Five Questions With: Daniel J. Forte

AS PRESIDENT OF THE MASSACHUSETTS BANKERS ASSOCIATION, Daniel J. Forte is not in favor of increasing the lending cap of credit unions, as is being proposed at the federal level. / COURTESY MASSACHUSETTS BANKERS ASSOCIATION
AS PRESIDENT OF THE MASSACHUSETTS BANKERS ASSOCIATION, Daniel J. Forte is not in favor of increasing the lending cap of credit unions, as is being proposed at the federal level. / COURTESY MASSACHUSETTS BANKERS ASSOCIATION

Daniel J. Forte is the president and CEO of the Massachusetts Bankers Association.
He talks with Providence Business News about the potential ramifications of a recently introduced piece of legislation that would – among other things – increase credit union’s lending cap to 27.7 percent of individual institutions’ total assets. It current stands at 12.25 percent.
Last week, Ellen Ford, president and CEO of Middletown-based People’s Credit Union talked with Providence Business News about what Rhode Island and its businesses could gain from increasing the lending cap.
Forte in his capacity as the leader of the Mass Bankers Association, which includes several Rhode Island members, talks with PBN this week about why raising the cap may not be such a great idea.

PBN: What separates banks from credit unions in their lending practices?
FORTE:
Credit unions were established in 1934 to make credit available to people of modest means who had little access to financial services. Unlike banks, they were also restricted to serve those of common interests (ethnic groups, churches, employee groups, etc.). However, today this common bond seems to no longer exist, especially with large bank-like credit unions. Only 19 percent of Massachusetts credit unions examined from 2012 through 2014 earned an outstanding/high satisfactory Community Reinvestment Act rating for low-income lending, versus 31 percent of state-chartered banks examined in the Bay State. In Rhode Island, federal Home Mortgage Disclosure Act records show that 53 credit unions made no loans to low-income individuals and the largest credit union only made 31 of 1,500 loans to low-income borrowers, but 755 to upper-income borrowers. Credit unions still don’t pay taxes and now, of course, they also do commercial lending. Does that make sense? It’s a tax subsidy borne by the average taxpayer.

PBN: Do you think the current lending cap on credit unions is adequate?
FORTE:
It certainly should not be higher. Despite having significantly enhanced their commercial lending authority in 1998, merely one-third of credit unions in Massachusetts make any reportable small business loans today. If the large credit unions want a higher cap, or need it higher — well, isn’t that proof-positive that they are acting like banks? They should convert to a bank charter and be regulated and taxed as banks.

PBN: How would increasing the lending cap affect the lending market in Rhode Island and Massachusetts?
FORTE:
That’s the great irony. Consumers would see little benefit. In fact, with the larger bank-like credit unions as the primary beneficiary, their growth would come at the expense of small- to medium-sized taxpaying banks and communities they support. For example, the top four credit unions in Massachusetts earned profits of $290 million from 2012 to 2014, a tax subsidy of $87 million.

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PBN: The American Bankers Association says credit unions and their association lack business lending expertise, making it unclear whether raising the cap would be “necessary or wise.” Do you agree?
FORTE:
At a time when loan demand and quality are not exactly robust, credit unions are seeking significant expansion in their commercial lending authority without enhanced capital as a backstop, or an increase in regulatory oversight. Since credit unions can make business loans under $50,000 and SBA-guaranteed loans, which are already exempt from the cap, they are really asking for nearly unlimited commercial lending authority. This could become a safety and soundness problem in the future.

PBN: Do you think the business lending market is strong enough in Rhode Island and Massachusetts, regionally or nationwide, to accommodate an increase to the cap?
FORTE:
That’s an interesting question; not easily answered. This is counterintuitive, but the reason that it is complicated is because, surprisingly, there are so many micro-economies in our two small states. Even now, years away from the financial crisis, although we have always had plenty of money to lend and loan demand has been rising slowly, it is still not rising fast enough. Therefore, increasing the cap neither increases the demand for loans, nor the supply, since banks already have more than sufficient capacity to serve small businesses and consumers.

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