Low Income Designation Presentation

EDS Carl Banks
A low-income (LI) CU is one that serves
predominantly low-income members.
“Predominantly” is defined as a simple
majority (over 50% of your members).
Section 701.34 of NCUA Rules and Regs.
defines LI members as those members who
earn 80% or less than the median family
income for the metropolitan area where they
live or national metropolitan area, whichever
is greater.
A regional director may use total median
earnings for individuals instead of median
family income if it is more beneficial to a
federal credit union when determining if the
credit union qualifies for a low-income credit
union designation.
The low-income designation must be given to
a credit union by the NCUA Office of
Consumer Protection.
A regional director will use the statewide or
national, non-metropolitan area median
family income instead of the metropolitan
area or national metropolitan area median
family income for members living outside a
metropolitan area. Member earnings will be
estimated based on data reported by the U.S.
Census Bureau for the geographic area where
the member lives.
The term “low-income members” also
includes members who are enrolled as full
or part-time students in a college,
university, high school or vocational
However, student CU’s cannot participate
in the Community Development Revolving
Loan Fund Program (CDRLP);
Student CU’s are not considered lowincome credit unions.
State law and state
supervisory authority
(SSA) govern the level
of participation in the
If NCUA approves a
state chartered CU as
a low-income
designated CU, SSA
must concur for CU to
be designated as
Can accept NonMember Deposits
Participation in Comm.
Development Revolving
Loan Program
Can Accept Secondary
Special FOM Rules
Certain regulatory
exemptions apply to
LID credit unions
LI credit unions can receive non-member
shares or certificates from any source in
addition to public unit accounts and accounts
of other credit unions.
Aggregate of such accounts cannot exceed
20% of total shares or $1.5 million, whichever
is greater, without a waiver from the NCUA
Regional Director or SSA (for federally insured
state-chartered CU’s).
Before a LID CU accepts any public unit or
nonmember shares in excess of 20% of total
shares, the board of directors must adopt a
specific written plan concerning the intended
use of these shares and forward a copy of the
plan to the Regional Director for review and
The plan must include:
(i) A statement of the credit union’s needs,
sources and intended uses of public unit
and nonmember shares;
(ii) Provision for matching maturities of
public unit and nonmember shares with
corresponding assets, or justification for
any mismatch; and
(iii) Provision for adequate income spread
between public unit and nonmember shares
and corresponding assets.
Governing rule is Part 705 of NCUA Rules and
LI credit unions are eligible to participate in
the CDRLP;
The CDRLP may approve loans/deposits to a
low-income CU in an aggregate maximum of
$300,000; Rate this year is only 0.40%.
In addition, LI credit unions are also
eligible for Technical Assistance (TA)
grants to improve member services and
increase the efficiency of credit union
Funds for TA grants are provided by
Congressional appropriation, and also
from interest NCUA earns on CDRLP loans;
TA grants for 2012 are available to LID CUs
in an aggregate amount of $25,000.
Relatively simple
Online application
for 2012 funding
Must apply
through NCUA’s
Office of Small
Credit Union
Initiatives (OSCUI).
Key Rule:
The FCU Act,
Section 1790d(o)
permits only lowincome credit
unions to include
secondary capital
accounts in their
computation of
net worth.
Section 701.34(b)
of NCUA Rules and
discusses the
requirements for
secondary capital.
To enable those credit unions designated as
low-income to support greater lending and
improve other financial services for the
limited income groups and committees they
Secondary capital is an uninsured obligation
that is offered only to organizational
It must take the form of subordinated debt
(like a borrowing transaction that must be
repaid over time);
Subordinated” means the secondary
account holder’s claim must come AFTER
any other claims from shareholders,
creditors or the NCUSIF.
Therefore, it is considered a somewhat
risky investment for an organization to
Usually provided to well-managed financial
Secondary capital is
uninsured and
cannot be shown as
a share account—It
is subordinated
Funds must be
available to cover
losses after
reserves and UE,
but prior to
The accounts must
have a minimum
maturity of 5 years;
The accounts may not
be used as security
on other obligations
of the account
holder; &
The accounts will not
“carry over” as
secondary capital in
the event of merger
into a CU that is not
LI- designated.
NCUA has adopted special rules that pertain
to low-income credit union charters as well
as FOM additions;
These special rules provide additional latitude
to enable underserved, low income
individuals to gain access to CU service.
Any multiple common bond credit union can
add low-income associations to their fields of
A LI-designated community FCU has
additional latitude in that it may also serve
persons who perform volunteer services,
participate in programs to alleviate poverty or
distress, or who participate in associa- tions
headquartered in the community.
Must submit written
request to NCUA
Office of Consumer
Request must
contain appropriate
supporting that
majority of
members or
potential members
meet the LIT
designation req.
Zip Code: This is the most common & easiest
method to determine eligibility;
Zip codes of 100% of the credit union’s members
of record as of a particular date will be complied
and aggregate # of members residing in each ZIP
will be determined. Either median family income,
total median earnings or statewide or national
non-metropolitan area median family income will
be analyzed to determine eligibility.
NCUA and EDSs will utilize automated LowIncome Designation Assessment Tool to
determine if a CU qualifies for the LID.
More than 50% of the credit union’s current
members must reside in defined low-income
ZIP codes, based on Median Family Income
Statistics or other data as previously
This method can be used to establish that
members and potential members meet the
low-income test.
If CU does not qualify using Zip Code analysis,
a CU can use other methods to try to qualify
for the LID.
Credit unions may provide actual member
income from loan applications or surveys to
demonstrate a majority of their membership is
low-income members.
Loan Survey: Review 100% of outstanding
loans (can also include paid-off and chargedoff loans if within last two years) and submit
income data to NCUA. More than 50% of the
borrowers must meet the Low-Income Test
You can try loan method if the Zip code
method does not work.
Membership Survey: Survey must include
100% of credit union’s members as of a
particular date (or conduct a statistically valid
survey acceptable to NCUA).
A simple majority of the members must
respond and qualify under the LIT.
This method is rarely used for LID
U.S. Census Bureau Block Group Information:
This method could be used to determine a
community credit union’s eligibility for LI
designation or non-designated LICU’s FOM
expansion request into a low-income
community. This method will determine a
defined community’s median family income.
Information for this method can be obtained
from the U.S. Census Bureau’s website;
WWW.Census.Gov , or
Researching information at your local library.
Other Supportive Statistical Data:
Other statistical data provided by reputable
organizations may be used if the NCUA is
satisfied that the data presented is customary
and uniformly accepted demographic
information. If more than 50% of the
members meet the LIT, then the CU or the
FOM expansion group qualifies as LI.
Applying for LI
designation is not
that difficult;
Please make
arrangements with
the EDS for
assistance in
That’s All Folks!!