The National Credit Union Administration plans to change how it calculates the designation for low-income credit unions in a move that didn't sit well with some banking groups that accused the agency of using chaos from the coronavirus pandemic to push its agenda with less scrutiny.
Members of the military will now be “considered in a similar manner as students attending colleges, universities, vocational or technical schools when the NCUA evaluates a federally insured credit union’s low-income designation,” the regulator said on Thursday.
A credit union can be designated as low income if its membership meets certain criteria based on Census Bureau data and other requirements. A low-income designation comes with various benefits for credit unions, including exemption from member business lending cap and eligibility for funds from the Community Development Revolving Loan Fund.
There were 2,605 credit unions with low-income designations at the end of 2019, or more than double the number that existed a decade earlier. At the same time, the number of active credit unions shrunk by roughly a third.
The number of low-income credit unions rose dramatically in the aftermath of the financial crisis, partly because of NCUA encouragement after some of the industry’s efforts to garner legislative changes stalled. At one point in 2012, the agency approved more than 500 applications for low-income credit unions designations in just one month.
“At the NCUA, we’re always looking for ways to foster greater financial inclusion, accessibility, and opportunity for all Americans, which I consider to be the civil rights issue of our time,” Chairman Rodney Hood said in a press release. “This is a great step in being more inclusive when it comes to the members of the military.”
The NCUA previously only geocoded the earnings of members with physical street addresses, which excluded members of the military who used Army/Air Post Office and Fleet Post Office addresses. Active-duty service members frequently move throughout the country and the world and often use those post office addresses as their mailing addresses.
Credit union groups praised the NCUA’s move but banks pounced on it, with the Independent Community Bankers of America issued a sharp rebuke.
"The NCUA's changes — made without a formal rule subject to public review and comment — is another example of this captive regulator expanding the powers of credit unions well beyond the limits established by Congress to justify their tax exemption,” ICBA President and CEO Rebeca Romero Rainey said in a press release.
The ICBA specifically singled out PenFed for criticism and said some moves by large credit unions “contrasts sharply with the industry’s founding purpose — serving people of modest means with a common bond.”
This isn’t the first time bank groups have suggested credit unions are milking the pandemic.
When a bipartisan group of legislators announced plans for a bill to temporarily lift the member business lending cap for commercial loans credit unions, the American Bankers Association called the move “an attempt by the credit union industry to quietly ease longstanding commercial lending limits using the current crisis as a cover.”
The ICBA’s pushback included calls for Congress to examine the NCUA’s decision and the credit union tax exemption. Last fall the group launched a Wake Up campaign aimed at persuading lawmakers to be more skeptical of credit union business practices, particularly at larger institutions.
