Federal program helps credit unions branch out to lower-income members
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An increasing number of credit unions across the country are taking advantage of a federal program that allows them to lend more money to lower-income individuals and families, a traditionally underserved population.
“We all have a toolkit that we are trying to use to better serve our community. (So) I would say it's another important tool we can put in our toolkit,” said Anthony Emerson, president of IC Federal Credit Union of Fitchburg. “It's about helping the community and about economic development.”
Credit unions that have mostly low-income families and individuals among its memberships – that is, those who earn no more than 80 percent of the immediate area's median income, according to U.S. Census data – can receive the low-income designation.
The Low Income Credit Union (LICU) designation, which comes from the National Credit Union Administration (NCUA), allows credit unions to gain access to capital that non-LICU credit unions cannot. LICU credit unions can accept nonmember deposits and are exempt from the 12.25 percent loan-to-assets cap on member business loans. Credit unions with the designation also gain access to grants and loans from the NCUA's Community Development Revolving Loan Fund to help pay for financial education programs for their members.
More than 70 percent of LICU-designated credit unions have assets of less than $50 million, according to the NCUA, so the additional flexibility the designation allows can help small credit unions build capital, said Kevin Miller, president of Athol Credit Union, which has an asset base of $90 million. It secured the LICU designation last year.
“We're very excited about (the designation). While we have always been an important player at our size in our community, this can give us the ability to become even more significant,” Miller said. “It allows us to really serve people that otherwise don't meet the normal criteria. These are people who are working, who are paying their bills.”
Athol and IC are the only LICU-designated credit unions in Central Massachusetts. There are another 28 in Massachusetts, located primarily in and around Boston.
Growth more than doubled in 2 years
The designation has been around for 44 years, but a renewed effort to expand the number of LICU credit unions began in 2012, when the NCUA began preapproving credit unions that met the criteria. The number of low-income credit unions has grown from less than 1,000 in 2012 to 2,111 in 2014, or about one-third of all credit unions in the U.S.
The designation gives credit unions more freedom when working with a market they're already serving, said Bill Myers, director of the NCUA's Office of Small Credit Union Initiatives. The low-income banking market is growing, while the higher end of the market remains very competitive, he said. At the low-income end of the market, credit unions go up against payday loan companies with high interest rates, not highly competitive large banks.
“It recognizes where credit unions already are,” said Myers. “The credit unions are doing a wonderful job serving this marketplace.”
The designation has paid off for IC Federal Credit Union, which has about $550 million in assets. Since IC is based in an economically depressed area, the designation allows the credit union to serve a larger population, Emerson said. The ability to take nonmember deposits has been used to offer area nonprofits, such as Little League groups, and larger nonprofits investment options such as high-yield CDs.
“A lot of these organizations have large sums of money they operate with or endowments,” Emerson said. “Let them have a safe, secure place to park that money while having a high rate of interest.”
Boost for business lending
Athol Credit Union has dived into commercial loans after being freed from the 12.25 percent loan-to-assets restriction, said Miller, which allows the credit union to put more of its funds into locally owned businesses within the community.
“You can go look for good, solid businesses that have been under-banked. There are plenty out there. They are mostly mom-and-pop and owner-operated,” said Miller. “They just do not have the reach that others might have, but they still have needs.”
While these investments grow the credit union, these loans are going to the employers who are keeping the local economy afloat, he said.
Neither Miller nor Emerson sees a negative in having the LICU designation. In fact, during a role working at a credit union in Maine, Emerson actively pursued the designation.
In addition to the benefits to the credit unions, the three agreed that the designation is about reaching out to a population that needs banking assistance. These are not poor clients, explained the NCUA's Myers, but slightly below the average wage with an annual salary of around $45,000.
“The borrowers are just as trustworthy and just as eager to make the payments. They are making the payments and they have good credit,” Miller said. “You're just lending to people who have less income but have proven themselves (despite that).”
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