The nationwide credit crunch might mean economic turmoil for the country, but the crisis is reinvigorating a long-running lobbying feud between credit unions and the banking industry.

Credit unions, the tax-exempt financial lending institutions owned and controlled by their members, have stepped up their campaign to increase the amount of money they can lend to businesses.

Currently, credit unions’ business lending is capped at 12.25 percent of their assets. Now the credit union lobbying groups — using the nation’s economic woes as a rallying cry — want legislation to move quickly to raise that cap by some 60 percent.

Banking industry lobbyists call the move opportunistic and are working to shore up their own allies on Capitol Hill.

But the credit unions are not shy about invoking what they call the banking industry’s complicity in the subprime mortgage crisis as part of their argument.

“There seems to be no public policy reason why we shouldn’t be able to get this provision, but there is this long-standing feud with the banks that has gone on for 75 years,” said former Rep. Dan Mica (D-Fla.), president of the Credit Union National Association. “At least in some part, the banks are responsible for this subprime crisis,” Mica added. “The credit unions have not been part of this problem in any way, so we think we ought to be able to make these small loans.”

Mica said CUNA is pursuing three legislative options to get the cap raised to 20 percent: another stimulus package, a stand-alone bill and an amendment or rider attached to any other measure. “We think we would be a part of a solution this country needs,” Mica said.

Brad Thaler, director of legislative affairs at another credit union trade group, the National Association of Federal Credit Unions, said his organization and CUNA agree. “With everything that’s been happening in the economy, it’s kind of a credit crunch,” he said. “Raising the cap would make more capital available to small businesses.”

The banking industry contends that there is no credit crunch on its end — at least when it comes to business loans.

“Banks aren’t in a bad position,” said Diane Casey-Landry, the American Bankers Association’s chief operating officer, and former president and CEO of America’s Community Bankers, which merged into the ABA last year. “The banking industry is healthy and has money to lend.”

The housing crisis, she added, is in the subprime residential market, not in business loans. “They’re trying to use a crisis in residential lending to make an argument for business lending,” she said. “If they really want to be helpful, you’d think they want to be making mortgage loans.”

Adds another financial services industry lobbyist: “It wasn’t a good idea before the housing market crisis, and it’s not a good idea now. I don’t necessarily see how business loans would help. Lending to businesses isn’t really where the problem is. The problem is the housing market, and they can’t help in that regard,” says the lobbyist, calling the credit union’s move “opportunistic.”

Casey-Landry said that if credit unions want to be banks, they should change their nonprofit charters, which exempt them from paying corporate income tax. If they want to operate like banks, she says, they should have the same tax status. “They don’t pay taxes because they have a limited purpose and they want to change that purpose,” she said.

In the House, Reps. Paul Kanjorski (D-Pa.) and Ed Royce (R-Calif.) have introduced legislation to increase the cap to 20 percent of a credit union’s assets and to change other regulations.

One House staffer said opening up more capital from credit unions would stimulate the economy. “The leadership in the Financial Services Committee has expressed an interest in moving parts of the legislation,” this aide said. “The loan limits could potentially increase.”

Banks aren’t the only ones that want to put the brakes on the idea.

David Berenbaum, executive vice president of the National Community Reinvestment Coalition, said he first wants to make sure credit unions are fulfilling their mandate to serve people of low and moderate incomes before allowing them to loan more money to businesses. “We would want to be sure the credit unions are meeting their existing community needs,” he said. “In theory, it’s a good idea. In reality, we question whether larger credit unions are meeting their mandate to serve low- and moderate-income members.”

Berenbaum added that the credit unions have a good “public relations argument, but I don’t believe that, frankly, increasing the loan amounts alone is going to solve our foreclosure problems.”

Early next month, CUNA is organizing about 4,500 credit union members to “Hike the Hill” in support of increasing the caps and other legislative priorities. “Every state in the union will be represented,” Mica said. CUNA also has stepped up its political action committee, Mica said, on pace to hit $4 million with an average contribution of about $10 from its credit union members.

Spearheading the effort at CUNA with Mica are the group’s government affairs chief, John Magill, the former chief of staff to Rep. Wally Herger (Calif.), a senior GOP member of the House Ways and Means Committee, and Vice President of Federal Legislative Affairs Ryan Donovan, a one-time aide to then-House Democratic Leader Richard Gephardt (Mo.).

“We have been asking the Congress for relief for years, but the banks have said no because they don’t want the competition,” Mica said.

The credit unions were disappointed at being left out of the economic stimulus package that passed swiftly this year. “Every American should be asking why it wasn’t part of that package,” Mica said.

Banking lobbyists say the credit unions have no business getting the increase into stimulus legislation. “We’ve kind of been at peace recently with the credit unions, but in the current environment, people are fighting over crumbs,” said another banking industry lobbyist.