August 16, 2012
The recent letter from the National Credit Union Administration (NCUA) informing more than 1,000 credit unions nationwide that they are eligible for Low-Income Credit Union (LICU) designation has drawn mixed reactions.
The majority of eligible credit unions are expected to accept the designation, however some of the smaller eligible credit unions have questioned whether they will actually benefit from the change. For example, a small, well-capitalized credit union offering basic services expressed concerns that regulators may pay extra attention to them, potentially adding significant cost to the credit union if they accept the designation.
A source at the NCUA responded, “It’s all up to the individual credit union. They need to determine if it makes sense. We are not pushing anyone.” While no additional regulatory requirements directly accompany the designation, one concern is that if a credit union loses eligibility, it has five years to either re-qualify or unwind the services. Credit unions that received the letter from the NCUA have until Sept. 10 to accept the designation.
TULIP Credit Union, a small credit union headquartered in Olympia, Wash., recently received a $100,000 Community Development Financial Institution (CDFI) grant. According to TULIP CEO Bruce Cramer, “The majority of the funds will be used to hire an additional staff person.”
“The designation will allow TULIP to raise supplemental capital, without which we’d be deep in Prompt Corrective Action (PCA),” Cramer said. Because of the LICU designation, TULIP can stay in business and continue to serve its low-income membership.
Not all industry participants are happy. The American Bankers Association (ABA) argued in a letter to NCUA Chairman Debbie Matz that the NCUA used temporary drought conditions to apply permanent LICU designations, thereby skirting Congressional intent. In the letter, the ABA specifically pointed out Cascade Community Credit Union in Douglas County, Ore.—a county that has 22 census tracts, of which there are no low-income census tracts and only three moderate-income tracts. For federally chartered credit unions, the actual membership determines LICU eligibility, not just geographic area.
Because many thousands of credit unions remain ineligible for the low-income designation, Jennifer Wagner, vice president of legislative advocacy for the Northwest Credit Union Association (NWCUA), explained that it is important for credit unions that this choice by the NCUA not distract from legislation currently under consideration in Congress to raise the member business lending (MBL) cap.
“While this is a win for some credit unions, our MBL legislation (S. 2231 and H.R. 1418) remains a top priority,” Wagner said. “Congress should act now to raise the lending cap from 12.25 percent of assets to 27.5 percent.”
The majority of credit unions are not LICU eligible, but are well-managed, safe and sound institutions that stand ready to help their members grow local jobs if MBL legislation is passed. The legislation could create an estimated 7,500 jobs in the Northwest in the first year alone.
Federal credit unions that did not receive a letter but are interested in more information about the process of qualifying for a Low-Income Designation can contact the Office of Consumer Protections, Division of Consumer Access, at email@example.com or 703.518.1150. Oregon and Washington regulators have reached out to the NCUA inquiring about data for state charter, in order to determine which state charters meet the LICU threshold.
The NWCUA Regulatory Advocacy team works with state and federal regulators to help reduce the regulatory burden on credit unions and protect the credit union movement. The Association encourages members to participate in the regulatory process. If you have any questions on these or any regulatory issues, please contact Director of Regulatory Advocacy John Trull at firstname.lastname@example.org, or at 503.350.2209.