So you received your NCUA low-income designation … now what?

If yours is one of the NCUA's newly designated low-income creditunions, congratulations!

You've just received access to important tools that can beleveraged for growth, tools and options that aren't available toall credit unions. If fact, if you attended this year'sGovernmental Affairs Conference, you probably hiked the hill andasked your representative for much of what this designation nowoffers you, namely access to secondary capital and relief from theMBL cap.

Who are these newly designated creditunions?

The approximately 1,000 newly designated credit unions representall of us. They are small, mid- sized and large credit unions.Twelve have more than $1 billion in assets, and more than a quarterare considered medium to large credit unions.

The group includes credit unions from across 41 states, plus theDistrict of Columbia. Field of membership at these credit unions isdiverse, ranging from community to associational. These creditunions serve everyday Americans: teachers, veterans, electricians,state employees, factory workers and fire fighters, just to scratchthe surface.

A wakeup call

It shouldn't be surprising that nearly one-third of all creditunions are now designated as low-income by the NCUA. The GreatRecession has taken a toll on Americans across this country.According to the CUNA 2012-2013 Environmental Scan, a record one infive U.S. households experienced a one-year decline of income of25% or more between 2008 and 2010.

The economic realities facing consumers and the regulatoryrelief available to the credit unions that actively serve low- tomoderate-income consumers represent an opportunity for growth andsocial impact.

Here are a few suggestions for newly designated credit unions(and also for those who have been LICU designated for years, butstill don't know much about it):

Understand thebenefits

It's more than just the ability to accept secondary capital andthe MBL exemption. Benefits include: the ability to acceptnon-member deposits from any source; NCUA grants; low-interestloans and for small credit unions; and consulting services from theNCUA's Office of Small Credit Union Initiatives. See the NCUA'sLow Income Fact Sheet and Section701.34 for more information.

Most low-income designated credit unions are likely to qualifyfor the U.S. Treasury's Community Development Financial Institutiondesignation as well. This certification opens up a whole new levelof benefits ranging from CDFI grant dollars for capital and loanloss reserves (yes, I did just say loan loss reserves), to the NewMarket Tax Credit program designed to spur investments intooperating businesses and real estate projects located in low-incomecommunities.

Go onlinefor more information on CDFI grants. Contact the NationalFederation of Community Development Credit Unions or theCDFIFund for more information on how to becomeCDFI-certified.

Understand thebusiness model

As you might guess, credit unions that serve a lower-incometarget market tend to have higher operating and provision expenses.However, what you might not guess is that successful low-incomedesignated credit unions have significantly higher average loanyields and fee income.

It's been my experience that these credit unions typicallygenerate higher return on assets than their non-designated creditunion peer group. At the end of the day, isn't it ROA and net worththat we are really interested in? It is also worthy to note that asa group, low-income designated credit union loan growth issignificantly higher than non-designated federal credit unions.

Seek out best practices by researching articles relating tolow-income designated or CDFI-certified credit unions. Look up NCUAcall report data, which identifies whether or not a credit unionhas the designation. Contact the NationalFederation of Community Development Credit Unions, acredit union trade association that specifically serves creditunions dedicated to the lower-income consumer market, or just sendme an e-mail and Iwill direct you to some incredible best practices.

Understand thefinancial needs of your membership andcommunity

It's important for low-income designated credit unions tounderstand what financial services their members (and potentialmembers) need and are already using. Don't fall into the trap ofthinking “they should be using …” Far too many of us areway too judgmental when it comes to understanding what consumersshould be doing to manage their finances. No doubt, our members canlearn a lot from us on how to best manage their financialresources. But we may never get the opportunity to educate them ifwe fail to provide the services they are currently using.

We can complain about the use of alternative financial productssuch as payday loans and check cashing. After all, smart consumerswould never go to a payday lender. But, if we fail to provide theservices these consumers need, we may never get the opportunity tospeak to them and educate them on a better way. Now I'm notadvocating predatory services to our members. But I amsuggesting that there is a big opportunity for low-incomedesignated credit unions to provide affordable alternatives thatcreate human touch-points for one-on-one financial education andadoption of more desirable consumer financial products.

Don'tmake assumptions

Educate your team on what the designation really means. Some whodon't fully understand the designation may feel there's a stigmathat comes with it. In their mind, it may not reflect what theywant to reflect to their membership. Credit unions that qualify forthe designation have already demonstrated that more than 50.1% oftheir members fall in the low-income category as defined by theNCUA. Remember, we are talking about good, hard-working Americanswho need our help. Low-income designated credit unions don't haveto rebrand – it's just a designation that represents a majority oftheir membership.

Improve yourstrategies

Incorporate the low-income designation benefits, credit unionbest practices and unique financial needs of this group into yourstrategic plans. These are important strategic considerations thatshould be part of the planning process and the credit union'sstrategic priorities. To maximize the financial and social benefitof this designation, the credit union's strategic focus, businessmodel, product and service offerings should be specificallydesigned to effectively serve its low-income members. Strategicplanning facilitators should be experienced and knowledgeable aboutcommunity development and lower-income consumers.

Why does it matter?

We're all looking for opportunities for growth, revenue andgreater relevance in the lives of our members and the communitieswe serve. The NCUA's low-income designation provides tangiblebenefits that help credit unions accomplish these objectives.

It's more than regulatory relief and grant dollars to fund loanloss reserves; serving lower-income consumers provides creditunions an expanding venue to more effectively compete and grow.Finally, serving consumers of modest means strongly resonates withour philosophy of people helping people.

Scott Butterfield, CUDE, CUCE, CCUE is principal ofYourCredit Union Partner in Sumner, Wash.