater than the estimated value of the annual credit 

union tax expenditure. 

Lastly, some critics claim that only a limited percentage of credit 

unions are actually at the arbitrary member business lending cap, 

and therefore nothing needs to be done. This view fails to see the 

big picture of how the cap acts as a deterrent for efforts to increase 

business lending and create American jobs. Those credit unions 

that are not near the cap have a disincentive to invest in the business lending programs. 

31 

It is estimated that enacting H.R. 1418 could help spur over $13 

billion in new lending and create over 140,000 new American jobs 

in the first year alone. NAFCU believes that this is a real bipartisan jobs package that everybody should support. As I said in my 

opening, H.R. 1418 is about jobs: saving jobs; and creating jobs. I 

ask you again: Who could be opposed to that? 

We thank you for your time and the opportunity to testify before 

you here today on this important issue to credit unions and our Nation’s economy. I would welcome any questions you may have. 

[The prepared statement of Mr. Grinnell can be found on page 

52 of the appendix.] 

Chairwoman CAPITO. Thank you, Mr. Grinnell. 

Our next witness is Mr. Jeff York, president and chief executive 

officer, Coasthills Federal Credit Union, on behalf of the Credit 

Union National Association. Welcome. 

STATEMENT OF JEFF YORK, PRESIDENT AND CHIEF EXECUTIVE OFFICER, COASTHILLS FEDERAL CREDIT UNION, ON 

BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION 

(CUNA) 

Mr. YORK. Madam Chairwoman, thank you for holding today’s 

hearing. 

The recession has affected everyone. One in six households is 

currently affected by unemployment and underemployment. Despite recent economic difficulties, credit unions like mine have been 

there for our members. We have worked with them during the 

housing crisis and when they lost their jobs. Credit unions have 

been on the front lines of the recession, and we want to do more. 

Many Americans are frustrated by programs that did not live up 

to their potential and disagreements that bring the government to 

the brink of shutdown. Small businesses are being hit hard. To add 

insult to injury, banks have pulled back access to credit. Americans 

need jobs. Small businesses want to help create jobs. To do that, 

they need a partner who will stand with them and help them succeed. Too many are not finding that partner at a bank. Credit 

unions are willing to help, but the statutory cap on credit union 

business lending makes this increasingly difficult. 

I am here today to endorse a bipartisan solution for small business owners. Representatives Ed Royce and Carolyn McCarthy 

have introduced legislation that gives qualifying credit unions the 

ability to lend in excess of the current statutory business lending 

cap. This balanced approach permits credit unions to have an immediate impact on jobs without putting our share insurance fund 

in jeopardy. 

This bill will free up approximately $13 billion in capital for 

small businesses, allowing them to create 140,000 jobs in the first 

year after implementation, all without a single dime of taxpayer 

money. Let me say that again: $13 billion for small businesses, 

140,000 jobs, no taxpayer money. Who would be against this? 

The banks will continue to spread misinformation about credit 

unions, our powers, and our structure to try to persuade you to not 

act on this bill. They will try to distract you with irrelevant and 

rare examples of troubled credit unions, knowing full well that the 

few credit unions that are not well-capitalized will not be eligible 

32 

to engage in additional business lending under this legislation. 

They will blame the economy, examiners, and regulation for the 

failure to help small businesses when the government has all but 

begged them to help. 

The banks say there are only a handful of credit unions affected 

by the cap. My credit union is almost certainly not on their list, but 

Madam Chairwoman, I assure you that we are affected by the cap. 

My credit union has been making business loans for members for 

many years. Our business loan growth has pushed us to over 50 

percent of the cap. I have the demand now to reach my cap in 6 

months if that made sense for my credit union, but I manage the 

cap because hitting that wall would force me to abruptly shut down 

my business lending program, lay off loan officers, and impede my 

ability to meet the continuing needs of my existing business members. 

If Congress does not act, we will not be able to be there for some 

of the members that we have helped in the past like Slo Gas & 

Mart, who we helped with a loan in 2009 that created 15 jobs; like 

Waterwheel, a car wash facility that we helped in 2010 that created another 15 jobs; jobs here, and 15 jobs there may not sound 

like much, but when you consider the national potential, it very 

quickly adds up to 140,000 new jobs in the first year if the RoyceMcCarthy bill is enacted. 

There are almost 600 credit unions like mine affected by the cap. 

These mostly small credit unions account for 75 percent of all business loans subject to the cap, and these credit unions have been the 

primary contributors to the recent business loan growth. The very 

credit unions that continue to lend when the banks stop will themselves have to stop business lending over the next 2 or 3 years unless Congress acts. 

Make no mistake: We have the experience, the liquidity, the demand, and the desire to invest in our members, but we are being 

stopped by the cap and by the banks who oppose raising it. Unlike 

the $30 billion for the community banks and the SBLF, not a single 

appropriated dollar will be needed to create jobs under the RoyceMcCarthy bill. The impact of allowing experienced, well-capitalized, 

and well-managed credit unions to lend beyond the current statutory cap would be substantially greater than the ultimate impact 

of the SBLF. 

My written testimony goes into further detail regarding this legislation which has been endorsed by the Treasury Department and 

NCUA. We appreciate 88 Members of the House, including the six 

members of this subcommittee, who cosponsored this bill, as well 

as the 20 Senators who have cosponsored the companion bill offered by Senators Udall, Snowe, and others. 

Madam Chairwoman, we appreciate you holding this hearing. 

Congress, please don’t leave these jobs on the table. Give small 

businesses a chance to create jobs, and allow credit unions like 

mine to be there for our members. We urge you to pass H.R. 1418. 

Thank you. 

[The prepared statement of Mr. York can be found on page 120 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

33 

And our final witness is Mr. Mike Hanson, president and chief 

executive officer, Massachusetts Credit Union Share Insurance 

Corporation. Welcome. 

STATEMENT OF MICHAEL C. HANSON, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, MASSACHUSETTS CREDIT UNION 

SHARE INSURANCE CORPORATION (MSIC) 

Mr. HANSON. Thank you, Madam Chairwoman. Thank you for 

holding today’s hearing. 

My name is Mike Hanson, and I serve as president and CEO of 

MSIC, the Massachusetts Credit Union Share Insurance Corporation. We are the Nation’s oldest insurer of credit union deposits. 

We were formed by an act of the Massachusetts legislature in 1961 

to effect a public policy that all credit union members in Massachusetts be fully ensured. This year, MSIC celebrates its 50th anniversary, and we continue our history of providing safe and secure deposit insurance for Massachusetts consumers in good times and in 

bad. 

Today, MSIC is an excess insurer, and we provide deposit insurance for amounts in excess of those insured by the NCUA. We insure 97 member credit unions operating in Massachusetts, and 

those institutions hold $18 billion in assets and serve approximately 1.6 million consumers. 

MSIC also serves as the receiver for the Massachusetts Commissioner of Banks, and we provide technical capital management and 

training assistance to our member credit unions. 

MSIC is a not-for-profit cooperative corporation. We run an insurance fund contributed to by our members over the years, and 

our fund backs the insurance, as well as it being backed by our 97 

member credit unions. We are a true cooperative, and we are not 

sponsored or funded by any governmental activity. 

In managing our insurance risk, we have a substantial monitoring program which evaluates both Massachusetts credit unions 

and the industry as a whole, and our independent evaluation of the 

condition of the credit union industry is the basis for my testimony 

today. 

My own background, by way of introduction, has been submitted 

with my written testimony, but there is one relevant fact. In 1991 

and 1992, I served as Massachusetts Commissioner of Banks during the height of the New England banking crisis, and so unfortunately, I have a lot of experience supervising and evaluating institutions under adverse conditions. 

Based upon our review, we believe H.R. 1418 is sound public policy, and I urge its timely adoption. Consider the following: The Nation’s economy is clearly in need of added small business lending 

in order to stabilize the economy, ease the unemployment crisis, 

and provide a foundation for future economic growth. H.R. 1418 

will allow the redeployment of existing credit union capital to member business lending, thereby increasing the amount of available 

lending to this important economic segment. This action does not 

require any financial contribution by the Federal Government. 

Of the Nation’s 7,300 credit unions, only about 2,100 engage in 

member business lending; and it is true, it is done by the larger 

institutions that have the capability to do this to the extent necVerDate Nov 24 2008 14:51 May 25, 2012 Jkt 072613 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 K:\DOCS\72613.TXT TERRIE
34 

essary to create the necessary infrastructure to do it in a safe and 

sound basis. My written testimony shows the breakdown of member business lending throughout the country. 

This has become an important part of credit union loan portfolios, and as Chairwoman Matz said, will diversify those portfolios 

and allow them to be safer and sounder in the years to come. It 

represents $32.3 billion in lending currently, and that is about 5.65 

percent of total credit union loan portfolios. 

The history of member business lending is it has been done safely and soundly since the 1998 cap. The delinquency rates, as noted 

before, are actually less than this type of lending in the banking 

community. We believe the added capacity will be done again in a 

safe and sound manner. 

Credit unions only have a small section of this market, and they 

should pose no competitive threat to the banking industry, even 

with this modest increase. In any event, competition is very good 

for both industries and good for the consumers. 

We believe that this bill will give credit unions the necessary 

tools to succeed and prosper in the years to come, that it will reduce the NCUA’s insurance risk and, to a far smaller extent, the 

insurance risk of MSIC. A prosperous credit union industry is good 

for consumer lending. 

Credit unions did not participate in predatory consumer practices 

during the past 5 years, and they will not engage in those types 

of activities as they expand their member business lending. We believe this is sound public policy. It will be an important tool for 

credit unions and will help us create jobs in the broader economy. 

Thank you, Madam Chairwoman. 

[The prepared statement of Mr. Hanson can be found on page 70 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

I want to thank the panelists, and guess I don’t have to ask the 

bankers and the credit union folks to tell me what you really think. 

I have a couple of questions. 

Mr. Grinnell, you mentioned that you had $300 million—first of 

all, let me ask you, on the Wilmington, North Carolina, I am going 

to assume you have a Corning Credit Union facility there? 

Mr. GRINNELL. Yes, we have three branches there. 

Chairwoman CAPITO. Three branches. So that is why the mayor would be approaching you. You mentioned you have $300 million 

to lend. Is that taking into consideration all of the capital requirements and other such things that are written into this bill that 

would require you to hold more capital, etc.? 

Mr. GRINNELL. The $300 million is the excess cash that we have 

from our depositors. If the cap were lifted for us, that would mean 

we could make about $135 million in additional commercial loans. 

The point with the extra $165 million in that number is the bankers’ claims that this would take away from consumer lending. My 

point with that is we still have over another $100 million to focus 

on our other members, to make car loans, and to make mortgage 

line loans, like we always have. 

Chairwoman CAPITO. But your member business loan would be less than half of that of $300 million? 

Mr. GRINNELL. Correct. 

35 

Chairwoman CAPITO. And then, Mr. York, in your figure, the $13 

billion in capital for small business lending, is that figure—and I 

know you didn’t reach this figure yourself—but is that figure, is 

that for just the people doing member business lending now, or is 

that for every credit union, or do you know? 

Mr. YORK. That would include the credit unions that are going 

to enter the market because the cap is lifted, as well as the credit 

unions that are invested in member business lending currently. 

Chairwoman CAPITO. So do we know, is that 100 new credit 

unions? I am sure it is an approximation. 

Mr. YORK. There are numbers in my written report that show 

that. 

Chairwoman CAPITO. Okay. Mr. Marranca, your testimony was 

pretty much in direct conflict with what Mr. Grinnell and Mr. York 

testified in terms of whether you are competing and taking business from banks. You have said basically you feel that credit 

unions in your small community could and would and maybe are— 

credit unions are providing or are able to offer, I think you said, 

a more favorable rate. How would that go? They can offer lower interest rates? Or how are you seeing them being a threat to you in 

terms of competition? Do they undercut you? You mentioned nonmember business loans, which you heard me ask the chairwoman 

if that was possible. So I would like to have your response to that. 

Mr. MARRANCA. I would be pleased to answer your question. I 

have to correct one statement that was false, first, with the approval of the committee. 

Chairwoman CAPITO. Go ahead. 

Mr. MARRANCA. It was stated by the spokesman from the credit 

unions that Subchapter S banks do not pay taxes, and that is false. 

That is misinformation. I believe they stated they did not like misinformation. Subchapter S banks pay taxes. There are 2,300 Subchapter S banks that pay taxes. It is brought down to the personal 

level of the individual owners of the bank, and they pay Federal 

and State taxes at up to a 30 or 40 percent level. I would invite 

any credit union to pay any Federal or State taxes at that 40 percent level. 

To answer your question, how are they a threat or a competition? 

Chairwoman CAPITO. Right. And you mentioned undercutting, 

too. 

Mr. MARRANCA. They are a tax-subsidized business that competes directly with me. If one of you owned a dry cleaner shop or 

a restaurant or a car dealership and your competitor across the 

street did not pay taxes, you would be at a disadvantage. That is 

the disadvantage I am at. If you are allowing greater powers to an 

organization that already has a competitive advantage to me, that 

puts me even at a greater disadvantage. I am a small business. 

Chairwoman CAPITO. Do you do these small business loans, 

under $100,000? 

Mr. MARRANCA. We have absolutely zero cutoff. We will do any loan. I will make an arbitrary number of $1,000 and up. We are 

a small community bank with a $100 million loan portfolio. Of that 

portfolio, approximately $45 million of that is commercial loans. 

There is no limit on the size of the loan. So I disagree that there 

is a need for this legislation because of size of loan. 

36 

Chairwoman CAPITO. Okay. Thank you. Gosh, I have so many 

different questions. 

Mr. Grinnell, again, if the credit unions begin to focus more on 

business lending, do you think that there is any danger that they 

would focus less on consumer lending, or would it just be more— 

I don’t know, answer that. 

Mr. GRINNELL. I can speak for our credit union in saying, absolutely not. As I had mentioned previously, we have plenty of cash 

from our depositors to make all different types of loans and meet 

our members’ needs. We also are in business to serve all of our 

membership, and when you figure that, even with business loans 

right now, it is about 10 percent of our assets, if we only focused 

on 10 percent of our business, we would not be in business for long. 

Chairwoman CAPITO. Right. Are you in the top 100, or 500 largest credit unions? 

Mr. GRINNELL. I think we are about number 200 out of the 7,200. 

Chairwoman CAPITO. I believe I am out of time. So, Mr. Scott for 

questions. 

Mr. SCOTT. Thank you, Madam Chairwoman. This is very interesting. It is a good hearing. 

Let me start with you, Mr. York. What is the typical loan size 

you service and the delinquency rate of your portfolio? 

Mr. YORK. Our average loan is just below $200,000. We do not 

have any delinquency at this time. 

Mr. SCOTT. Okay. And what would you say is the number one 

myth behind your ability to loan to the communities you serve in? 

Mr. YORK. The number one myth would be that we aren’t sophisticated enough to make these types of loans, and we certainly are. 

We have built a program that you can see in our delinquency and 

charge-off ratios that has been very successful. Our vision is to 

make a difference in our neighbors’ lives, and we do that on a regular basis by making loans to our community, whether it is business loans or home loans or car loans. 

Mr. SCOTT. And would you explain the current net charge of rate 

for these loans? 

Mr. YORK. The current charge-off is an average of less than 50 

basis points, less than one-half of 1 percent. 

Mr. SCOTT. And how would that compare to the remainder of 

your portfolios? 

Mr. YORK. It is about the same. 

Mr. SCOTT. Okay. Now you, and I guess Mr. Grinnell, you are 

saying that you are going to bring in, what is that, $13 billion, $14 

billion into the economy, 140,000 jobs? 

Mr. YORK. That is correct. 

Mr. SCOTT. Now, how do justify that? How do you know that? 

Mr. YORK. As you look at the capacity for the credit unions that 

are in business lending today, by lifting the cap, you will have the 

capacity—and it is a very conservative number, but the capacity to 

take on more small business loans. And then you have new entrants into the market, the smaller credit unions that will enter because the cap is lifted. There is some further detail in my written 

statement. It is 30 pages, but it is a very conservative estimate. 

37 

Mr. SCOTT. It might be good as we move along, that when you 

put those figures out like that, especially because jobs is the number one issue we are faced with— 

Mr. YORK. Absolutely. 

Mr. SCOTT. —and we are doing all we can to create those jobs. 

We want to make sure that those numbers are justified, that we 

have some factual—if it is less than that, whatever that accurate 

figure is, and the justification for that, because I think— 

Mr. YORK. We have all that. 

Mr. SCOTT. —the core of how we move with this legislation is 

going to be judged upon that issue of demand and the benefit and 

what it will do, and particularly when you lay it on jobs—and that 

is what we need—we want to make sure we have something solid 

to hang our hats on. 

Now, Mr. Marranca, I think you made the point that—how would 

you argue with the credit unions who argue that their member 

business lending has increased substantially, about 40 percent 

since the economic crisis, whereas bank and commercial lending 

has decreased by as much as 14 percent? If that is true, it might 

justify some demand for this legislation. So can you comment on 

why this might be and why you believe credit unions should not 

be able to meet a need that the banks are not meeting? 

Mr. MARRANCA. Congressman, I can only speak for my community bank, and I have spoken to hundreds and hundreds of community bankers throughout the country in my role as chairman of the 

ICBA. I can tell you that my community bank stands ready and 

willing to lend money to anyone at any time for any creditworthy 

purpose. I have to put on $1 million a month in new loans just to 

maintain a level $100 million loan portfolio that I have right now. 

I am having an extremely difficult time doing that. 

I do not turn my back on my borrowers. We established relationships with my borrowers, whether it is a personal borrower or business borrower, in good times and in bad. That is how we have been 

in business for over 110 years. It is a lack of demand, sir. 

A recent survey just came out by the National Federation of 

Independent Businesses that said, the Small Business survey, access to credit is not an issue. It is poor sales and poor business. 

I don’t have one loan to any one borrower that is to a national 

stock firm at all. It is to mom-and-pop operations. It is to sole proprietors. It is to individual owners, and every one of them is basically hunkering down. This is not the time to go out and employ 

more people or expand more businesses. 

Mr. SCOTT. Let me ask you something. I really need to get this 

question in just right at the end here. What I am trying to get to 

is, have you in your, either of your banks, Mr. Kelly, turned down 

a small business person seeking a loan, and that person had to go 

to a credit union to secure that business loan? 

Mr. MARRANCA. I am aware of one person in my 30 years of 

being at the bank that we have turned down, and they went and 

acquired a loan at a credit union. That had to do with the credit 

quality of the loan. We are in a very difficult environment of overregulation and undue regulation and disconnect of the examiners 

in Washington. We have to very carefully underwrite the loans that 

we do so that we have the risk and the reward. 

38 

Mr. KELLY. Congressman, may I respond? 

Mr. SCOTT. Yes. 

Mr. KELLY. I believe that from our standpoint, we are in low- to 

moderate-income areas in much of Oklahoma. Our mission has 

been to try and create jobs in those areas. We try every day to find 

ways to loan, either to create a job or to keep a job. And what we 

have seen, not that we have customers who are fleeing the credit 

unions, but we have customers we try to give a solution to as to 

how we can make the loan that comes to us. If we can’t make it, 

I will tell you that in my opinion, it can’t competently be made. 

I believe that banks across this country are sitting with cash, 

wanting to invest. The problem is not so much trying to find the 

available credit. It is finding small businesses that aren’t being 

strangled today by the regulations, by all of the different things 

that come down through Washington. I have customers who are 

saying, I am considering just quitting, because I have this regulation and this regulation and this regulation. 

From the standpoint of Mr. Marranca and myself, we are getting 

ready to have the other 94 percent of Dodd-Frank hit us. It is a 

very, very expensive thing for small community banks such as 

ours, but we will continue to lend. We are going to continue to 

build our community. That is how we make it. 

Chairwoman CAPITO. The gentleman’s time has expired. 

Mr. SCOTT. Thank you. 

Chairwoman CAPITO. Mr. Renacci? 

Mr. RENACCI. Thank you, Madam Chairwoman. 

I want to thank all the witnesses today. I am still trying to figure 

out the demand question. You have probably heard it now 25 

times: Demand, demand, demand. It appears what we have here is 

we don’t have the demand because the economy is not growing. We 

need the economy to be growing to get the demand, and then what 

the credit unions would be doing is going after some of the loans 

that the banks aren’t doing, so you are really fighting for all the 

same loans, because if demand was growing, I would hear it, and 

in the testimony of the previous witness, I think a couple of us 

asked, where is the demand? Where do you see the demand? I have 

heard a couple of you say that you personally, your banks and your 

credit unions, have demand. 

My question is for you, Mr. Grinnell. If you have that much demand, why don’t you convert to a mutual bank charter? 

Mr. GRINNELL. I don’t want to be a bank. 

Mr. RENACCI. Why don’t you want to be a bank? 

Mr. GRINNELL. We like being a credit union. We like being focused on our members. We want to focus on our members. We don’t 

want to focus on stockholders. We feel that is what we are good at, 

and all we want to be able to do is basically use our money, our 

depositors’ money, not the government’s money, to make additional 

loans and invest in our communities. And we do have demand. As 

I mentioned in my testimony, I have letters here from members. 

I have a letter from the mayor of Wilmington, North Carolina. 

Mr. RENACCI. I understand that, but you could, if you converted 

to a mutual bank charter, take care of that demand, correct? I 

know you don’t want to. 

39 

Mr. GRINNELL. I am not an expert on the mutual bank charter, 

but we want to remain a credit union. 

Mr. RENACCI. Okay. And one other thing before I move on, you 

did make a comment which caught my attention, too, that the 

banks, that some of these Subchapter S banks are not paying 

taxes. I am a CPA, and I would also agree, and I am assuming you 

would now agree, too, that Subchapter S’s do pass on their earnings to their shareholders and they do pay taxes, so the Subchapter 

S banks would be paying taxes; is that correct? 

Mr. GRINNELL. The bank themselves, from what I understand, do 

not pay taxes, they just pass it on to the shareholders, and credit 

unions, when we pass dividends on to our members, they pay taxes 

on those as well. 

Mr. RENACCI. But banks, Subchapter S banks could pay up to 35 

percent, their shareholders could pay up to 35 percent. You don’t 

have to answer the question, but as a CPA, I can tell you that is 

the case. 

Mr. York, you talked about jobs, and I know that is key, jobs are 

important, but if the demand for the small business owner is not 

there, you are lending to a small business owner, who is going to 

build jobs, who is going to increase his jobs; is that correct? That 

is what you are talking about, the ability to loan out to a company, 

a small business which is going to create a job; is that correct? 

Mr. YORK. Yes. 

Mr. RENACCI. So, without that demand, you are again fighting 

loans that maybe a community bank could also be lending to. 

Would that be correct? 

Mr. YORK. Not necessarily. We do have that demand, and especially in our area, we are seeing a shrinking number of banks in 

our area, community banks, and being taken over by larger conglomerates, and there is definitely a demand in our area. We are 

asked for business loans just about every day. 

Mr. RENACCI. Mr. Marranca, I will go back to you then. Are you 

telling me that you are turning away customers who are coming to 

your bank? I think I heard you say there might have been one? 

Mr. MARRANCA. If I was turning away customers coming to my 

bank, I would not have been there for 30 years, our bank would 

not have been there for 110 years, I would not have grown the 

bank over 30 percent in the last 4 years, no, sir. We have commercial lenders who are out beating on doors every day, trying to make 

loans, whether they are consumer loans, commercial loans. I have 

to put my money to work, too, and the only way I can put my 

money to work is the old-fashioned way, and that is by making 

loans. I cannot create loan demand. I can just be there ready and 

willing to lend when it is available. 

Mr. RENACCI. Mr. Kelly, I am all for competition. Can you tell 

me why your bank can’t compete with the credit unions? 

Mr. KELLY. I think that it is a matter—the banks compete with 

credit unions daily. The GAO had a report not too long ago that 

showed that banks served more low- to moderate-income people 

than credit unions did. We compete with them every day; we are 

forced to compete with them. They have expanded in almost invisible fields of membership for some of these, some of these very 

large ones that make it difficult, but the fact of the matter is when 

40 

we have a situation where we are starting to run a hundred yard 

dash, we start on the goal line, and they start on the 40 yard line. 

Because we have to pay 40 percent tax wise before we can even get 

to that point, it makes competition very hard. 

I would also tell you that I think that the reason someone, with 

respect to Mr. Grinnell, doesn’t want to convert is because he 

doesn’t want to pay taxes when he can get this kind of an exception 

and take the customers and not pay taxes on them, and I would 

tell you, we are focused on our customers, not just on shareholders. 

Mr. RENACCI. I know I am running out of time, but in conclusion, 

I would hope if somebody could get me information on demand, because I am all for competition. I am all for listening to both sides 

and hearing the credit union’s side, but I still—nobody has given 

us today, I have not heard anything about how demand is increasing and how credit unions can compete with banks on a fair and 

even plane to cover that demand. Thank you. 

Chairwoman CAPITO. Thank you. 

Five minutes for Mr. Luetkemeyer. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

Mr. Grinnell, I am kind of curious here. Looking at your Web 

site, you say that you have 79,000 members worldwide, branches 

in 3 States. You charge ATM and other service fees. Your Web site 

claims that you have expanded your field of membership to include 

more than 1,000 employer groups and associations as well as businesses. Among your employer groups are All Points Taxidermy in 

Greencastle, Pennsylvania; Aniello’s Pizza in Corning, New York; 

and Creative Minds Preschool in Wilmington, North Carolina. Can 

you tell me how in the world you can have a community of interest 

that large for a credit union? 

Mr. GRINNELL. Those employer groups that you mentioned, they 

are all of our employer groups, and I am proud to say that we serve 

all of them. 

We were originally chartered to serve Corning Glass Works, 

which is now Corning, Incorporated. They are a Fortune 500 company located in various markets throughout this country. We expanded along with Corning into North Carolina and into Pennsylvania; that is why we have branch presence in those markets. 

Since that time, certainly just from a diversification perspective 

and a safety and soundness perspective, we have expanded within 

each of those markets in North Carolina, Pennsylvania, and New 

York, to add additional employer groups, like you mentioned. 

Mr. LUETKEMEYER. Okay. Do you participate any loans out? 

Mr. GRINNELL. Sometimes, yes. 

Mr. LUETKEMEYER. Mr. York, do you participate any loans out? 

Mr. YORK. We have not participated our own loans, no. 

Mr. LUETKEMEYER. Why not? 

Mr. YORK. We haven’t found the need to yet. 

Mr. LUETKEMEYER. You are not at your cap yet? 

Mr. YORK. Not even close. 

Mr. LUETKEMEYER. Therefore, you don’t need to do that? 

Mr. YORK. We are a little over 50 percent. 

Mr. LUETKEMEYER. Mr. Grinnell, are you at the cap yet? 

Mr. GRINNELL. We are getting very close; we are at about 80 percent of the cap right now. 

41 

Mr. LUETKEMEYER. Is that a viable alternative when you reach 

the cap? 

Mr. GRINNELL. No. 

Mr. LUETKEMEYER. Why not? 

Mr. GRINNELL. We have been focused much more on participations over this last year and have found it to be a very inefficient 

and time-consuming process. Not only does it hold up getting a 

loan closed for our member—it sometimes takes over a month to 

get a loan closed—but also the time and effort, just from a pure 

business perspective, the time and effort that goes into that just 

from a profitability perspective does not make sense. 

Mr. LUETKEMEYER. That is interesting, because that is the way 

a lot of banks manage to go around their loan limits is to be able 

to participate. I think it is a great way to be able to service your 

customers. I think it is amazing that you are being so single-minded about it. 

Mr. GRINNELL. No, no, it is a very difficult— 

Mr. LUETKEMEYER. One question for you. 

With regards to a statement in your testimony here, you make 

a comment with regards to the Communities First Act, which I 

happen to be the sponsor of, and you say that one approach is the 

fair relief that would be all, to all would be to both—would be to 

combine both bills and pass as a package. While this may not be 

the first choice for banks and credit unions, it may be a fair compromise in aiding our Nation’s community institutions and job creation and putting job creation first. Failure to consider raising the 

member business lending cap for credit unions while at the same 

time advancing H.R. 1697, which is the Communities First Act, 

and its provisions would likely lead to public opposition by the 

credit union association, the entire credit union community, its 

members, and small businesses. 

That is kind of interesting. I thought you were going to put job 

creation first, and now we are going to oppose the very bill that you 

were going to use as a vehicle? 

Mr. GRINNELL. I think— 

Mr. LUETKEMEYER. In your testimony a minute ago, you said, 

‘‘Who could be opposed to that?’’ 

Mr. GRINNELL. I think both of those bills, from what I understand, both H.R. 1418 and the Communities First Act, are designed 

to decrease regulation and to help encourage lending in our communities. 

Mr. LUETKEMEYER. Would you be supportive of the Communities 

First Act if we didn’t get this bill on it? 

Mr. GRINNELL. I don’t—I am supportive of additional lending for 

our communities, but I also think this is—we all know this is a 

bank versus credit union issue, and we are supportive of trying to 

get these moved together. 

Mr. LUETKEMEYER. There are a lot of credit unions— 

Mr. GRINNELL. We are supportive of getting both of them done 

at once to help the communities that we serve. The fellow next to 

me mentioned they want to do additional lending, they want to 

make all the loans they can, and we are very supportive of that. 

42 

Mr. LUETKEMEYER. Okay, quick question for Mr. Kelly and Mr. 

Marranca. What percentage of your assets do you have in business 

lending right now? 

Mr. MARRANCA. We have a 65 percent loan-to-deposit ratio. That 

would equate to approximately a 45 percent loan-to-asset ratio. 

Mr. LUETKEMEYER. Okay, business loans? 

Mr. MARRANCA. Of those business loans, of the $100 million 

loans representing 45 percent, just about half of those are commercial business loans, small business loans. 

Mr. LUETKEMEYER. Okay, so would what the percentage be then 

of your total assets? 

Mr. MARRANCA. To assets, approximately 25 percent. 

Mr. LUETKEMEYER. Okay, so they want to be able to lend more 

than what you do. 

Okay. Mr. Kelly, what is the percentage of— 

Mr. KELLY. Our percentage that is tied to commercial lending, 

business lending, would be in excess of 60 percent. 

Mr. LUETKEMEYER. You are 60 percent business loans? 

Mr. KELLY. Yes, sir. 

Mr. LUETKEMEYER. Really? You are servicing your community, 

there is no doubt about that. 

With that, I will yield back. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

Mr. Sherman, for 5 minutes for questions. 

Mr. SHERMAN. Thank you. This bill may be the only thing this 

committee actually passes into law that creates jobs. Congress is 

pretty much locked up. This is I think the only pro-jobs bill that 

has substantial numbers of Democrats and Republicans both cosponsoring it. 

And I realize there is a place for commercial banks as well in 

making commercial loans. I just haven’t met a single small business person in my district who said, don’t let the credit unions 

make loans to my business because I am sure that some day the 

banks are going to approve the loan, I know, some day. The more 

lenders, the better it is for small banks—for small business rather. 

Now, Mr. York, I think you are at 50 percent of your cap, so 

some people would just say, well, hey, this cap isn’t affecting you. 

How has the cap affected you, and has it caused you to turn down 

small business loans? 

Mr. YORK. Luckily we haven’t had to turn any down yet, but we 

do review this on a regular basis. We have to be mindful of the cap. 

We know it is out there. We certainly want to be a resource, a continued resource for our business members. If we get closer to the 

cap and/or hit, bump up against the cap, we are not going to be 

able to be there for their existing members, let alone any new 

members that wanted to join and take advantage of those loans. 

Mr. SHERMAN. Are you able to gear up to make business loans 

to hire the loan officers who understand business lending, knowing 

that if that person is successful, they are going to hit the cap? 

Mr. YORK. Yes, that is a challenge for us right now. We certainly 

could ramp up and hit our cap in a very short period of time, but 

we have chosen not to do that. 

43 

Mr. SHERMAN. If we do pass this bill, are you going to expand 

your business lending? 

Mr. YORK. Absolutely. 

Mr. SHERMAN. Okay. Do you have any borrowers now who say, 

thanks for the loan, but I really wanted it from a commercial bank 

instead of a credit union? 

Mr. YORK. We have not heard that one yet, so we are waiting for 

that. 

Mr. SHERMAN. I will be back in my district next week. I will talk 

to a lot of small business people, and we will see whether they 

want to prevent a major avenue of small business lending on the 

theory that some other institution should do it. 

Now, you pointed out that nearly 70 percent of the credit unions 

don’t engage in any business lending. Why are there so few that 

make business loans? And I think we have talked on it a little bit, 

and that is you would have to gear up to be able to do it, but why 

are so few credit unions making business loans now? 

Mr. YORK. The smaller credit unions know there is certainly a 

cost to enter this business. You have to gear up for that and pay 

for that. Knowing there is a cap out there, you are certainly not 

going to do that if you are not going to be able to have a sustainable business model that will take you forward. These credit unions 

have chosen not to participate in business lending for either that 

reason, or it is not in their goals or business model. 

Mr. GRINNELL. If I may, Congressman, Chairwoman Matz had pointed out that credit unions, $45 million and under in assets, 

that represents about two-thirds of credit unions across the country, and those are very small credit unions, so it just doesn’t make 

economic sense for them to hire that kind of expertise to be able 

to make between $5 million and $6 million in loans, but two-thirds 

of all credit unions are $45 million or less in assets. 

Mr. SHERMAN. Even if you were making 2 or 3 percent spread 

on those loans net, if you are only making $5 million or $10 million 

in loans, it is hard to pay for a full-time loan officer, let alone the 

oversight supervision that we would like to see in intelligent lending. 

What about your credit union, how are you affected by the business lending cap? 

Mr. GRINNELL. We are right now about 80 percent of our cap, 

and we have—back to the demand question that has been mentioned several times, we have very strong demand in both of our 

markets. We are anxious to serve our members. We are anxious to 

help our communities. If this cap is not lifted, we are going to 

begin turning members away sometime next year. We already don’t 

promote our program, and unfortunately, it will go from that to actually turning people away. And we have, as I mentioned before, 

a hundred, if the cap gets lifted, that would give us another $135 

million, which I don’t think is a small amount for the communities. 

Mr. SHERMAN. Speaking to the credit union representatives, do 

you oppose any legislation that is designed to get, allow or help 

commercial banks from making more small business loans? 

Mr. GRINNELL. No, I tried to say that before, but absolutely not. 

Mr. YORK. Not at all. 

Mr. KELLY. Congressman— 

44 

Mr. SHERMAN. Mr. Kelly? 

Mr. KELLY. If I might just respond to your question about that 

you hadn’t had anyone in the credit union saying, I really want to 

get this from a commercial bank. I haven’t had anybody in my 

bank say, I would really rather have this loan from a credit union. 

Mr. SHERMAN. I don’t know your part of the country, but I have 

1,000 different business people just in my district who have come 

to me and said, I didn’t get the loan from the bank; I wish I could 

have gotten it from the credit union. I am sure the business people 

I talk to would be happy to get the loan from any one of the people 

who are up there, and if you want some Los Angeles business, see 

me after the hearing. 

Mr. KELLY. I might want to do that. I do want to point out that 

maybe— 

Chairwoman CAPITO. The gentleman’s time has expired. 

Mr. SHERMAN. My time has expired. 

Chairwoman CAPITO. Mr. Huizenga for 5 minutes. 

Mr. HUIZENGA. Thank you, Madam Chairwoman. 

I appreciate the opportunity to peer into the spitting match that 

goes on here in Washington. It is good to know when I served in 

the Michigan legislature, that wasn’t just a unique microcosm. This 

is a national issue between the banks and the credit unions. 

So I hear a lot of testimony, and quite honestly, I think you both 

have some very salient points as you are moving into this. I think 

that, as my colleague from California was starting to talk about, 

there is a credit access problem. 

I happen to believe one of those barriers to banks being able to 

make those loans is the Dodd-Frank Act that this committee 

passed, and I will give a specific example on that: A family-owned 

business that has a piece of property in Michigan with a $1.2 million value has a $120,000 loan on that, has a 5-year balloon, and 

based on the regulators now coming into that bank, which this 

family has had a 30- to 40-year relationship with, those regulators 

are saying, oh, real estate holdings in Michigan? Thanks, but no 

thanks, you have to move those off your books. 

Fortunately, that banker happened to have a very good relationship with one of their local credit unions and pulled that family in 

with their credit union. And I think that happens more often than 

maybe what people care to admit, but you had a banker and a 

credit union member or a lender sitting at the same table in a 

bank trying to make sure that their customer was being serviced. 

And that was directly tied to Dodd-Frank and some of the regulatory issues that were coming in. 

So that is an ongoing concern that I have as a member of this 

committee and something that we need to do, and I think something that can change. 

I am seeing both heads nod. 

Madam Chairwoman, just for the record, we have banks and 

credit unions agreeing. 

So I am glad I could be a unifier here. 

I do sort of want to touch on a little bit with my friends from 

the bank here, we heard the regulator from the credit unions, so 

sorry, Deborah Matz, earlier, who was addressing sort of the safety 

and soundness concerns. She doesn’t believe that is particularly 

45 

valid. I think anybody who has looked at this sees that there are 

advantages to being a credit union. There are advantages to being 

a bank for different things that you are trying to do. 

I guess what I am trying to get at as a member exploring this 

issue, is there really a need for the increase in the cap or not? 

And I guess I would ask Mr. Marranca and Mr. Kelly this specifically. If there is no need, because there is sort of this lack of demand element, then really is there a harm in authorizing that cap 

to be lifted if you are really not losing that much business to them? 

And I understand there may be particular instances. I experienced 

that one firsthand as I was sitting, witnessing this particular 

transaction. I know there are times that occurs, but where is the 

particular harm that could come out of this? 

Mr. MARRANCA. Congressman, in my opinion, it is a zero-sum 

game when you ask, is there a need? It is not an issue of demand. 

It is a zero-sum game. Any loans that will go into a credit union, 

which would be taken from a bank or a community bank. They 

would be taken from a bank that pays taxes. You are not going to 

create new loan demand when the demand is not there. I heard— 

Mr. HUIZENGA. I am going to interrupt for one second here. I 

know, being a small business owner myself, if I have an institution 

that can’t particularly make that one loan come together, bank, 

credit union, whatever, as long as I grow my business, guess what, 

I will have eventual demand. And so, I think there is something 

to be said about growing the size of the pie in general here, and 

this bill may do it. I don’t know, but go ahead. 

Mr. Kelly, I know you wanted to jump in. 

Mr. KELLY. Thank you, Congressman. 

The thing that I would say is, I would go back to my original testimony and point out that there is an ability right now for these 

credit unions to convert to mutual charter. When we see the association that Congressman Luetkemeyer addressed, as far as all 

these common bonds that aren’t really common, we go out and look 

at the billboard in Los Angeles that said, can you join? And the answer underneath is, are you breathing? We are prying under a charade now that the credit unions really serve this common bond, and 

it is not really the case. And so my colleague here is talking about 

the fact that we are not talking about the American Airlines Credit 

Union that serves everybody associated with American Airlines. 

And we bless that and say good luck, keep going. 

We are talking about moving into the commercial field, which 

takes away, which puts a complete disadvantage there and also 

takes away from the bank’s ability to truly be able to go out and 

have a level playing field of trying to get those loans and service 

those loans. 

At the conclusion of my testimony is a list of the credit unions 

that have recently failed because of their commercial lending forays, and I just ask you to look at that. I also have a quote from 

Dale Kerslake, who is the president and CEO of Cascade Federal 

Credit Union in Kent, Washington, who basically says that the majority of credit unions do not want or need this type of legislation, 

and I would just call that to your attention. 

Mr. HUIZENGA. I appreciate that, and I know my time has expired, but there have been plenty of banks and credit unions that 

46 

have gone out of business because of this particular job environment, and that is what we are trying to change and turn around. 

Mr. KELLY. Thank you, Congressman. 

Chairwoman CAPITO. Thank you. 

I would like to thank the panel. I have an additional question, 

and Mr. Scott would like to ask an additional question if you would 

just bear with us here. 

I wanted to ask Mr. Hanson, what is your perspective on the National Shared Insurance Fund? If this cap were to be expanded, 

would it have any influence on it? Would it have any influence on 

what was required of the participation of the credit unions that pay 

into this fund? I know you managed the one for the State of Massachusetts. 

Mr. HANSON. I think the NCUA has done a very good job so far 

in managing and supervising the member business lending under 

the existing cap, and I think that their regulatory approach has 

worked quite well, as we can see from the delinquency numbers. 

So I don’t think that increasing credit union member business lending will impose any additional risk on the fund, and in fact, the diversification of those portfolios is a very big and important issue, 

especially given the fact that mortgages are now at 40-year 

generational low interest rates. 

As interest rates rise, mortgage loan portfolios will carry interest 

rate risk, and so it is very important for credit unions and all community financial institutions to diversify their portfolios so that 

they will not have future interest rate risk. So this action, I think, 

will actually help and will ease the stress on the NCUSIF. 

Chairwoman CAPITO. Thank you. 

Mr. Scott? 

Mr. SCOTT. Thank you, Madam Chairwoman. 

In listening to this debate and this discussion and debate between you, it seems to me that what all of this is boiling down to 

is competition, and I think that it would be very important for us 

to ask the question of each of you because, Mr. Kelly, I believe it 

was, you made a statement, you said something relative to shifting 

of tax-impacted loans to tax-exempt loans. So I would like for each 

of you to answer the issue about this competitive edge of credit 

unions having the tax exemption status, how that relates—and I 

think it is very important for the credit unions to give us a good 

answer on this, because I think that all this is weighing in on this 

competition between banks and here. 

The increase from 12.2 to 27.2, I believe, is a sizable increase 

here, so I think that as we evaluate this and look at it, I think 

some of this is going to come on, where does this lay? Is there an 

advantage? What is this about the tax-exempt status? And let’s 

deal with this issue; is this an issue of competition here? Because 

we are trying to get demand, we are fuzzy on that. It is going to 

create jobs. It is going to create 250, and it is based on this or that. 

So is this somewhere where the rubber meets the road that you 

feel it is unfair for the credit unions to have this tax-exempt, and 

then they get in your bailiwick, and the credit unions are saying 

we have this demand, and we have a not-for-profit status that goes 

along with this? So could each of you give us your opinion on this 

whole issue? 

47 

Mr. MARRANCA. Congressman, I am not afraid to compete. I compete every day. I have been in the bank for 30 years. Before that, 

I was an FDIC bank examiner. I believe in safety and soundness, 

and I believe in taking care of the communities we serve. My main 

office has been located 110 years in a town of 800 people. 

We have to be very careful about lumping all banks together 

versus lumping community banks, which are over 7,000 in this 

country, who believe strongly in Main Street America, relationships, taking care of our customers and business customers. 

I will compete up against anybody, megabanks, credit unions, 

other community banks, but they have a competitive advantage 

when they want to be a bank, look like a bank, smell like a bank, 

but don’t pay taxes like a bank, and now they want more powers. 

That puts me at an even greater competitive advantage. They don’t 

have CRA. They don’t have the FDIC regulators. They, if they want 

to be a bank, can be a bank. If you don’t want to be a bank, remain 

as you are, but you have a competitive advantage. I bet you there 

are thousands of credit unions who right now are afraid of what 

might happen when you open this bottle. I am not afraid of competition. America is built on competition, but it is also built on fairness and a level playing field. 

Mr. KELLY. Congressman, I think that I would second what Mr. 

Marranca said, but I would tell you that from my standpoint, I can 

give you an example of a California credit union that is an entrepreneurial credit union that has come in and made a loan in Tulsa, 

Oklahoma. I think we could show you example after example after 

example of those kind of things going on, of out-of-State credit 

unions coming in and making commercial loans. 

The reason I bring that up is because that is really a pretty 

small percentage of the credit unions that are out there. The traditional credit union, the traditional one that really intends to cover 

that core group of people who work at American Airlines or that 

are truly the East Central Teachers Credit Union, of which there 

is one, those are there for a purpose. They stay within their 

bounds, but when we start seeing credit unions expand beyond 

State lines, expand into every possible profession that there is, it 

is fine to stand behind that and say, you know that I am a credit 

union, and I can offer 3 percent lower rates, and I am not really 

covered by FDIC and tough Dodd-Frank regulations. 

Mr. SCOTT. I don’t want my time to expire without giving the 

other side an opportunity to respond, so could I hear from the credit unions? 

Mr. GRINNELL. I would like to respond, thank you, I guess with 

a couple of points. The banks say that we have this huge advantage and the tax advantage is always thrown in there; it is not a 

level playing field. And I guess I would say if the advantage is that 

significant and that much of a competitive advantage, why do we 

only have 5 percent market share in business loans? 

I guess I would also say that, if the advantage is that significant, 

then why don’t we see banks converting to credit unions? 

And then, lastly, when we have new members come in our doors 

for commercial loans, it is not because we have better rates. It is 

not because we have some tax advantage. It is for one of two reasons. First, again, I have letters to show that the banks were not 

48 

willing to help these members; they did not have the money to lend 

to these members. Second, the other reason that we see is that the 

banks are more focused on their stockholders than they are taking 

care of their customers. 

Mr. SCOTT. So you do have evidence where people have been 

turned away from banks? 

Mr. GRINNELL. Yes, I do. AsI said before, I would like to submit 

that into the record. 

Mr. SCOTT. Mr. York? 

Mr. YORK. Thank you for the question. First of all, we are taxexempt because of our structure, we are a not-for-profit financial 

cooperative. That is different than a bank structure. And there is 

nothing wrong with that. It is okay that we have two different 

structures. 

They are beholden to their stockholders; we are beholden to our 

members. We are here to serve our members. That is our mission, 

to serve our members, whether they are of modest means or not, 

we serve our members. And we do that with consumer loans, home 

loans, and business loans. So it has nothing to do with our tax-exempt status. We have a different structure. 

This shouldn’t be about our taxation or tax status. It should be 

about creating jobs. It should be about businesses and helping the 

economy, and that is what we both have said for this entire time, 

and we look forward to a positive result. 

Mr. HANSON. I will be brief. 

These are really two different industries. Credit unions are taxexempt because they go places that other financial institutions 

don’t go, and they serve people who need those resources, and that 

really is the heart and soul of the industry. 

This isn’t about competition. The fact of the matter is, all the credit unions in the Nation have about $950 billion in assets. That 

is less than the balance sheet of Citibank. 

We serve people who need these services, and we are really a different industry. And we are going to deliver member business loans 

to help improve the economy as demand improves, and so as a result, I think the issue is clouded when it is looked at a competitive 

issue with credit unions and banks. This is not a zero-sum game; 

this is about increasing the pie and delivering financial services to 

those people who need them. 

Our largest credit union, Navy Federal Credit Union, is that way 

because it went places no one else would go. Thank you. 

Chairwoman CAPITO. Thank you, and I am going to give Mr. 

Luetkemeyer 5 minutes if he has any additional questions. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman, just briefly. 

Mr. York, what is the interest rate that you charge on your auto 

loans? 

Mr. YORK. Right now, it is 1.99 percent. 

Mr. LUETKEMEYER. What is the rate that you charge on your 

home loans? 

Mr. YORK. It is market rate, Fannie Mae, Freddie Mac rates. 

Mr. LUETKEMEYER. Four percent, 4 and a quarter? 

Mr. YORK. Sure. 

Mr. LUETKEMEYER. What is the rate you are charging on your 

commercial loans? 

49 

Mr. YORK. It depends on what type of loan it is. Real estate, it 

could be 6 percent. 

Mr. LUETKEMEYER. Six percent. 

Mr. Grinnell, what is your rates on auto loans? 

Mr. GRINNELL. I believe the car loan rate is around 2.5 percent. 

Mr. LUETKEMEYER. Two and a half. Home loans? 

Mr. GRINNELL. Again, whatever the market rate. 

Mr. LUETKEMEYER. Okay, commercial loans? 

Mr. GRINNELL. Depending on the type of deal, the structure of 

the deal, anywhere between probably 5.5 and 6.5 percent. 

Mr. LUETKEMEYER. Okay. 

Mr. Kelly, what is your rates? 

Mr. KELLY. On our auto loans, which would be consumer loans, 

we would probably be in the neighborhood of 5 percent. Commercial loans, we would be usually priced off of national prime somewhere 4.5 to 5 percent, and we operate most of our, most of the 

loans today go into the national market, so we price our home 

loans based on the national market rates. 

Mr. LUETKEMEYER. Okay. Mr. Marranca? 

Mr. MARRANCA. Our car loans would average between 4 and 5.5 

percent, depending upon the term of the loan, our mortgage loans 

would be the national rate, Fannie Mae and Freddie Mac, with the 

exception of we also make loans that we hold in our own portfolio 

for approximately one-third of our customers who do not qualify for 

Fannie and Freddie, and that would have a premium on them because we are holding those in our portfolio. Our commercial loans 

are totally negotiable based upon the strength of the borrower and 

the balance sheet, but would average between 4.75 and 6.5 percent. 

Mr. LUETKEMEYER. Okay. What is interest rate reflective of? 

Mr. MARRANCA. Pardon? 

Mr. LUETKEMEYER. What is the interest rate reflective of? 

Mr. MARRANCA. Market competitive factors. 

Mr. LUETKEMEYER. Risk, right? 

Mr. MARRANCA. And risk/reward, absolutely. 

Mr. LUETKEMEYER. It is interesting. I know Chairwoman Matz, 

and Mr. Hanson, you made a comment a while ago that it is important to diversify your portfolio. And I don’t disagree with that, but 

it is interesting that we want to diversify in a more risky area. And 

I want you to just think about that for a second. Be very careful 

where you want to tread because you are going in a direction that 

has a lot of pitfalls in it, and that is the only comment I have to 

make. 

Mr. MARRANCA. Congressman, if I may quickly, I heard today the 

national credit union regulator say, and it frankly astounded me, 

that for the sake of safety and soundness, they want their organization to diversify into the most risky loans you can make for diversification and safety and soundness. And I can tell you I have 

never heard an FDIC Chairman say, I want you to make more 

commercial loans for diversification or safety and soundness. 

Mr. LUETKEMEYER. As a former regulator myself, this is the 

wrong direction to go to if you are looking for safety and soundness. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. I thank you, and I thank the Members, and 

I want to thank the panel for the lively discussion and great details 

50 

which you provided in your answers. I would say, anecdotally, it is 

like Mr. York said, it is all about jobs. And we have to find a way 

to get America back to work. 

The Chair notes that some Members may have additional questions for this panel which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for Members to submit written questions to these witnesses and to 

place their responses in the record. The hearing is adjourned. 

Thank you all. 

[Whereupon, at 4:44 p.m., the hearing was adjourned.] 

(51) 

A P P E N D I X 

October 12, 2011 

52 


72613.001
53 


72613.002
54 


72613.003
55 


72613.004
56 


72613.005
57 


72613.006
58 


72613.007
59 


72613.008
60 


72613.009
61 


72613.010
62 


72613.011
63 


72613.012
64 


72613.013
65 


72613.014
66 


72613.015
67 


72613.016
68 


72613.017
69 


72613.018
70 


72613.019
71 


72613.020
72 


72613.021
73 


72613.022
74 


72613.023
75 


72613.024
76 


72613.025
77 


72613.026
78 


72613.027
79 


72613.028
80 


72613.029
81 


72613.030
82 


72613.031
83 


72613.032
84 


72613.033
85 


72613.034
86 


72613.035
87 


72613.036
88 


72613.037
89 


72613.038
90 


72613.039
91 


72613.040
92 


72613.041
93 


72613.042
94 


72613.043
95 


72613.044
96 


72613.045
97 


72613.046
98 


72613.047
99 


72613.048
100 


72613.049
101 


72613.050
102 


72613.051
103 


72613.052
104 


72613.053
105 


72613.054
106 


72613.055
107 


72613.056
108 


72613.057
109 


72613.058
110 


72613.059
111 


72613.060
112 


72613.061
113 


72613.062
114 


72613.063
115 


72613.064
116 


72613.065
117 


72613.066
118 


72613.067
119 


72613.068
120 


72613.069
121 


72613.070
122 


72613.071
123 


72613.072
124 


72613.073
125 


72613.074
126 


72613.075
127 


72613.076
128 


72613.077
129 


72613.078
130 


72613.079
131 


72613.080
132 


72613.081
133 


72613.082
134 


72613.083
135 


72613.084
136 


72613.085
137 


72613.086
138 


72613.087
139 


72613.088
140 


72613.089
141 


72613.090
142 


72613.091
143 


72613.092
144 


72613.093
145 


72613.094
146 


72613.095
147 


72613.096
148 


72613.097
149 


72613.098
150 


72613.099
151 


72613.100
152 


72613.101
153 


72613.102
154 


72613.103
155 


72613.104
156 


72613.105
157 


72613.106
158 


72613.107
159 


72613.108
160 


72613.109
161 


72613.110
162 


72613.111
163 


72613.112
164 


72613.113
165 


72613.114
166 


72613.115
167 


72613.116
168 


72613.117
169 


72613.118
170 


72613.119
171 


72613.120
172 


72613.121
173 


72613.122
174 


72613.123
175 


72613.124
176 


72613.125
177 


72613.126
178 


72613.127
179 


72613.128
180 


72613.129
181 


72613.130
182 


72613.131
183 


72613.132
184 


72613.133
185 


72613.134
186 


72613.135
187 


72613.136
188 


72613.137
189 


72613.138
190 


72613.139
191 


72613.140
192 


72613.141
193 


72613.142
194 


72613.143
195 


72613.144
196 


72613.145
197 


72613.146
198 


72613.147
199 


72613.148
200 


72613.149
201 


72613.150
202 


72613.151
203 


72613.152
204 


72613.153
205 


72613.154
206 


72613.155
207 


72613.156
208 


72613.157
209 


72613.158
210 


72613.159
211 


72613.160
212 


72613.161
213 


72613.162
214 


72613.163
215 


72613.164
216 


72613.165
217 


72613.166
218 


72613.167
219 


72613.168
220 


72613.169
221 


72613.170
222 


72613.171
223 


72613.172
224 


72613.173
225 


72613.174
226 


72613.175
227 


72613.176
228 


72613.177
229 


72613.178
230 


72613.179
231 


72613.180
232 


72613.181
233 


72613.182
234 


72613.183
235 


72613.184
236 


72613.185
237 


72613.186
238 


72613.187
239 


72613.188
240 


72613.189
241 


72613.190
242 


72613.191
243 


72613.192
244 


72613.193
245 


72613.194
246 


72613.195
247 


72613.196
248 


72613.197
249 


72613.198
250 


72613.199
251 


72613.200
252 


72613.201
253 


72613.202
254 


72613.203
255 


72613.204
256 


72613.205
257 


72613.206
258 


72613.207
259 


72613.208
260 


72613.209