NEW YORK — In recommendations to the NCUA's Outreach Task Force–a group the composition of which has not been announced yet–the National Federation of Community Development Credit Unions emphasized the difference between low-income and modest means and that politicizing the low-income designation could backfire.
The Federation's paper, Serving Low-Income Communities: Recommendations for the NCUA Outreach Task Force by Executive Director Cliff Rosenthal, outlined the tasks assigned to the task force: evaluating the effectiveness of NCUA's programs assisting low- and moderate-income people; considering enhancement and full use of Community Development Revolving Loan Fund monitoring system; and considering reassessment of NCUA's formula for determining low-income designations. "It is the Federation's view that the Outreach Task Force, while potentially valuable, has been given too narrow a charge. In this paper, we attempt to go beyond the MSAP report and the agenda of the task force to address the broader policy and regulatory issues affecting credit union service to low-income people," it read.
In response, NCUA Board Member Gigi Hyland, chair of the task force, commented, "As the Outreach Task Force begins its broad and comprehensive assessment of the issues surrounding credit union service to low and moderate income consumers, we welcome any constructive input. The quality of the examination of the questions before the Task Force, as well as the conclusions reached, are directly dependent on serious and substantive contributions from a wide-variety of viewpoints."
Recommended For You
o To further restrict the low-income definition and designation process risks hampering credit union outreach to low-income persons; and
o To unduly expand the low-income universe and increase the number of LICUS would dilute the meaning of the designation, increase competition for scarce resources, and possibly be interpreted as an inappropriate attempt to enhance the image of credit unions in order to influence over Congressional or other critics of the credit union movement. It further runs the risk of backfiring: if a much more substantial portion of the movement is designated as 'low-income,' the demand to tax the other portion may be strengthened."
Permitting more "low-income" credit unions should not be a "back-door strategy" for granting them the LICU powers such as nonmember deposits, Rosenthal wrote. While the Federation does not oppose all credit unions obtaining those powers, changing the definition of "low-income" is not the way to achieve it.
The Federation advocated for loosening up NCUA's policies regarding secondary capital for low-income credit unions. "NCUA has repeatedly restricted those powers, thereby impairing the ability of credit unions to serve low-income communities," Rosenthal stated. He noted that the Credit Union Membership Access Act restricted capital from any source under Prompt Corrective Action, yet NCUA has maintained its 20% cap on nonmember deposits.
NCUA should also roll back restrictions imposed since 2000, Rosenthal said, including requiring prior NCUA approval for secondary capital; permitting investors to withdraw loans that no longer count toward the credit union's net worth; giving up NCUA discretion to suspend principal and interest payments to investors; and allowing LICUs that have recovered from temporary insolvency to repay investors where losses have occurred. Rosenthal also recommended changes to NCUA examination and supervision practices that he said can undermine service to low-income people. "LICUs and other credit unions that serve low-income communities often are penalized by comparisons to their asset-class peers," according to the Federation's report. "Lower average deposits and loan balances, higher labor demands, somewhat higher delinquency rates, and higher operating costs are often the price of doing business in low-income communities. NCUA examination procedures and ratings should give favorable weight to credit unions serving this market, rather than providing disincentives."
Finally, Rosenthal said the CDRLF underperforms, only half of the approximately $16 million in appropriated funds are loaned out, because of its structure and the approved uses for funding, which he said NCUA should review. He recommended that up to half of the funds be made available for secondary capital loans.
Rosenthal also said the associated grant program should prioritize funds to build capacity, like through the Federation's CDCU Institute, and provide training. When grant funds fall short, he suggested NCUA augment the CDRLF grants with funding from elsewhere in the operating budget. –[email protected]
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more inforrmation visit Asset & Logo Licensing.
