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NCUA Examinations of CDCUs/LICUs
One of the primary reasons the credit union movement was founded was to make credit available to people of modest means for productive purposes. Credit unions accomplish this objective through numerous avenues. One avenue used by approximately 1,100 credit unions is the low-income designation. Multiple common bond credit unions can also add underserved areas to their field of membership to better serve people of modest means.
In 1970, the Federal Credit Union Act was amended to authorize the NCUA Board to define “low-income” and designate credit unions meeting the definition. That low-income designation criteria was further amended in 2008 to use median family income as a determinant on whether a credit union qualifies for a low-income designation and potential assistance from the Community Development Revolving Loan Fund (CDRLF). This amendment also helped better align the low-income designation criteria with that of adding an underserved area to a federal credit union’s field of membership. With the enactment of the Credit Union Membership Access Act (CUMAA) of 1998, NCUA was granted authority to add underserved areas to a credit union’s field of membership, and since the signing of this act, NCUA has granted underserved areas to more than 750 credit unions.
The only credit union movement trade association focused on the needs of credit unions serving low- and moderate-income communities, the Federation has sought to address examinations discrepancies reported by our member CDCUs and LICUs. The central issue is that CDCUs are routinely compared to credit unions that are not truly their peers. CDCU characteristics differ significantly from the average credit union, and even from other low-income designated credit unions, yet examiners historically compared credit unions in peer groups that did not necessarily take into account the economic or demographic trends in the local communities being served. This resulted in peer ratios, that skewed favorably towards non-low-income or non-CDCU credit unions of similar size who served wealthier memberships.
As such, the Federation has for years been engaged in advocacy with NCUA to help train their field examiners on the differences between CDCUs, LICUs, community credit unions, and all other credit unions. This is an area we continue to focus on as examinations practices tend to vary by region as well as by individual examiners. The Federation is committed to helping CDCUs serve their low- and moderate-members effectively, and integral to this is helping regulators understand the systematic differences between CDCUs/LICUs and other credit unions.
To learn more about the Federation's advocacy on credit union examinations, please click here.
Chartering of New Credit Unions
Throughout our history, the Federation has helped charter dozens of credit unions nationwide, but particularly new credit unions to serve memberships that no other financial institution will serve. Many have grown into full service institutions, serving tens of thousands of low-income members who would otherwise have no access to a reglated financial instituion.
Among the only credit union movement organizations dedicating significant resources to assist start-up credit unions, we continue to see increased interest and receive dozens of requests each year for assistance in organizing new credit unions. However, despite the record interest, we have seen the number of new credit union charters drop significantly over the past few years, with just one new federal charter granted in 2011.
This concerns us greatly, both in terms of the communities that are not being served, but also for the overall future of the credit union movement, which is becoming increasingly consolidated as institutions are merged or liquidated. In some cases, the communities are left in a financial vacuum, where their last resort are the fringe financial service providers, whose practices can sometimes be exploitative or downright predatory.
As such, the Federation has continued to advocate with NCUA on various fronts.
To learn more about our work in this area, please click here.
Corporate Credit Union Stabilization Program
The National Credit Union Administration (NCUA), which regulates all federally-insured credit unions, has proposed a self-funded bailout of corporate credit unions, which has been forcing every credit union in the nation to invest yearly corporate stabilization assessments, certain percentage of their total assets, to protect the liquidity needs of the corporate credit union system. While this plan highlights the credit union system's willingness to correct itself cooperatively and without additional cost to American taxpayers, the result of the mandatory investment has been devastating for many small CDCUs.
The fallout from the economic downturn, coupled with the lack of capital, will result in a rapid reduction in community wealth, and for CDCUs, a crippling loss in earnings. We fear these challenges could permanently shutter dozens of CDCUs nationally.
To learn more about this issue, and for resources to take action, please click here.
Community Development Revolving Loan Fund
As part of our efforts to help CDCUs survive the current economic downturn and strengthen their services to low-income members, the Federation has requested that NCUA amend the regulations of the Community Development Revolving Loan Fund (CDRLF) to permit the issuance of secondary capital loans to low-income designated credit unions, which will enable them to:
Maintain and expand their services in distressed communities
Increase their regulatory net worth
Avoid Prompt Corrective Action (PCA)
Minimize the need for mergers and liquidations
Provide an additional layer of financial insulation tothe National Credit Union Share Insurance Fund
Low-income credit unions have the unique power to obtain secondary capital loans that count toward minimum net worth requirements (recognized by statute in H.R. 1151, CUMAA). The CDRLF should shift from providing liquidity deposits and loans to providing secondary capital loans. This action will provide a source of vitally needed net worth to low-income credit unions, helping to ensure that they can maintain or expand their role in revitalizing their communities, which was the Congressional purpose in creating the CDRLF.
No statutory action or additional appropriation is required to make this change in the CDRLF. It may be implemented through regulatory action by NCUA. Because of the unprecedented emergency facing the credit union movement, NCUA can and should make the necessary changes on an urgent and expedited basis.
To view our letter to NCUA and our impact analysis on the effects of this change on CDCU survival, please click here.
To learn more about the Federation's NCUA advocacy initiatives over the past several years, please click on the corresponding links below.