The Business Credit Union is one of the two major credit unions which have come to replace the US Fed (Reserve Bank of New York) and the FED (Federal Reserve Board of Governors) in facilitating small businesses in U.S. financing. The other organization is the Employee Trust Organization (ETO). As a part of its services, the Business Credit Union would provide its members with an extended credit facility, which includes commercial lines of credit, loans for purchasing and development of assets, as well as purchase of assets and stock from third parties. In fact, the Business Credit Union would have become the new owner of your small business if you had opted to close the line of credit.
The Business Credit Union was established for the purpose of encouraging small businesses in the U.S. to expand and grow by accepting deposits from new customers. The purpose behind establishing this institution was the belief that the Federal Reserve System (FRB) had been set up to support banks and credit unions only. Thus the new loans were to be channeled through the credit union directly into the hands of the entrepreneurs. A decade ago, the vast majority of entrepreneurs believed that the only way to acquire credit was to raise venture capital from angel investors or venture capitalists, who normally did not participate in the financing of small businesses.
The creation of the BUC was a timely move to correct this perceived injustice. The creation of the BUC created a number of alternative financing channels for small businesses to use including commercial lines of credit, commercial loans, business loans, and non-recourse loans. Since the inception of the BUC, the rates of interest on the loans have decreased significantly. Also with the BUC, lenders have agreed to permit the borrowers of the BUC to extend the maturity date of the existing loans by up to three years. This easing of terms has substantially improved the cash flow situations of the small businesses.
There are many indicators that we can draw from the past year in the credit union industry. One of the most significant indicators was the fact that the number of individuals who applied for new loans increased by twenty-two percent. Another indicator that we can draw from the past year is that the number of individuals who applied for open market line of credit decreased by twelve percent. This means that the number of people who wanted to borrow money to expand their business actually decreased by twelve percent.
This decline in the number of applicants is most likely due to the BUC announcement on 31 March 2021. On this date, the BUC began allowing the accredited companies to accept deposits from accredited members instead of the individual applicants. In effect, the BUC created a new loan process that required an additional application fee and an associated company charge. The combined effect of these two charges translated into a significant decrease in the amount of money that applicants were able to borrow from the credit union. This meant that the credit union was losing money that it needed to continue its operations.
Subsequently, on the same day that the BUC notified all members that they could no longer accept deposits from the non-accredited companies, it informed all members that they would be allowed to borrow from the designated lenders once again. However, the credit union did not inform the designated lender that it was changing the definition of “asset-based lending” and no longer requiring an associated company fee. This means that the credit union is now redefining the way that it determines the maximum amount of the interest rate that it will charge on a loan. Now, instead of requiring an associated company fee, the credit union has changed the definition of the term “asset-based lending.” This redefinition means that the credit union will determine the interest rate on the . . . . . . basis of the value of the assets that are backing the debt.
As a result of the above mentioned activity, it was necessary for the members to contact the National Credit Union Association for further clarification. The association provided the following explanation in a letter to the National Credit Union Association. According to the National Credit Union Association, the credit unions “decided to redefine the definition of lending since the definition of lending was being used consistently to penalize the members for exercising their rights.” In other words, the credit union is now defining the amount of the interest rate on a contract based on the value of the assets that are backing the contract. It is important to note that the majority of the states in the United States have also adopted this same approach, so the activity is widespread.
Although the credit union's efforts to enforce its borrowing limit policy have resulted in negative enforcement actions, the credit union has received support from various advocacy groups including the Consumer Financial Protection Bureau. On December 8, the CFPB sent a letter to the National Credit Union, expressing its support for the credit union's efforts to impose reasonable limits on the amount of interest that the members are able to collect based on the value of their assets. In response, the National Credit Union Association released a statement saying that the organization “will continue to monitor the activities of our member banks and credit unions, including the number of loan termination and fee collections that result from the enforcement of these limits.” The two organizations had previously met with the Federal Reserve, which expressed its support for the credit unions' ability to implement such limits. The Department of Justice also indicated that it supported the efforts of the credit unions to adopt these limits.