Frequently Asked Questions on the Loss and Retention of the Low-Income Designation

Section 701.34 of the NCUA’s Rules and Regulations (opens new window) requires the Office of Credit Union Resources and Expansion to review your qualifying status as a low-income designated credit union on an ongoing basis and during the examination process. If your credit union no longer meets the criteria for the designation, the NCUA will notify you, usually by telephone initially as well as by sending a formal letter, that your credit union no longer meets the designation’s requirements.

Your credit union must meet the criteria for the designation within five years of the date of the notification letter. Under most circumstances, if your credit union is unable to demonstrate that a majority of the members meet the low-income requirements after five years, it will lose its designation and be subject to the regulatory requirements of credit unions that do not have the low-income designation. Your credit union’s low-income status will remain in effect during the five-year period.

The NCUA’s Office of Credit Union Resources and Expansion will attach your Low-income Designation Assessment Report, generated from data received from your most recent examination, to the notification letter detailing the percentage of your membership that meets the low-income threshold.

The NCUA will then work with you, at your request, to determine whether any valid remedies or alternatives are available to qualify again for the designation throughout the five-year period.

Your credit union no longer meets the criteria for the low-income designation. There are multiple factors explaining why a credit union that was once eligible for the designation may not be today. These include:

• Changing membership demographics or income levels;
• Changing membership due to members moving in and out of an area;
• Adding new groups to a credit union’s field of membership;
• Expanding a community charter; and
• Merging other credit unions into your credit union.

In addition, the NCUA’s definition of a “low-income member” changed at the beginning of 2009, replacing median household income with median family income or median earnings for individuals as a better way of defining low-income members.

These factors may cause the number of qualifying members shown on your Low-income Designation Assessment Report to drop below 50 percent, causing your credit union to no longer qualify for the designation. If you received your low-income designation through an alternate method, such as qualifying based on the number of students, NCUA has considered this during its review process.

Section 701.34 of NCUA’s Rules and Regulations (opens new window) defines low-income members as those members whose family income is 80 percent or less than the median family income for the metropolitan area where they live or national metropolitan area, whichever is greater; or those members who earn 80 percent or less than the total median earnings for individuals for the metropolitan area where they live or national metropolitan area, whichever is greater.

The NCUA will use the statewide or national, non-metropolitan area median family income for members living outside a metropolitan area. Member earnings will be estimated based on data reported by the U.S. Census Bureau for the geographic area where the member lives. Low-income members also include those members enrolled as students at a college, university, high school, or vocational school.

The number of qualifying members is on the assessment report in the “Yes” category provided with your letter. This number may change when our assessment tool is updated with current census data each January, or after you have a new examination. You can contact NCUA’s Office of Credit Union Resources and Expansion at 703.518.1150 or email at dcamail@ncua.gov during normal business hours to get the latest percentages our records show for your credit union.

The report is generated from membership data the NCUA obtains in a secure and encrypted format during the examination process. Using this data, the NCUA uses automated geo-coding software to determine whether a majority of credit union’s members are low-income.

The NCUA presumes a member has the income characteristics of the geographic locale where he or she lives. If a majority of the membership lives in low-income areas, the credit union qualifies for the low-income designation.

Below are avenues your credit union can consider to requalify for the low-income designation:

• P.O. Boxes and Unknown Addresses – The NCUA’s low income geo-coding software will estimate member earnings using the most current census decennial data or census American Community Survey data only for those members that have valid physical addresses. Those credit unions with membership data having a significant number of P.O. Boxes instead of physical addresses or unknown addresses, should consider replacing these with actual physical addresses in order to help them qualify for the designation.
• Students – Full or part-time students are considered low-income members. The NCUA’s geo-coding software does not identify student members. Credit unions can provide the NCUA a list of students to count towards the low-income threshold.
• Sampling – Credit unions may provide actual member incomes obtained from loan applications or member surveys to demonstrate a majority of their membership is low-income using the sampling method.
• Community Charters – Credit unions with a community charter may be eligible for the designation if a majority of the total potential membership meets the low-income definition.
• Membership Reassessment – Your membership will be reassessed automatically during your next examination.

The credit union can contact the NCUA to discuss any of these options. Our staff will assist you in determining the options that may be most beneficial to your credit union.

Our low-income assessment software will only geocode incomes of members with physical street addresses. While an AIRES share data record file may include an “Other” street address field, it is not specified as a “Critical” field in Letter to Credit Unions, 03-CU-05, (April 2003) (opens new window), and, therefore, most AIRES share data files include only the mailing address of members. This may result in a significant number of P.O. Box mailing addresses and not enough physical street addresses necessary to determine an accurate low-income status for those members. To increase your chance of requalifying for the designation, you can provide the agency with a file that includes the physical street address versus a mailing address. This file can be in Excel or .csv (.txt) format, or AIRES, but must be in a secure and encrypted format to protect member privacy.

If your credit union is close to qualifying, you may consider isolating members that meet the definition of a student. For college, university, and vocational student members, credit unions need to be reasonably certain a member is enrolled, and will need to provide the NCUA a description of how they validate these members are students. Such methods may include counting members with existing college loans who are within college age or providing other student information found on membership cards.

A credit union does not have a method of specifically identifying members enrolled in a high school, the NCUA will apply an official enrollment rate of members of high school age to determine a number of presumed high school student members. After the qualified student members are isolated from the general membership file used in the geo-coding process, they are included in the final “Yes” count of low-income members.

Credit unions that believe they qualify for the low-income designation may submit member information to the NCUA to demonstrate they qualify. This approach may be beneficial for credit unions that have low-income members living in areas where wages are high.

You may rely on a sample of membership income data drawn from loan files (from the past five years) or a member survey, provided you can demonstrate the sample is a statistically valid, random sample. To do this, include a narrative with your data describing your sampling technique and evidence supporting the validity of the analysis, including the actual data set used.

The random sample must be representative of the membership, and must be sufficient in both number and scope. You must draw the sample entirely from loan files or entirely from athe member survey. You cannot combine a loan file review with a member survey.

If you are considering using the sampling method, you are strongly encouraged to contact the NCUA’s Office of Credit Union Resources and Expansion to discuss your approach before undertaking a review of loan files or conducting a member survey to ensure your process will meet our requirements in advance.

The member business loan (MBL) limit for non-low-income designated credit unions is statutory and cannot be waived by the NCUA. All MBLs granted before the expiration of the five-year grace period that are in compliance with the statute will be grandfathered.  The credit union may continue to hold and service those loans.  However, the credit union will not be able to grant additional advances or grant new MBLs after the expiration of the five-year grace period until the credit union is in conformance with the statutory limit. Once the credit union falls under the statutory MBL limit, it may grant new MBLs or provide advances on existing MBL lines of credit but only up to the statutory cap.

If your credit union does not requalify for the low-income designation and already has existing secondary capital with a maturity term that extends beyond the five-year grace period, the NCUA may extend the time for your credit union to come into compliance at the discretion of a Regional Director. That way your credit union can satisfy the terms of the secondary capital account agreement or agreements. If approved, your existing secondary capital will no longer be counted toward net worth during this extension period.

However, even though credit unions are still allowed to retain the low-income designation during the five-year grace period, your credit union must submit a secondary capital plan to the Regional Director for advance approval before accepting any new or additional secondary capital during the five-year period.

After the five years expire, your credit union can only hold nonmember deposits allowed for non-low-income credit unions. These credit unions can hold nonmember deposits from nonmember credit unions, public units and political subdivisions as defined in the NCUA’s Rules and Regulations, Section 745.1 (opens new window). If your credit union has other nonmember deposit accounts with maturities beyond the five-year period, the NCUA may extend the time for you to come into compliance with regulatory requirements to allow your credit union to satisfy the terms of any account agreements in an orderly fashion, until they expire. You should contact your Regional Director for guidance in making such a request.

There will be no effect on your credit union’s examination status. Future examinations will be conducted in accordance with the NCUA’s National Supervision Policy Manual (opens new window). If your credit union has nonmember deposits, secondary capital, or MBLs, your examiner will review your plans for coming into compliance with the regulatory requirements applicable to credit unions that do not have a low-income designation.

Yes.  Your credit union’s membership data is obtained annually during the NCUA examination process.  Your qualifying status will then be reassessed to determine whether a majority of your membership continues to be considered low-income. If your credit union no longer qualifies, you will be notified and given the five-year period to requalify. The five-year period begins with the date of the notification.

You can contact the NCUA at any time to inquire about your credit union’s current qualifying status.

Yes.  At your request, the NCUA will analyze your membership data between examinations to determine whether a majority of your members are low-income. You can call or email the Office of Credit Union Resources and Expansion to request the analysis. You will be instructed to provide a file through a secure encrypted method that contains the membership data, such as an AIRES share file or other files containing the required information for the agency to use to perform the low-income analysis.

When Congress wrote the low-income designation provision in the Federal Credit Union Act, they defined a low-income credit union as predominantly serving low-income members. The NCUA must adhere to that statutory constraint; we do not have the legal authority to change it.

You may contact the NCUA’s Office of Credit Union Resources and Expansion by email at dcamail@ncua.gov, or call 703.518.1150.