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Credit Union Deregulation Could Help Small Businesses

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Credit Union Deregulation Could Help Small Businesses

Report Argues For More Liberal Lending Standards

Washington, D.C., September 19, 2007—If Congress moves to de-regulate credit union business lending, it would help some selected categories of small businesses, according to a new report from the Competitive Enterprise Institute.

"Overall, credit union business lending plays a trivial role in our overall economy," explains Eli Lehrer, CEI Senior Fellow author of the report "It’s heavily regulated and will remain so for the foreseeable future."

In his report, Lehrer finds that credit union business lending does not have a consequence for most other types of business lending—none of it goes to large businesses--but, instead, serves as a vital source of credit for certain types of small businesses.

"Nearly half of all credit union business loans are backed by taxicab medallions, crops, and agricultural equipment," Lehrer explains. "It’s difficult to assess the value of these assets and, as a result, it’s difficult to lend against them."

Perhaps because they always have a base in a "field of membership" (credit unions for farmers and taxi drivers exist), some credit unions may have a built-in competitive advantage in making these types of loans and unlocking the wealth contained in certain assets.

A reform plan currently before Congress – the Credit Union Regulatory Improvements Act – would allow credit unions to use more of their assets to make business loans. Lehrer concludes that the act, while a good idea in principle, will likely only make a small amount of credit available to small businesses. He urges much broader deregulation of credit union business lending.

Read the report: Taxicab Medallions and Heirloom Tomatoes to the Rescue How Expanding Credit Union Lending can Help Small Businesses survive the Credit Crunch by Eli Lehrer

Eli Lehrer Bio & Publications