Small and low-income credit unions are as healthy as the rest

ALEXANDRIA, Va.-NCUA’s Office of Credit Union Development (OCUD) recently released its report on the programs for small and low-income credit unions and their activity. OCUD administers the Small Credit Union Program (SCUP) and the Low-Income Designation Program, with a focus on safety and soundness, guidance, and facilitating expansion of credit union services. According to the report, 493 out of 4,495 eligible credit unions participate in the SCUP program. To qualify for the SCUP a credit union must be under $5 million in assets or under $10 million in assets and have been in operation less than 10 years. The program is entirely voluntary, OCUD Director Anthony LaCreta emphasized, and credit unions may choose to participate or not for many different reasons. “Some credit unions don’t want government any more involved in their operation than they already are,” he said. Participation in SCUP is particularly high in Regions III and VI, for which LaCreta did not have a specific explanation. He did offer that it could be due to the efforts of NCUA examiners and leagues in those areas. NCUA markets the OCUD programs through the state leagues as well as their own Web site, workshops, and quarterly newsletter. Nearly 1,500 credit union people, representing 729 credit unions, participated in workshops in 2000, according to the report. The workshops included hands-on training in the areas of business planning, record keeping, loan underwriting, field of membership expansion, grants, budgeting and audits. Each region held at least three workshops in 2000. LaCreta also said he was unsure of the number of credit unions actually graduating from the programs, adding, “These are the things we are trying to track out of this process.” The agency is encouraging credit unions to get online if it is a viable medium in their specific circumstances. LaCreta suggested that credit unions research whether their members are online to determine if electronic banking would be right for their members. NCUA has not determined the extent to which the online world has helped extend small credit union services to new members. Anecdotally, LaCreta noted that he conducts business with his $3 million credit union 600 miles away online. The SCUP program has 74 specialized field staff throughout the country to aid participants. The program offers aid to all federally-chartered and federally-insured credit unions. The Low-Income Designated Program is different in structure because it receives funding from Congress, through the Community Development Revolving Loan Fund (CDRLF), and must serve all low-income credit unions, whether or not they are federally-insured. Historically, Congress has provided grants to the CDRLF through the Veterans Affairs, Housing and Urban Development, and Independent Agencies (VA-HUD) appropriations bill at $1 million dollars. “Low-income designated credit unions are helping shape the infrastructure of their communities,” the report read. “They are the incubators of empowerment-moving members along the personal financial path-from transactors, to savers, to borrowers, to owners of homes and small business.” The number of low-income designated credit unions participating in that program has really taken off, from 141 in 1990 jumping to 645 participants as of year-end 2000. During the 2000 calendar year 107 credit unions joined the program. Low-income designated credit unions offer services to more than 2.1 million members and have assets in aggregate of $7.9 billion. The report credits this growth to regional economic development efforts and small credit union specialists. LaCreta said that it is difficult to determine how many credit unions are actually eligible for low-income aid. The agency has attempted in the past to use census data, but most credit unions have occupational or associational fields of membership rather than community charters. To be considered low-income, under part 701.34 of NCUA’s rules and regulations, a credit union’s members must make less than 80% of the average of all American wage earners; or be at or below 80% of the average American household income; or NCUA can determine designation in some circumstances, such as when the cost of living is well above the national average in certain areas. Low-income credit unions are held to the same safety and soundness standards as all credit unions, but are granted a few extra perks. Low-income credit unions may maintain nonmember deposits, participate in the CDRLF, follow special field of membership rules, hold secondary capital, and are exempt from the aggregate loan limit on member business lending. However, LaCreta noted that these credit unions are not totally dependent on the agency’s help. “The credit unions that have been operating under a low-income designation were operating before their low-income designation,” he pointed out. But the aid low-income credit unions receive from NCUA helps them to generate share mobilization and allows them to hold secondary capital, he said. Looking at the portfolios of low-income credit unions, it is difficult to distinguish them from other credit unions. The average low-income credit union has approximately 70% of its assets in loans for a total of $5.7 billion as of December 31, 2000. Transportation and home and business ownership account for 68% of the loans granted by low-income credit unions. Low-income credit unions “continue to empower and strengthen their members and communities by providing a viable source of credit for infrastructure development,” the report asserted. Loans provided by low-income credit unions tend to be either automobile loans (41%) or first mortgage loans (21%). The loan quality at low-income credit unions is about the same as credit unions in general. The rate of delinquent loans at low-income credit unions was 1.7% at year-end 2000, which has consistently fallen since 1997, according to the report. Credit unions overall, have a delinquency rate of 0.77% as of the end of May 2001, CUNA statistics indicate. Low-income credit unions also report approximately $3.2 million in savings accounts with over $6.9 billion in total savings and deposits, the report said. Thirty-six percent of savings are in savings accounts, while 32% are placed into certificates and 9% are in money market accounts. Low-income credit unions also find retirement savings coming in, with 7% of savings instruments in retirement accounts. Credit unions with a low-income designation fare very well with their operating and net worth ratios. Data show that they have hovered around the 11% mark with a jump to 11.3% in 2000, the report observed. According to CUNA data, credit unions overall had a net worth of 11.1% as of the end of May 2001. “When you look at this, I’m quite pleased that.these credit unions are doing as well as the credit union community as a whole. I think it’s because they do have the support of the low-income designation,” LaCreta commented. [email protected]