Nevada credit unions, community banks battle over lending rules

Nevada credit unions continue to post increases in business loans, hitting $6.4 billion in outstanding loans as of June 30, a figure not seen since 2010, according to the Nevada Credit Union League.

Depending on the outcome of a lawsuit against the National Credit Union Administration, that figure could rise even higher.

NCUA is the federal regulator for credit unions, including some familiar names in Southern Nevada. In February, the NCUA approved new rules that allow credit unions to lend more money through commercial loans.

Under federal law, credit unions enjoy tax-exempt status but have restrictions on their activities and membership, while banks pay taxes but have more flexibility in lending.

Federal law allows credit unions to make loans worth up to 12.25 percent of the credit union’s total assets.

Community bankers argue the new rules add to the existing advantage credit unions have in not paying income tax.

“This means that they could possibly purchase loans for one another in excess of their lending cap, which in turn would give them a greater capacity to expand into the commercial lending market and compete with community banks,” said James York, president and CEO of Valley Bank of Nevada.

York told the Las Vegas Business Press the competition for small-to-medium commercial loans is already very high from the larger national and regional banks due to their excess liquidity. He added that “this would just add more competition to a market that has lackluster demand as it is.”

The new rules also lift limits on construction and development loans and make credit unions with less than $250 million in assets exempt from certain commercial lending requirements.

The agency said the “increased flexibility” would give credit unions, including those in Nevada, “greater autonomy to develop and maintain member-business lending programs that best fit their members’ needs and strategic goals,” according to the NCUA’s rule announcement.

To block the NCUA’s changes, the Independent Community Bankers of America has sued the NCUA in federal court in Virginia.

In its lawsuit, the ICBA said by eliminating the restriction on commercial lending activities of insured credit unions in violation of the Administrative Procedure Act, the NCUA “exacerbates the unfair competitive harm that tax-exempt credit unions are able to inflict on community banks, which do not benefit from the tax advantages enjoyed by credit unions.”

“The harm is real,” the ICBA’s lawsuit said.

Besides Valley Bank of Nevada, other Las Vegas-based community banks listed on the ICBA website are Town &Country Bank, Kirkwood Bank of Nevada and First Security Bank of Nevada.

ICBA’s lawsuit notes that the NCUA rule puts consumers, taxpayers and the financial system at risk by jeopardizing the safety and soundness of federally insured credit unions.

“The ICBA claims are baseless, and we are certain the courts will rule in favor of credit unions,” Diana Dykstra, president and CEO of the Nevada and California Credit Union Leagues, told the Las Vegas Business Press.

Dykstra said the regulatory change by the NCUA that is being challenged by the ICBA “could increase small business lending by all credit unions in Nevada, thus making more capital available to businesses, put more people to work and result in the continued improvement of the Nevada economy.”

Meanwhile, the Nevada Credit Union League has released some business lending figures. Twelve of the 17 credit unions in Nevada had a total of 684 business loans on their books as of June 30.

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