From expanded member business lending to remote notary services, credit union trade groups on Tuesday sent congressional leaders their latest wish list for the next coronavirus pandemic economic stimulus legislation.
Since House and Senate leaders have indicated that the next bill to be enacted may be the last stimulus legislation for a while, the stakes are particularly high.
The Credit Union National Association and the National Association of Federally-Insured Credit Unions, in separate letters, pleaded with congressional leaders to ease the way for credit unions to respond to the economic woes caused by the pandemic.
“As you continue your work to provide resources to American families and small businesses, we encourage you to remove barriers and address issues in order to ensure credit unions can fully serve and support their communities,” CUNA President/CEO Jim Nussle said in his letter to Capitol Hill.
“As we have shared with you previously, credit unions are keenly aware of the hardships their members are facing due to the COVID-19 pandemic and are working around the clock to proactively assist them,” NAFCU Vice President of Legislative Affairs Brad Thaler wrote in his letter.
He added, “Many credit unions have implemented programs to protect their members’ financial health, including skipping payments without penalty, waiving fees, low or no-interest loans, loan modifications and no interest accruals.”
While the wish lists diverge in several areas, the two trade groups agreed on several top priorities.
Central Liquidity Facility
The two groups said they support the temporary changes to the National Credit Union Administration’s Central Liquidity Facility, but they believe as loan demand increases, the sunset date for the changes should be extended.
Nussle wrote that CUNA favors extending the changes to the end of 2021, increasing the CLF’s borrowing ability.
NAFCU went further, asking Congress to make the changes to the CLF permanent. Thaler pointed out that NCUA Chairman Rodney Hood and board member Todd Harper have endorsed that position.
“The CLF is an important liquidity tool for credit unions, and the recovery ahead will likely extend beyond the end of 2020 when the changes are set to expire,” Thaler wrote.
Paycheck Protection Program
Credit unions have made thousands of loans under the Paycheck Protection Program, the two trade groups pointed out. Most of those loans are likely to be eligible for loan forgiveness, which will create a bottleneck for lenders.
The two groups have endorsed legislation that would provide automatic forgiveness—or a simple one-page application–for loans of up to $150,000.
“The Paycheck Protection Program Small Business Forgiveness Act will allow America’s small business owners and Main Street financial institutions to remain focused on serving their communities rather than jumping through burdensome regulatory hurdles,” Nussle wrote.
Thaler said that loans under $150,000 account for 86.5% of all PPP recipients, but only make up 27% of the funds distributed under the program.
“A smaller PPP loan is less likely to pose a high risk of fraud so the benefits to small businesses and lenders of providing this automatic or simplified forgiveness significantly outweigh the potential risks,” Thaler wrote.
Member Business Lending Cap
To aid in the coronavirus recovery, credit unions should be able to expand their member business lending, the groups said, noting that under federal law, most credit unions have a restriction stating they cannot lend more than 12% of their assets.
“But credit unions are well capitalized, safe and sound; credit unions for which this cap is limiting have significant business lending experience and additional capital to lend,” Nussle wrote.
Thaler said that loans that are made in response to the pandemic should be exempt from the Member Business Loan cap. He noted that the three members of the NCUA board have endorsed lifting the cap to allow credit unions to make more loans in response to the coronavirus crisis.
This proposal has gained the attention of banking lobbyists, who said that Congress should not allow credit unions to use the pandemic as an excuse for lifting the restrictions. And the National Taxpayers Union has questioned whether lifting the cap will blur the purpose of credit unions to serve people of modest means.
The two trade groups said that while they support efforts to help struggling homeowners, a large volume of loan forbearances will have a big impact on mortgage servicers.
Nussle said that the longer that mortgage servicers, including credit union service organizations, are expected to deliver payments while borrowers are in deferment, the more likely it is that servicers will begin suffering from liquidity problems. He suggested that Congress create a financing program to ensure that will not happen.
Thaler cautioned Congress against adopting any mandated blanket loan forbearance provisions. “We are concerned that broad mandated loan forbearance that does not balance the perspectives of financial institutions could create both operational questions and safety and soundness issues without providing regulators the flexibility to address them,” he wrote.
Obtaining a notary signature is a necessary part of the residential loan closing process, Nussle said, adding that the federal government lacks any law that would allow electronic notary signatures. He said that the financial stimulus bills already enacted have stimulated mortgage lending. “Remote online notarization capabilities are essential to credit unions’ ability to process these loan requests,” he wrote.
Thaler said that credit unions are discovering that provisions of the federal law to allow electronic signatures to carry the same legal weight as in-person signatures is outdated. “Congress needs to modernize provisions in the [law] to help credit unions better meet the needs of members, while respecting social distancing requirements,” he wrote.