NCUA
EDS Carl Banks
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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.
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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.
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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.
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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
school;
However, student CU’s cannot participate
in the Community Development Revolving
Loan Fund Program (CDRLP);
Student CU’s are not considered lowincome credit unions.
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State law and state
supervisory authority
(SSA) govern the level
of participation in the
CDRLP.
If NCUA approves a
state chartered CU as
a low-income
designated CU, SSA
must concur for CU to
be designated as
low-income.
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Can accept NonMember Deposits
Participation in Comm.
Development Revolving
Loan Program
Can Accept Secondary
Capital
Special FOM Rules
Certain regulatory
exemptions apply to
LID credit unions
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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).
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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
approval.
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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.
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Governing rule is Part 705 of NCUA Rules and
Regulations;
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%.
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In addition, LI credit unions are also
eligible for Technical Assistance (TA)
grants to improve member services and
increase the efficiency of credit union
operations;
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.
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Relatively simple
application
process;
Online application
for 2012 funding
round.
Must apply
through NCUA’s
Office of Small
Credit Union
Initiatives (OSCUI).
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Key Rule:
The FCU Act,
Section 1790d(o)
permits only lowincome credit
unions to include
secondary capital
accounts in their
computation of
net worth.
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Section 701.34(b)
of NCUA Rules and
Regulations
discusses the
requirements for
secondary capital.
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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
serve.
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Secondary capital is an uninsured obligation
that is offered only to organizational
investors;
It must take the form of subordinated debt
(like a borrowing transaction that must be
repaid over time);
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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
make.
Usually provided to well-managed financial
institutions.
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Secondary capital is
uninsured and
cannot be shown as
a share account—It
is subordinated
debt;
Funds must be
available to cover
losses after
reserves and UE,
but prior to
liquidation.
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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.
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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.
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Any multiple common bond credit union can
add low-income associations to their fields of
membership;
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.
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Must submit written
request to NCUA
Office of Consumer
Protection;
Request must
contain appropriate
documentation
supporting that
majority of
members or
potential members
meet the LIT
designation req.
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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.
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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
explained.
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.
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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
(LIT).
You can try loan method if the Zip code
method does not work.
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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
qualification.
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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.
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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.
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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.
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Applying for LI
designation is not
that difficult;
Please make
arrangements with
the EDS for
assistance in
applying.
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That’s All Folks!!
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THANK YOU
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CARL BANKS
cbanks@ncua.gov
1-210-859-9713