Free-Market Groups Hail Measures to Reduce Credit Union Red Tape

Washington, D.C., June 16, 2011 – While politicians are decrying the lack of lending to small businesses, government red tape is preventing credit unions from coming to the rescue, note leaders of two prominent free-market think tanks.

The Competitive Enterprise Institute’s John Berlau and the Heartland Institute’s Eli Lehrer applaud the Senate Banking Committee for its hearing today “on arbitrary restrictions on business lending.” Berlau and Lehrer noted in a letter to the committee that in light of disappointing statistics on both unemployment and new business growth, “current rules preventing credit unions from lending more than 12.25 percent of their assets to businesses make no sense.”

Berlau and Lehrer praised the bipartisan Small Business Lending Enhancement Act – sponsored as S. 509 by Mark Udall (D-Utah) and H.R. 1418 by Ed Royce (R-Calif.) –as “a step in the right direction.” These bills would lift the credit lending cap to 27.5 percent of assets.

The scholars noted that no taxpayer subsidies would be involved, just a mild deregulatory step. “Unlike TARP, the stimulus and numerous other subsidies to business, this act would have no cost to taxpayers,” they wrote. “It would simply eliminate burdensome regulation that is preventing small business lending from occurring.”

Berlau and Lehrer add that “there is no credible research to show that the 12.25 percent cap is in any way necessary for credit unions’ safety and soundness.” In fact, they add that current rules limiting business lending “may encourage a dangerous concentration in other types of loans such as mortgages, which we know from the financial crisis can often be anything but safe.”

The Senate Banking Committee hearing is at 10AM today at 538 Dirksen Senate Office Buildings. John Berlau may be reached at his cell at (202) 415-3192. Here is a copy of the letter to the Senate Banking Committee.