"Serving the underserved" has been an important mantra in fending off banker efforts to repeal the credit union tax exemption, but there is some confusion about just what it means to be "underserved" in America.
While many in credit union land use terms like "underserved," "unbanked," and "low-income" interchangeably, some of these words, like "unbanked" are anecdotal in nature, while "underserved" and "low-income" are technical terminology with specific regulatory definitions.
For example, not everyone in an underserved area would be considered either unbanked or low-income, but the definition of such an area is often tied to a high percentage of residents who would fit those descriptions.
According to NCUA, an underserved area is an investment area that includes any of the following characteristics (as reported in the most recently completed decennial census or equivalent government data):
* area encompassed or located in an Empowerment Zone or Enterprise Community designated under section 1391 of the Internal Revenue Code of 1996 (26 U.S.C. 1391);
* area where the percentage of the population living in poverty is at least 20%;
* area in a Metropolitan Area where the median family income is at or below 80% of the Metropolitan Area median family income or the national Metropolitan Area median family income, whichever is greater;
* area outside of a Metropolitan Area, where the median family income is at or below 80% of the statewide non-Metropolitan Area median family income or the national non-Metropolitan Area median family income, whichever is greater;
* area where the unemployment rate is at least 1.5 times the national average;
* an area meeting the criteria for economic distress that may be established by the Community Development Financial Institutions Fund (CDFI) of the U.S. Department of the Treasury.
In addition, the local community, neighborhood, or rural district must be underserved, based on data considered by the NCUA Board and the Federal banking agencies.
A low-income credit union is one which serves predominantly (by a simple majority) low-income members, NCUA said.
"The term 'low-income members' shall mean those members who make less than 80% of the average for all wage earners or members whose annual household income falls at or below 80% of the median household income," according to NCUA rules. "The low-income designation is a requested designation conferred on eligible credit unions by the NCUA regional director. In the case of state-chartered, federally insured credit unions, the state regulator shall make the low-income designation with the concurrence of the NCUA regional director."
NCUA has been encouraging credit unions to reach out to underserved areas, most notably with the Access Across America initiative, the brainchild of former NCUA Chairman Dennis Dollar.
Both of the current NCUA board members, JoAnn Johnson and Debbie Matz, have made a point of urging CUs to consider adding underserved areas to their fields of membership in speeches before credit union meetings across the country, touting such efforts as not only "the right thing to do" but also a sound business strategy.
Perhaps the one thing NCUA can't define is how many underserved people have actually joined credit unions that have added underserved areas to their fields of membership. While the agency does keep track of the estimated number of residents that have been added to have become eligible to join credit unions through expansion into underserved areas, the regulator doesn't track penetration into those areas. And even if it could, it would be difficult to separate out the residents who don't fit the definition of underserved from those who do.
CUJ Resources
For more information on this topic:
* www.ncua.gov
* www.cdfifund.gov/docs/2003-cdfi-regulations.pdf Section 1805.201
* www.treasury.gov
