By Daniel Brown and John Vermillion
ABA DataBank
Historically, credit unions were established to provide basic consumer financial services to those of “modest means” connected through some common bond. Policy changes in the 1990s diluted eligibility requirements, but with that change came some limits on credit union commercial activity, primarily in the form of a cap on lending to members’ businesses. However, since the enactment of this cap, larger credit unions, low-income designated credit unions and those that have acquired banks, have significantly increased their commercial exposures. In fact, credit unions that acquired banks carry nearly 20 times the level of commercial loans as other credit unions.
Outsized credit union commercial activity not only steers these not-for-profit cooperatives away from their statutory mission, it also increases their exposure to an asset class where they have traditionally lacked experience and expertise. Despite these risks, Congress and regulators have provided scant oversight, and the public remains largely unaware of these shifts. This ABA DataBank describes the sharp expansion of commercial lending by credit unions, evaluates the resulting risks and proposes policy measures to realign credit unions with their core mission.
A so-called ‘cap’ on member business lending
As described in our 2024 analysis on credit union marketing expenditures, there were several modifications to credit union regulations in the 1990s. To maintain the credit union ethos, the Credit Union Membership Access Act, or CUMAA, also included a commercial lending cap on credit unions. According to the Senate’s report on CUMAA, the cap was imposed “to ensure that credit unions continue to fulfill their specified mission of meeting the credit and savings needs of consumers, especially persons of modest means, through an emphasis on consumer rather than business loans.” The data show, however, that in the intervening years, credit unions increasingly have circumvented the cap, straying from mission and taking on additional risk.
Source: ABA Analysis, Credit Union Call Report
Recent regulatory changes have made it easier for credit unions to surpass the MBL cap. For example, a 2016 final rule by NCUA relaxed the waiver process (a request to go above the MBL cap) and made it easier for credit unions to apply to exceed the MBL cap. The rationale for the change at the time was that credit union commercial lending was already increasing in the 2010s (see figure 1) and the industry had “navigated the recession” of 2008. In addition to the waiver process change, this rule eliminated prescriptive limits on commercial real estate collateral and equity, which allowed loan officers more discretion (like waiving personal guarantees) and streamlined processes. At the time, the American Banker wrote these changes “could usher in a whole new era of commercial lending by the credit union industry.” An October 2025 article by S&P also identified this rule as a significant catalyst for the increase in credit union commercial lending. Figure 1 tracks proportional MBL for credit unions (commercial loans as a percent of total assets) from 2011-2025. Similar to the S&P analysis, figure 1 illustrates that proportional lending climbed after the waiver process changed and accelerated even further following the pandemic.
Source: ABA Analysis, Credit Union Call Report
Note: We calculated the cap according to the March 2016 final rule on Member Business Loans, which states “the aggregate amount of MBLs that a credit union may make to the lesser of 1.75 times the actual net worth of the credit union or 1.75 times the minimum net worth.”
The number of credit unions surpassing the statutory cap has steadily increased over time. This trend reflects a notable shift in commercial lending practices within the industry. Figure 2 tracks the number of credit unions over the statutory cap using the definition from the 2016 final rule on credit union member business lending. Since the 2016 change in the waiver process, the number of credit unions over the cap more than doubled from 126 in the first quarter of 2016 to 286 in the third quarter of 2025. In terms of commercial activity by credit union size, while roughly 25% of credit unions have over $250 million in assets, this larger credit union cohort (with more than $250 million in assets) is proportionately more active in business lending. In aggregate, the bottom 75% of credit unions (with $250 million or less in assets) have not changed their proportional commercial lending activity (figure 3). However, the number of credit unions with more than $250 million in assets with commercial lending above the lending cap has significantly increased from just 29 in 2011 to 221 (out of roughly 1,100 large credit unions) in 2025.
Source: ABA Analysis, Credit Union Call Report
Credit unions that have acquired banks show meaningfully higher levels of commercial activity compared to other credit unions. Figure 4 compares credit unions that purchased banks between 2011 and 2025 with those that did not. While credit unions without bank acquisitions hold an average of only $32 million in commercial loans, credit unions that acquired banks carry nearly 20 times that amount. Since the pandemic, the average commercial loan balance for these acquiring credit unions has nearly tripled.
Finally, the “low-income designated,” or LID, credit union status — originally intended to redirect capital to disadvantaged communities — has increasingly been used to completely bypass the MBL cap. Beginning in 2012, the NCUA substantially streamlined the process for obtaining LID status, one key benefit of which is an exemption from the MBL cap. Following these changes, credit unions began seeking the status at a rapid pace, with the share of LID credit unions rising from just 6 percent in 2000 to more than 54 percent by 2025. Figure 5 shows that average MBL balances at LID credit unions are now 73 percent higher than non-LID credit unions. Despite its original policy intent, the designation now appears to be used primarily as a pathway for avoiding the MBL cap for larger credit unions, rather than as a tool to enhance lending to those of modest means.
Source: ABA Analysis, Credit Union Call Report
Source: ABA Analysis, Credit Union Call Report
Piling on additional risks?
Credit unions have not managed large commercial loan portfolios through periods of economic volatility, leaving them without the institutional expertise and historical experience needed should distress emerge in that segment — and the credit unions’ regulator does not have the same depth of expertise in supervising commercial lending activity that bank regulators do.
Commercial lending itself is a heterogeneous and highly customized asset class that demands a sophisticated understanding of local market conditions, business dynamics, industry trends, and broader economic forces. For example, the OCC Safety and Soundness Handbook on Commercial Real Estate highlights numerous risks that institutions must evaluate — including nuances in the volatile construction market, concentration risks, and the responsibilities of management and boards in assessing and overseeing commercial lending activities.
Despite these well-established concerns, credit unions have more than doubled their proportional commercial activity over the past decade (see figure 1). Taken together, these developments indicate that credit unions may be expanding rapidly into a complex lending space without the controls, expertise, or risk infrastructure necessary to navigate a downturn.
Policy implications
Credit unions have traditionally focused on serving consumers, maintaining limited exposure to commercial lending. The National Federal Credit Union Act specifically states these institutions are established “for the purpose of promoting thrift among their members and creating a source of credit for provident or productive purposes.” The sharp increase in commercial activity raises concerns that credit unions are expanding beyond their core purpose of member-focused financial services.
Given the risks to credit union members and overall financial stability, Congress should use its oversight authority to review these noteworthy trends. A thorough congressional review of these dynamics as well as other industry practices such as the NCUA’s supervision of credit unions would increase public understanding and help policymakers determine whether changes to the credit union tax status would benefit the broader economy.
Policy shifts throughout the last few decades contributed to the rise of large credit unions. Larger credit unions, LID credit unions and especially credit unions that have acquired banks have outsized commercial activity that frequently exceeds the cap for business lending. This steers credit unions away from their statutory mission and potentially leads to outsized risk in an asset class where credit unions have little to no experience during volatile periods. Congress should use its oversight capabilities to determine whether credit unions’ activities align with their mission.
Daniel Brown is senior director, economist, in ABA’s Office of Economics and Research. John Vermillion is an economic research analyst at ABA. For additional research and analysis from the Office of the Chief Economist, please see the OCE website.
