ALEXANDRIA, Va.—About one-third of credit unions are are low-income designated (LID), which is double the number from just two years ago. But in seven states there are no state-chartered CUs at all with the certification.
What’s blocking the low-income designation in these states varies, according to a CUToday.info analysis. In some states laws do not give the state regulator the authority to grant LID status, while in other states laws are simply silent on the matter. Banks, too, are blocking CU access to the certification, and some CUs may lack interest in becoming a low-income credit union (LICU).
The seven states in which there are no state-chartered LID CUs: New York, Oklahoma, Nebraska, Connecticut, Rhode Island, New Hampshire and Nevada.
NCUA in the last two years has made more CUs aware of the advantages of the low-income designation and streamlined the application process. Those CUs that receive that designation are exempt from the 12.25% cap on member business lending, are eligible for low-interest loans and Community Development Revolving Loan Fund grants, are authorized to obtain supplemental capital and may accept deposits from non-members.
“To me, the low-income designation embodies a set of important powers for credit unions and is also a recognition of their service to low-income communities,” said Bill Myers, director of NCUA’s Office of Small Credit Union Initiatives. “NCUA has made the LID application a simple process. But with state-chartered credit unions there is one additional step—once we approve the application the state then has to approve it as well.”
Nate Webb, Oklahoma CU Association
No Authority In Oklahoma
In Oklahoma, the state banking commissioner has never had the authority to grant the designation, explained Nate Webb, president of the Oklahoma CU Association, a department of the Cornerstone Credit Union League.
“The authority is not explicitly granted in the state statute, and it has to be expressly stated in the statute for the commissioner to grant the designation,” said Webb.
Backed by efforts from the league, a bill has been introduced in Oklahoma’s Senate (SB393) requesting that the Oklahoma State Credit Union Board—not the state banking commissioner—be given authority to grant LIDs as long as each credit union requesting the status meets LICU criteria under NCUA guidelines. Senator Dan Newberry (R-District 37) is the bill’s author. The House author is Rep. Doug Cox (R-District 5).
“The bill passed unanimously out of the Senate, but the title has been struck to open the bill for amendments in the House and make it easier for it to move,” said Webb. “It is assigned to the House Banking Finance Committee, and has yet to be scheduled for hearing.”
There is banking opposition to the bill, explained Webb, who said opponents will make their stand in the House. “The state’s banking association is very opposed to the bill. They see it as expansion of credit unions’ field of membership. Unfortunately the State Banking Commission has two bankers on it and two other members who have ties to the banking community.”
No Incentive To Remain State Chartered?
Webb said a strong argument in favor of passing the bill is the state’s projected $410-million budget shortfall this year. Webb explained that state-chartered CUs in Oklahoma pay a franchise tax that collectively totals about $2 million annually. “The argument I am making is that they pay a tax but can’t get a LID. So what incentive do they have to remain a state charter? These credit unions could flip to a federal charter, avoid taxes, and be eligible for the low-income designation,” said Webb, who gives the bill a 50-50 chance of passing.
Webb said if the bill passes the House it will pass the Senate. If approved, due to an emergency clause within the bill, the new law could take effect this summer.
If the bill does not pass, Webb thinks Oklahoma’s 18 state-chartered credit unions will not have much incentive to remain state-chartered.
In the Empire State, the New York Department of Financial Services is considering drafting legislation that would have the state’s banking laws directly reference NCUA rules and regulations on the low-income designation to provide access for state-chartered CUs to receive LICU status. The New York CU Association is working with the state on the issue.
In Connecticut, a lack of any state-chartered LICUs may be the result of credit unions not recognizing the value of LIDs, and also due to the state’s high average annual income—preventing many CUs from qualifying for the designation.
“We are trying to get an answer as to why we don’t have any state-chartered, low-income-designated credit unions,” said Jill Nowacki, president of the Credit Union League of Connecticut. “What is interesting about Connecticut is that the Department of Banking does not offer concurrence—the statute is silent on it. With concurrence, state law would automatically recognize NCUA guidelines, and state-chartered credit unions here, once they qualified under NCUA low-income guidelines, would automatically become a low-income credit union.”
At present state-chartered CUs in Connecticut must file an application with the Department of Banking once they qualify under NCUA guidelines. It’s an extra step that has yet to be taken by any CU, explained Nowacki, who does not see the Department of Banking blocking any qualified requests. “Only one credit union has considered applying, however, they failed to qualify for low-income status under NCUA rules. Their request never reached the state.”
Nowacki said the league is concerned that not all credit unions here may see the value in LICU status, something the league hopes to change with educational efforts. Of the 110 CUs in Connecticut, 12 are LIDs.
“We are working with the National Federation of Community Development Credit Unions to obtain information and materials that will help educate our credit unions on the value and benefits of pursuing a low-income designation,” said Nowacki.
Nowacki added that the state’s high average annual personal income ($67,000), may block CUs in many communities from initially qualifying for a LID. To secure low-income status, a majority of an FCU's membership must meet low-income thresholds based on data from the 2010 census.
“But there are many areas of high poverty, so there is a great deal of disparity in annual incomes in Connecticut,” said Nowacki. “Also, even in areas of higher wealth, many of the credit unions’ members are not the high-wealth individuals. To obtain low-income status, it may likely require a credit union to closely examine their membership. It may require an extra step, gathering the documentation to support the low-income status. But it is an extra effort we feel is well worth the time to better serve the members in their community.”
NCUA resources for CUs considering low-income status:
NCUA Letter to state chartered credit unions on Low-Income Designation
http://www.ncua.gov/Resources/Pages/LCU2013-04.aspx
Low-Income Designation Fact sheet
http://www.ncua.gov/Resources/Pages/LCU2013-04.aspx
Maximizing the Low income Designation
http://www.ncua.gov/Resources/OSCUI/Documents/MaximizingLID.pdf
Strategic Uses of the Low-Income Designation
https://www.youtube.com/watch?v=_n1JPSlH-bY&feature=youtu.be
Products and Services for Underserved Members