"Low-income" remains a term with many meanings; it means different things to different people (and regulators)

ARLINGTON, Va. – The terms “low-income” and “underserved” lack common definition, and confusion about the two may be one of the things most clouding the discussion of how credit unions interact with their lower income members and surrounding economically disadvantaged communities, according to a mix of credit union and other experts. There is no common federal definition for the terms and no consensus on the definitions between localities, which means evaluating credit unions’ work with the economically disadvantaged may always have to remain more or less subjective, the experts added. By virtue of its role as regulator for federal credit unions and insurer for state chartered, federally insured credit unions, the NCUA’s definitions carry a lot of weight with credit unions and it might be helpful to think of its definitions of low-income and underserved in terms of geography and population, said Cliff Northup, NCUA director of public and congressional affairs. “The term `underserved’ reflects the geography of a given place, an underserved area as defined by the Treasury Department’s CDFI [Community Development Financial Institutions initiative] Northup said. “The term low-income really has to do more with people,” he added, an awful lot of people. According to July 8 announcement from the agency, credit unions have added a potential 9.1 million new members to their fields of membership so far this year, and there is no sign of the trend slowing down (see related story page 6). Under NCUA’s streamlined process, an underserved area is a term defined by the Treasury Department’s CDFI initiative as an investment area and there are a number of criteria that could bring such an area into that definition, according to NCUA regulations (see sidebar). But even if a given area meets one or more of those criteria, that doesn’t mean everybody in that area is necessarily lacking in financial services, observed Bill Kelly, research director for the Filene Institute. He cited Filene’s studies of who joined credit unions that indicated that a significant number of credit union members are also bank customers and the designation of the geographic area doesn’t mean that everyone within necessarily has low income. Northup and Anthony LaCreta, director of NCUA’s office of credit union development, agreed but noted that one result of allowing credit unions to add underserved areas is to vastly expand the number of people likely to have low income who have access to credit union services. The traditional standard for being officially designated a “low-income” credit union is too difficult for most mainstream credit unions to meet, and the underserved area additions allow credit unions which seek to get involved with helping economically disadvantaged people a way to do so. In order to be designated as a “low-income” credit union, the credit union has to show that a majority of their membership must be at or below 80% of the median income of median family income. This can be proven and calculated in a number of ways, through a survey of zip codes to show that most of the credit union’s members live in zip codes designated as low-income, based on the Census Bureau’s income statistics, according to NCUA regulations. The credit union can also use membership surveys, loan surveys and other data, LaCreta said, but whatever the method the credit union uses, the designation is still difficult to attain. For example, only 80% of the credit union members of the National Federation of Community Development Credit Unions have the low-income designation, according to the Federation’s Executive Director Clifford Rosenthal. The NCUA’s designation of “low- income credit union member” as someone at or below 80% of the median income of a given area is problematic for a couple of reasons, observed Rosenthal and Marva Williams, senior vice president of the Woodstock Institute. First, any “flat line” definition will not take into account differences in geographic areas. What might be “low-income” in San Francisco or New York City may be significantly higher in rural Alabama, Williams pointed out, even though the NCUA adjusts the income levels to match certain individual areas. Second, the definition does not translate to other federal agencies. The Department of Housing and Urban Development’s definition of low-income, for example, defines “low-income” as 50% of the median income and “moderate” income as anything between 50 and 80%. But Northup also noted that the “low-income” definition has a great strength in that it allows a credit union to recognize that a majority of its members are poor even though the surrounding area might be very well off. Shiloh of Alexandria Federal Credit Union has been designated as a low-income credit union, Northup pointed out, even though the community of Alexandria, Virginia, where the credit union is located, is quite well off economically. So, if “flat line” definitions don’t work, how can credit unions and outside observers measure credit unions’ work with economically disadvantaged people? Kelly suggested that one place to start would be to recognize that working with the “truly poor” has not been a credit union historical mandate and that credit unions seeking to do so will be doing something new. “Starting in 1935,” Kelly noted, “‘people of modest means’ were really considered to be middle income, lower middle income perhaps, but definitely the destitute. If you look at people then who belonged to credit unions you see government employees, military employees and employees of large firms and corporations,” he said. Williams and Rosenthal suggested that, in the absence of “flat line” definitions credit unions will always have to make subjective evaluations of their efforts. Such evaluations can include looking at a credit union’s lending patterns, Williams suggested, and Rosenthal said looking at the products a credit union offers and examining whether the credit union has any barriers in place that would prevent economically disadvantaged people from ether joining a credit union or taking advantage of the credit union’s services would be places to start.