Read more at the Washington Credit Union Daily

Paycheck Protection Program loans are remaining on credit union balance sheets for longer than expected, causing regulatory headaches for credit union officials, Credit Union National Association President/CEO Jim Nussle said last week.

“Rapid deployment of funds through PPP was necessary to save jobs and businesses; however, the consequence of the stunted development phase was that the impact on financial institutions from these loans was not considered,” Nussle told Reps. Barry Loudermilk (R-Ga.) and David Scott (D-Ga.), in a letter endorsing their legislation that aims to alleviate the problem.

Nussle said that if PPP loans remain on a credit union’s books, it can cause the credit union to cross an asset-based regulatory threshold. When a credit union’s net worth ratio falls below 7%, it is subjected to “onerous” regulation designed to increase their capital, Nussle noted.

Nussle said that PPP loans should not have an impact on a credit union’s balance sheet since the loans are short-term and guaranteed by the federal government.

The Loudermilk-Scott legislation would prohibit banking regulators, including the National Credit Union Administration, to count PPP loans when calculating a credit union’s net worth. To qualify, an institution would be required to have assets under $15 billion.

There is virtually no chance that the legislation will pass as a separate measure in the near future, since the House is not scheduled to be in session until a lame duck session after the Nov. 3 election. However, the measure could be included in any economic stimulus legislation that Congress may consider later this year.