Credit Unions Can Reach Underserved

September 24, 2011

Credit unions are an ideal fit for the poor and financially underserved. And steps taken by the National Credit Union Administration (NCUA) in recent years have helped position many of these financial cooperatives as alternatives to payday lenders and other un/under-regulated nonbank lenders. Now there's a movement afoot to let federally chartered credit unions increase lending to small businesses.

The Small Business Lending Enhancement Act of 2011 (H.R. 1418 and S. 509) would raise the legal limits on credit union loans to small businesses. These days credit union loans to member businesses are limited to 12.25% of assets. This legislation, co-sponsored by scores of lawmakers from both sides of the political aisle, would raise the cap to 27.5% of assets.

"Credit unions have a century of making member business loans and fill a market niche for the small business loans that banks generally do not make," David M. Marquis, NUCA's Executive Director, told lawmakers last week. "By prudently lifting the cap on member business lending, credit unions would be able to offer more credit to small businesses, supporting economic growth and job creation."

Marquis was on Capitol Hill this week to address a hearing before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit. (Click here for related story.)

Credit Unions Making a Difference

In a statement Marquis detailed NCUA's "considerable experience in facilitating the ability of credit unions to meet the financial needs of the underbanked."

Last year, for example, the federal credit union regulator adopted rules allowing credit unions to offer alternatives to payday loans, with notable success. In just a year, 343 credit unions have made 33,000 micro-loans under this program. The loans averaged $412, and the average APR was just under 21% (on par with credit card APRs).

Credit unions specially chartered to serve low-income members (called "low-income credit unions", or LICUs) have nearly tripled (in terms of sheer numbers as well as asset totals) in less than a decade. And while credit union  loan growth overall has expanded at a healthy 6% since December 2007, loan growth at LICUs has expanded 14%, according to NCUA.

As of June 30, 2011, there were 1,118 LICUs in the U.S. with $44.3 billion in assets, $27.2 billion in loans and 6.1 million members, the agency reports.

For more details about what NCUA has done to address the needs of America's financially underserved check out  Marquis' testimony.

250 microfinance institutions made loans to Americans in 2007.