NCUA Webinar: Strategic Uses of the Low-Income Designation (1/23/2013)

Kathryn Baxter: Good afternoon everyone. Welcome. My name is Kathryn Baxter and I’m the Program
Analyst for NCUA’s Office of Small Credit Union Initiatives. I’m going to be your moderator for today. Our webinar for this month is titled, “Strategic
Issues for Serving Low-income Members.” Before we get started I wanted to go over
a few administrative announcements. First, turn your volume up. Second, enable your pop-ups on your browser. And third, you can increase the screen resolution
by hitting the “Enlarge Slides” button at the bottom of the console. And finally, at any time you may submit questions
via the lower left hand corner chat box. Now, at the end of our webcast we’re going
to answer those questions. So, in the past we’ve archived our webinars
and we’re going to do the same thing this time. So, look for this webcast in a couple of weeks. Without further delay I would like to introduce
our speakers this afternoon. We have Vanessa Lowe. She’s an economic development specialist
with the Office of Small Credit Union Initiatives. And Elliot Weiss, is a consumer access analyst
with the Office of Consumer Protection. So, today Vanessa and Elliot are going to
talk to you about the strategies for using your low-income designation and how these
can be used to help your credit union members. So, without further adieu, Vanessa, you have
our attention. Vanessa Lowe: Thank you very much, Kathryn,
and welcome everybody to this conference call. We have more than 300 people at this point,
so we’re excited. As Kathryn said, this presentation is “Strategic
Issues for Serving Low-income Members.” It’s actually a follow-up to a presentation
that we did — it was a webinar back on August 14, 2012. And that was titled, “Benefits of Low-income
Designation.” I hope many of you participated in that. If you didn’t, you can go to our archive
and find that presentation. So, it’s a follow-up because on that initial
presentation we talked about, in length, about the benefits of the low-income designation. Specifically, we also talked about why it
was a big issue at that time because we had just sent out notices to 1,003 credit unions
saying they were eligible for the low-income designation. And that happened as a result of NCUA finally
automating the low-income designation test within the AIRES software. So, that was a very big event and we wanted
to hold a webinar at that time to sort of make sure everybody understood what low-income
designation was and what the benefits were. This webinar is going to be different because
here we’re going to focus on helping you to think through how to integrate low-income
members into your overall business strategy and we’re going to give you some tips on
that. We’re doing this because, of those 1,003
letters that were sent out, almost 700 credit unions accepted the designation. Now, we don’t know how long those credit
unions actually qualified, but the fact that so many new credit unions are now low-income
designated makes us think, you know what, they may have been surprised that they were
eligible. They may have been surprised to learn that
more than half their members were low-income. And so for those credit unions that maybe
hadn’t been thinking strategically about that particular population, we’re hoping
this webinar will really help you to think more strategically about how to integrate
services for your low-income members, again, into your overall business strategy. So, what will we cover? I’m trying to get to the next screen. I’m having a little trouble here so give
me one minute. Hold on one moment; we’re having some technical
difficulties and then we’ll move forward. Okay. So, what we’ll cover – Kathryn has already
done the welcome and introductions and told you who will be on the webinar. We’re going to jump into why focus on the
underserved market. So, we’ll be talking a little bit about
that. And then for a couple of slides we’re going
to be talking about strategic assessment and planning. And we’re going to use the who, what, when,
where, why, and how series of questions to encourage you to think about what’s going
on currently and what you might like to change later on in order to better serve your low-income
members. Then we’re going to just preview – a little
talking about some targeted products and services that are very popular with low-wealth/low-income
members. And then Elliot Weiss is going to go over
the low-income designation benefits a little bit more, but in a different kind of context
than we did the first time. Here he’ll talk about – give some specific
examples of how the benefits can be used to serve the membership but also offer some precautions
around some of those benefits that we think will be helpful for you to think about. And finally we have a page of guidance and
resources that should be helpful to hold onto and maybe even share with your board. Give us one second; we’re still working
out the technical problems. All right, I think we’re working it through. All right. So, before we get into it, let’s talk about
the Office of Small Credit Union Initiatives. I just want to give you a general understanding. We’ve done this on other webinars. We were established in 2004. Our mission is to support the empowerment
opportunities and risk mitigation for credit unions, particularly small credit unions. Now, this slide provides a visual of our four
main areas of service that we offer. The first is direct assistance. We also call that consulting. We have a staff of 16 Economic Development
Specialist, EDS’, who provide one-on-one consulting to credit unions. We also have a training program. Over the past several years we’ve done anywhere
from 20 to I think up to 33 annual trainings. And those are national trainings in various
states throughout the country. The thing that’s interesting about this
year for training is we’re offering a new opportunity. It’s called the CEO Boot Camp. I think the announcement just went out last
week about that. A very exciting opportunity to really help
new managers, and even established managers, to spend a couple of days together, really
thinking through what are the main things they need to know in order to run a strong
credit union. The next one is partnerships and outreach. Our office partners often with other government
agencies in order to find ways to help credit unions serve their members. For example, one of the partnerships I like
the most is our relationship with the Internal Revenue Service in order to encourage and
work with credit unions who want to offer volunteer income tax assistance programs in
their credit unions, or with other partners. So, that’s just one example of a partnership
that we do. And, finally, what a lot of people have heard
about is the grants and loans, and that’s one of the major benefits that people often
think about when they’re thinking about low-income designation. Our office manages the Community Development
or Evolving Loan Program which is the grants and loans program for the National Credit
Union Administration. So, the next slide, I wanted to give you some
numbers related to – because almost 700 credit unions accepted the designation, some
of these other numbers have really changed significantly. And so I’m calling this the “Hockey Stick”
graph, because each of the lines looks like a hockey stick because of that strong growth
there at the end of 2012. So, let’s start with the green bar. That shows the growth in the number of members
because of the new credit unions that are now low-income designated. Back in 2002 we had about 2 million low-income
members based on those that had accepted – those credit unions that had accepted designation. And now today we’re up to 13 million members. And with that little hockey stick rise at
the end, it was actually about 7.7 million new members came in because of the low-income
designation acceptances that happened in August, or after August. The next bar represents total assets. And $65 billion in assets was added to low-income
designation through the 2012 additions. The blue bar is the total designated credit
unions. And so far it’s actually 676 credit unions
of those 1,003 that got the letters who have accepted the designation after receiving that
notice of eligibility. So, that puts our current total low-income
designated credit unions at 1,913, which is 26% of the total 7,254 active credit unions
today. This next slide is just sort of summarizing,
again, that final number. But what’s interesting about it is you’ll
notice that the number of low-income designated credit unions was actually pretty stagnant
from 2004 to 2012 before we put that notice out. So, it stayed essentially between 1,000 and
1,200 for all those years. And so now with this automated notice going
out we have essentially captured those credit unions who probably were low-income designated
but just hadn’t made a proactive effort to accept the designation. So, we welcome you all to the pool of low-income
designated credit unions. Moving along now, the next question is: Why
are we so focused on the underserved market? In summary, serving low-wealth people offers
growth opportunities for your credit union. There is also the issue of credit unions were
created in order to serve those of modest means, so it’s definitely consistent with
our history, but the fact is that today there are more and more people who are operating
outside of the financial services mainstream and we believe credit unions are very much
going to benefit from serving that very large market. This is a slide from REAL Solutions. I’m going to talk about Real Solutions a
couple of times during this presentation. REAL Solutions is a program of the National
Credit Union Foundation. And the program works through state leagues
and associations to help credit unions provide new products and services to meet the financial
needs of low-wealth households. That is their mission. That is the mission of that program, to increase
service to low-wealth households. And they’ve done some amazing things; they’ve
worked with many, many leagues and really have started to help those credit unions – and
these are often very traditional and large credit unions – to serve low-wealth members. So, the slide gives a couple of statistics
about the underbanked and the size of the market. So, just a couple of things here. They talk about 20% of Americans today are
unbanked or underbanked. Unbanked is they don’t have a relationship
with any regulated institution. But underbanked could be folks who are in
your credit unions right now, your current members. That means they have a checking or savings
account, but they’re still using alternative financial services. So, one way to think about this is, okay,
so you’ve got members who are going and giving their financial services revenue to
another institution. We’d like you to think about – is there
a way that we can get them out of those other alternative financial services and better
serve them, be a one-stop shop for them in our current institution. So, that’s the sort of “who are they banking
with” question. Then there is the credit question. 70 million people have no credit files with
the three major agencies. So, those are folks who are credit challenged
and have trouble getting loans or, you know, or access to credit. That’s another population that you want
to be thinking about. And then finally the last point on this slide
I think is a really important one. Millions of consumers turn to these alternative
financial services providers, such as the check cashers and the payday stores and rent-to-own
stores, including your credit union members. So, again, we want you to start thinking about
how can I serve those folks who may be doing their business with both the credit union
and another provider. The next slide is just another example of
how much focus there is on the underbanked or underserved market. This is actually an advertisement from a business
called Zoot. They’re a global provider of advanced loan
origination, account acquisition and credit risk management solutions. And it’s interesting that they use this
particular graphic essentially showing that the underserved market is 21% of the market
as their way to pull you in and get you to do business with them. And if you read the website more it essentially
talks about how they think they can really help you to serve that particular market better
through better data management and understanding your data and using your data. And finally along this point about why focus
on the underserved market is just the alternative financial services industry numbers, just
what they are in general. So, this slide actually shows – this is
from an article on November 2012 summarizing the amount of money that’s being made by
the alternative financial services industry, broken out by different kind of products and
services. So, $90 billion – the numbers on the right
side are in billions – goes to the “buy here/pay here” loans. And so those are the – you know, your-job-is-your-credit
kind of auto lenders. $50 billion goes to check cashing. $48 billion goes to payday loans. $46 billion to remittances. $39 billion in prepaid cards, etc. So, again, this is an opportunity. The alternative financial services market
has figured out how to make a great deal of money off of this market in a way that some
people may even call predatory. And we know that credit unions can do a better
job of serving the needs of low-wealth individuals. But, we just may need to help the credit unions
figure out what those products and services are and how to serve them effectively. So, going back to the issue of a lot of you
received the notice. There were, again, 1,003 letters sent out. You received a notice and some of you had
decided to accept the designation. We’d like to know who’s on the call. We think it’s actually broken out into four
groups. So, we’re going to ask you to click the
radio button corresponding to how you would describe your credit union. Number one is you were surprised to learn
that the credit union was low-income eligible and you accepted the designation. That’s the number one option. Number two is you were surprised to learn
the credit union was low-income eligible and you have not accepted the designation. Number three is you were – you’re on the
phone – you were designated before the 2012 notices as a result of a proactive request,
because that’s how it happened before. So, these may be some of the community development
credit unions who actually were created to serve the underserved and have a very strong
mission for serving that population. We hope there are some of you on the call,
also. Number four is you’re hoping for the designation
but you have not received eligibility yet. Now, this may be some of the state-chartered
credit unions because we’re still working with some of the state associations around
how to essentially do the designation for some of the states. And then number five is you don’t fit into
any of the boxes above. So, I’m going to give you some time now
just to choose one of those radio buttons and then we’ll look at what the results
say. So, please click a button now and then click
the submit answer. I’m going to go to the poll tab and see
what the results might be saying. All right. We’re going to give you a couple more minutes. If you’re having trouble pushing the buttons
or having any technical difficulties, please type us an email and let us know. Okay. We’ve gotten some answers here. And I’m going to push the results to the
audience to see your results. So, it looks like most of the folks are those
who were surprised to learn the credit union was low-income eligible and accepted the designation
– that’s about 29% of you. We’ve got about 2% who were surprised to
learn of it and haven’t accepted the designation. And then we’ve got about 27% who were designated
before the 2012 notifications. And then, okay good, we’ve got 13% who are
hoping for the designation. And then 29% none of the above. It’s probably NCUA and maybe some of the
lead staff, so we’re glad you’re on the line also. All right, so, now that we have a sense of
who’s on the line, all right, let’s keep moving. So, the next section is now going to talk
about strategic planning for serving the underserved. And so here we’re going to talk though essentially
a way that we can do some strategic assessment and planning in order to think about what’s
going on with your current business strategy, how do you look at that current business strategy
and think about where are there opportunities and/or weaknesses that you can look at so
that you can move to a later position and serve the underserved population even better,
so looking at now and later. Let’s jump into it. So, again, I use the who, what, when, where,
why sort of series of questions. Let’s start with who. The who is who are you serving right now. Hopefully you have some sophisticated-enough
data system that you can do some analysis on the breakdown of your members. And the important breakdowns include things
like age diversity, income diversity. Now, we know that you may not automatically
have the income on your system unless you’ve done a loan for them, but at least you can
do some sampling and find out what kind of income diversity you have. Credit-worthiness. Most of you are probably already doing some
sort of a risk-based pricing system, and so for those who have gotten, they’ve already
been tagged as anywhere between and A to an E borrower, and so the credit-worthiness data
is there. If not, maybe you have the FICO score already
embedded in your systems somewhere. Geographic diversity. Now, more and more credit unions have moved
to either a community charter or a different type of geographic charter, so there are fewer
and fewer credit unions that are sort of single employer group based anymore. So, you may have more geographic diversity
than you had say 50 years ago when you were first created and it’s very helpful to know
what kind of geographic diversity you have. So, you may do a zip code search or lay out
the zip codes on a map and see where your concentrations of members are based on zip
code. And then ethnic and racial identity. Here an important question with the growing
multiculturalism of our country, and so, again, if we go to the question of where are the
weaknesses or opportunities, if you’re living in an area where there has been large influxes
of Hispanic or Latino population, but your membership has remained pretty homogeneous,
that may be an opportunity that you might want to follow up on and figure out how can
we get more of that Latino population into your credit union). Then, another suggestion, and again, none
of these slides are sort of completely comprehensive. You could think about how you want to stratify
your membership and look at the diversity. But the final one on this suggested slide
is looking at where your members are in terms of how they deal with financial services. Are they more transactional members, just
coming in, doing transactions, maybe cashing their paychecks? Have they moved to the borrowing stage? Okay, I’ve got at least a little bit of
credit history, at least enough for the credit union, and so I’m starting to borrow. Or, are they more in the savings phase? They’re actually starting to save maybe
even an IRA account. So, thinking about where they are in that
spectrum may be helpful. And, again, the question for each of these
slides is where are the weaknesses or opportunities. Let’s go to the next slide and I’ll talk
through something different. So, the next question is what. So, the question here is then what products
and services are you offering. And, again, with each of these you’re looking
at what are we doing right now and then what kind of opportunities can we look at moving
into later. So, and I just broke it down in this particular
way, but again, you can break it down any way you want. What are the transaction vehicles that you
offer your members? Remember, some folks are just doing transactions. They want to cash their checks. They want to get their money out of the credit
union. So, is it through debit cards, ATM machines,
share draft, e-payments, what are all the ways that you offer them to do their transactions. And then what are your savings vehicles? And so I laid out two extremes here. There are the IRA accounts for those who are
very much in the sort of saver realm. And having enough cash that they can actually
save in an individual retirement account. But then at the other end of the spectrum,
and again, this is maybe more for the population we’re talking about, it might be second
chance accounts. There are many people who have essentially
not been able to participate in the regulated financial services industry because they’ve
had some trouble with a bank or a credit union in the past, and so they’re on the check
systems list. There are some credit unions, and some banks,
too, but I think credit unions are certainly more open to offering what they might call
a second chance account. And so it’s a way to offer a savings or
even a checking account to them. And you will put some restrictions around
it, because clearly they’ve had trouble in the past, but that would be a great opportunity
to offer somebody a way to welcome them back into the regulated financial services market. Loans, that’s another sort of product offering
that has a full spectrum. So, it could be you’re dong small loans,
say up to $500 dollars or something. Then maybe you’re doing just signature loans,
a couple of thousand dollars for education, cars, all sorts of things. Then there might be microenterprise. Now, there’s not really a category within
the NCUA records for microenterprise, but essentially I’m describing this as small
business, but very, very small business loans. So, it doesn’t quality for the MBL level
which is a $50,000 loan, but it might be a $5,000 loan made to the small barber shop
in order to get an additional chair. So, we might call that a microenterprise loan. And, so, there are few credit unions out there,
I think, who are marketing their products as a microenterprise loan. And then auto lending, definitely a very popular
product with credit unions. And then there are some credit unions out
there that are doing member business lending and doing it on a small scale. Some of them are doing it on a larger scale. And then there’s the diversity of services
that you might be offering, the check cashing, the wire transfers, remittances. And, again, remittance is very popular for
a growing international membership base to send cash back to their countries. And then we’ll talk more about this when
we go over some targeted products, but there’s the volunteer income tax assistance. There are individual development accounts. And then, again, at the other end of the spectrum
you might even be offering some sort of investment services, perhaps you have some sort of a
broker coming in one day a week into your credit union and working with your members. So, that’s the what. Let’s move onto now the when and the where. So, one of the big issues when surveys are
done of particularly – actually, everybody – but particularly with the unbanked or
underbanked. Everybody wants convenience when it comes
to their financial services. So, thinking about where are our branches
located and here’s where first looking at what’s the geographic diversity of your
membership, where is it concentrated? When you then think about, well, where are
our branches located, then you can think about what do we need to change later. And then what kind of a branch do we need
to offer in maybe a different location or a new location? And what are the services that we might offer
in that branch? Hours of operation. A very big issue. That’s often cited for folks who are using
the alternative financial services. “Well, the check casher is open until about
9 o’clock at night.” Not a whole lot of credit unions are open
until 9 o’clock at night, so hours of operation is a big question. Do you have shared branching? A lot of credit unions have moved into that,
and that’s a way to offer other alternatives for members when your credit union may not
have the type of hours that work for them. The other question speaks to the one where
who are the outreach partners that you’re using right now? Are you working with, for example, a lot of
credit unions, the larger credit unions may be members of their chambers of commerce,
and so they are partnering with other businesses to get the word out and do the right advertising. For the low-income population or the low-wealth
population, perhaps a good partner is the job services sector. Go into the job services center – getting
them to help advertise your credit union as the go-to financial service when they do get
a job. Hey, you got a new job, you’re going to
want to do direct deposit. Here’s a great financial institution that
you could work with and become a member of so that your paycheck is safely deposited
into a financially regulated institution – into a federally-regulated institution. And then there is community visibility and
recognition. Who are you associated with? Which radio stations, for example, you might
think of in terms of this. When you look at the racial and ethnic diversity
of your membership, perhaps you might raise the question of, huh, okay, I have actually
more African American members than I thought, so maybe I need to get on the R&B stations,
or again with the Latino population I need to get onto the Latino station. And, again, radio ads and other public service
announcements – are you doing those types of things and where are you doing those? And then, finally, again, suggested but looking
at your annual meeting. I’ve been working with a lot of credit unions
who say that, you know, they’re just not getting much of anybody at their annual meeting. And so the conversation is what’s being
offered at the annual meeting, when is it being offered, what’s the agenda, how are
you getting the word out? An annual meeting is actually a great place
to maybe say, “Hey, you come, but also bring a friend who might join the credit union.” So, think about things like having a guest
speaker or a financial education seminar. Historically, I know you’ve had nice buffets
and gifts, but so many credit unions have had to back off of that because of the cost. But we want you to think about what are other
low cost ways of still offering an engaging and attractive annual meeting that speaks
to the needs of the predominance of your members. And then finally on the who, what, when, where,
and why, we sort of put why and how together. So, here, what we want you to think about
so how did it happen that your credit union is now predominantly low-income? And again, for those of you who are surprised,
and that’s most of you who are on the call, if you think to, well, what’s changed about
the landscape of your geographic area, but also, just the country in general. Again, it’s becoming much more multicultural,
much more diverse in many ways, and with the economic downturn over the last several years,
a lot of those A borrowers have moved into the B or C positions. So, things are changing on the national landscape
and also on the local landscape. So, you are the expert about your local economy
and so you could think about, well, when this particular plant closed we lost those memberships. And then we changed our field of membership
to maybe community, or you added some underserved areas. And so that is how it happened. Understanding that then will help you think
about then how do we serve those members but also how do we reach more members. You want to essentially control the change
that’s going on now as opposed to being reactive to the change. And then you want to understand it. Do you want to do anything different, and
why? What’s your argument for doing anything
different, for adding those products and services? Because you need to convince your board. You need to convince the board that, yes,
it’s actually time for us to maybe consider an alternative to a payday loan product. That can be a hard sell. There’s a lot of sort of cultural bias against
offering those products. There may be a lot of assumptions about risk
for that kind of product, so you need to have your talking points ready for your board. You also need your talking points ready for
the people you are trying to attract. If you’re trying to attract more members
or better serve the ones you’re currently serving, tell them the story about why you’re
doing this. Why is it important to the credit union to
do this? Why is it important to both the safety and
soundness of the credit union, but also the credit union fitting into the way the community
exists today? You want to be an integral partner with your
community. So, those are the sort of who, what, when,
where, and why questions. And, again, please make sure you’re submitting
your questions to us and we’re going to cover those at the end; we’ll leave a good
half hour for questions at the end. Next, I just want to summarize. Again, this was covered in the August webinar,
but I just want to briefly go over the low-income designation benefits. The most popular and the most talked about
one is the fact that at the low-income designated credit union you qualify for the Community
Development Revolving Loan Fund. That’s what the CDRLF stands for. And there are both grant and loan opportunities
under there. I want to point out that there’s actually
a new initiative that was just announced last week that we’re offering in 2013 – it’s
a $50,000 single grant for a credit union that will essentially work in collaboration
with other partners – it could be credit unions, it could be other partners, essentially
to come up with some sort of program that will result in a substantial reduction of
expenses for core credit union operations. And, again, it needs to be a multi-entity
collaboration. So, the general sample, again, it doesn’t
need to be limited to this, but a lot of particularly small credit unions are really struggling
with compliance costs. A lot of small credit unions, they might have
a compliance person who is working really hard and not really keeping up. And so is there some way that several credit
unions could work together to meet those compliance needs, maybe by sharing a staff or something
like that. So, that’s just one idea, but there’s
a lot of ideas and we’re very excited to see what kind of ideas come in from that initiative. Another benefit is the consulting services,
so that’s access to the economic development specialists who work one-on-one with the credit
union on a variety of issues. Then, I always like to put these two things
under the category of capital access privileges. When you’re serving a very large population
of low-income members it can be very hard to have enough capital to lend because low-income
people generally have smaller accounts and so you have less capital available from your
membership. So, one of the benefits is being able to go
out and get capital from other sources. And so that includes secondary capital and
non-member deposits. Elliot is going to talk a little bit more
about, again, all of these benefits and how you can use them, or also some of the things
you might want to be aware of to make sure that you’re using them safely. And then, finally, the member business lending
limit exemption. And, again, Elliot will talk more about that. So, let’s now just talk to a couple of sample
targeted products and services that are very popular with the low-income membership. And really help them to build wealth, to move
from being sort of doing transactions to moving into the savings realm, thinking more strategically
about how they’re doing financial services. The fact is the alternative financial services
market is so large because for many people it’s just the best option they have for,
you know, managing their money. So, let’s look at, and one of the big issues
is payday lending because that is such a big business. And there’s so many alternatives now that
are being offered out there outside of the regulated institutions. So, Chairman Matz was very passionate about
this. And so the board approved a payday loan alternative
product for NCUA back in 2010. The features are – the main thing that people
are very excited about is that you get to charge up to 28% interest rate for it as opposed
to the 18% maximum. It recognizes that, yes, this can be a riskier
product and it can be a little more expensive to implement this kind of a loan because it’s
so small and so there’s quite a bit of transactions involved in doing it. I’m not going to read all of the features,
but essentially it’s a principal amount of $200 to $1,000. Term is up to six months. An interesting feature here is that rollovers
are prohibited. We’re trying to offer the product but still
sort of keep it as safe as possible. And so additionally you will see that there
is a limit on the number of such loans to one member within a six month period. One of the things that makes this product
so hard on folks is that people get – not just that they do it one time. The fact is they get caught into a cycle of
not only having sort of back-to-back loans or a collection of loans at single facilities,
but they might be going to two or three different businesses and actually having more of these
loans, so they get caught in a cycle and it really can be very difficult to get out of. So, that’s just an example of a product
that you might offer. And so NCUA has created a product. But here actually at the National Credit Union
Foundation, where Real Solutions is housed, Real Solutions has actually created a toolkit
for credit unions to help you create your own product. There are a lot of turnkey products out there. You may want to consider one of those. But this tool can be very, very helpful, and
so I just wanted to point out that a lot of groups have already done this; they’ve already
gone down that path. You don’t have to recreate a wheel. And the toolkit also may offer some good tips
on how to sell it to your board, how to sort of really talk them into this is a product
that our credit union definitely should be offering. So, that’s just an example, so payday loans
might be an example. The other one is financial literacy. Now, let’s acknowledge that all credit unions
are doing some sort of financial literacy. You’re sitting down with your borrower and
going over their credit report when they do their application, when they make their application,
so that alone is some level of financial literacy. There are some credit unions that are doing
even more, though. It might be more structured kind of financial
literacy. So, this particular ad – or it’s an article
focusing from Cooperativa Latino, or Latino credit union is also what it is called. It’s in Durham, North Carolina. I think they for the last several years have
been one of the fastest growing credit unions in the United States. I think it has close to a 99% Latino/Hispanic
population of members. And they have structured classes, I actually
started an [IDA] class, and so a structured class, an individual development class is
anywhere from six to eight weeks long, covers a variety of topics, including things like
what’s the difference between a bank and a credit union, what’s an interest rate,
all those kind of things. And so there might be a graduation at the
end. And so this picture reflects that they had
a great graduation and everybody is excited. So, that’s a little more structured and
certainly more staff intense kind of financial education maybe some credit unions are doing. Another example of financial literacy, this
is a self-help ad or article about their micro branch program. They’re actually working in partnership
with a check casher. And they’re offering little five minute
financial education lessons while people are standing in line. Then we talked about the Volunteer Income
Tax Assistance. The thing I’d like to tell you about VITA
is it’s a great program. You work in partnership with the IRS. For a credit union, you may not be the ones
actually doing the tax preparation. You know, you may not want to find all those
volunteers. But there’s probably somebody in your community
who you can partner with who is already doing the tax returns. You could provide a staff member there maybe
one day a week during the tax return season to open accounts at your credit union for
those folks who are getting their tax returns done. If they don’t have a relationship with a
financial institution, it could be your credit union that helps them to get those tax return
funds directly deposited into a federally-regulated institution. And then, finally, the prepaid debit card. Very popular, again, for folks who don’t
have a whole lot of – don’t maintain a whole lot of funds. They can essentially get access to this prepaid
debit card because they put the funds on the card. And then they can use it at an ATM machine. They can use it like a Visa or MasterCard
depending on who you partner with. This particular product is from the Illinois
Credit Union League, I believe. So, again, just another example of a product. Finally, this is another Real Solutions slide
that breaks down a variety of products and services for low-wealth families by the sort
of issue area. So, under education you have counseling and
staff training. Under transaction services you have a series
of other things. So, again, just another series of ideas you
may consider. And, again, it’s a Real Solutions slide
and so they’ve got some great resources to look at. All right. So, I’m going to turn it over to Elliot
Weiss now. Elliot Weiss: Thank you, Vanessa. So, what I’m going to talk to you about
today is I’m going to go over, as was alluded to earlier when we first started out, I’m
going to go over some of the benefits that Vanessa touched upon and describe how they
can be strategically beneficial for your credit union and some potential risks that could
be associated with those and your need to mitigate those risks. As mentioned earlier, Vanessa mentioned the
consulting that’s available through the Office of Small Credit Union Initiatives here
at NCUA, but regulatorily there are four major benefits. There is secondary capital – and these were
touched upon at the September webinar when we first talked about low-income designation
and the benefits. Secondary capital is a loan that acts as capital. It’s subordinated debt. It’s a very low priority before anything
else gets paid out and it needs to be available to cover any operating losses that are not
covered by the credit union’s net worth. In general the terms are greater than five
years. And in the last five years of the maturity,
20% of that incrementally, each year, goes to a payable account. Non-member deposits, now, low-income designated
credit unions can get non-member deposits from sources other than credit unions, federal
credit unions, and some state credit unions as well can get non-member deposits from other
credit unions. You don’t have to have a low-income designation
for that. But, low-income designated credit unions have
the option of getting non-member deposits from almost any other source, sources that
are non- credit union related. An exemption from the Aggregate Member Business
Lending Limit. For those credit unions that are not low-income
designated there are limits on the number of qualifying member business loans per our
regulation that is the lesser of 1.75 times the credit union’s net worth, or 12.25%
of the credit union’s assets, whichever is less. For credit unions that have the low-income
designation, those credit unions are exempted from that Aggregate Member Business Lending
Limit. And you do need to notify the regional office
if you want it to exceed those limits. And, finally, the Community Development Revolving
Loan Fund which Vanessa touched upon a little bit earlier, and that’s actually outlined
from a regulatory standpoint in part 705 of NCUA’s Rules and Regulations. There are loans available. There are grants available. I’ll mention in a little bit when we discuss
the strategic benefits and some potential risks. So, to start things out, secondary capital. One of the bigger secondary capital initiatives
that we’ve seen, that I’ve seen, happened two years ago when the Treasury as part of
the TARP Program, initiated this Community Development Capital Initiative in which they
made these funds that were available through the TARP to credit unions to serve as secondary
capital. And the credit unions, not only did they have
to have the low-income designation, but they also had to have the CDFI, the Community Development
Financial Institution, certification through the US Department of the Treasury. And through that program, NCUA working in
conjunction with the Department of the Treasury was able to deploy $70 million in funds as
secondary capital to 48 low-income designated credit unions. So, it was a very good initiative and was
able to provide funds to those credit unions to provide funding into their communities. So, in general, secondary capital – how
can you use it? Well, the main thing that I’ve seen credit
unions use it for is to shore up their net worth. It can be very helpful, particularly for those
credit unions that have low net worth, that are not adequately capitalized per our Prompt
Corrective Action regulations. But, again, it’s temporary. You can temporarily boost to your net worth
with the intention that you’ll be able to organically grow your net worth during that
time and at the end of the maturity you can turn it back in and your net worth is stable
without needing that net worth, that’s the secondary capital. Invest your membership growth and diversity
of your members, marketing to your members. Use that money to market to different facets
of your community and different facets of your field of membership. You can leverage it as match money. Now, the sources of secondary capital that
I’ve seen, the National Federation of Community Development Credit Unions offers it, or did
at one time; I think they do as well now. I’ve seen credit unions get it from banking
institutions as well. So, what it can be used for is it can be used
for match money for when you apply for monies from governmental organizations such as the
Community Development Financial Institutions Fund, because in some of their funding rounds
for CDFI they require match monies of a similar form as the money in which they’re giving
you. So, it can be used, if you get it from one
source, it can be used as match for this other governmental source. And you can invest in member wealth-building
initiatives. You have that extra source of funds where
you could invest in maybe a payday lending program, or even if it’s just granting more
loans to your members. I mean, it could be – wealth-building could
be just granting a member a used car loan so that he or she can get to work. And that way they can get more work and be
more self-sufficient and increase their wealth. Now, some potential risks or drawbacks of
secondary capital – you have to find the investors willing to accept total risk. As I mentioned before, it’s subordinated
credit union debt. It’s subordinate to all of their claims
on the credit union’s balance sheet. So, if in some case we would have to liquidate
a credit union then that money is at risk and they may not get paid. And I was involved in a couple years ago in
a merger where a credit union was right at the insolvent point and their losses ended
up eating up that secondary capital that the investors had and the investors said, “Well,
wait a minute; I didn’t know about that.”But they did have the disclosures. So, you do need to communicate that with them. And there are sample disclosures in our rules
and regulations that you do need to share with them in that. The costs can be high. A couple of sources that I’ve seen, because
that’s such a high risk, I’ve seen sources where the cost has been as high as 5%. CDCI, I believe, is at like 2%. It was lower than that. But that, still, it’s a little bit higher
cost of funds; higher than the cost of funds you’re paying to your members in most cases. So, it is possible to redeem that early. Our regulations do allow early redemption
of secondary capital, but you do need to submit a plan to your regional director in order
to allow for a secondary capital redemption. And by the way, you need to submit a secondary
capital plan to your regional office before accepting it. And, net worth could plunge after maturity
or payback, and you may not be able to renew that. So, as I mentioned before, it should be used
as a way for you to become more self-sufficient. I know a lot of credit unions use it very
successfully but in times like these where while the economy is slightly improving, it
isn’t terribly strong. Investors may not want to keep their money
at your credit union, particularly when it’s at high risk. So, you need to be able to plan for that and
to help grow your net worth. The next slide deals with the non-member deposits. Now, non-member deposits for credit unions
that are low-income designated, and for those non-low-income designated credit unions that
can get non-member credit union deposits, the maximum limit is the greater of $3 million
or 20% of total shares. Now, this is a NAFCU compliance blog that
discusses non-member deposits and discusses some of the compliance issues regarding that. So, how can you use non-member deposits to
your benefit? Well, it can be used as a source of liquidity,
sometimes cheaper than secondary capital. As I mentioned before, secondary capital since
it’s at risk, the investors will likely want more of a higher interest rate than is
market because it’s a higher risk. But this is less risky, so you may be able
to pay a lot less than secondary capital. So, it’s less risk to the investor and it’s
federally insured up to – that’s acronym SMSIA stands for Standard Maximum Share Insurance
Amount. I would have had to take another line on the
slide, so I decided to shrink it down for you. But that is $250,000 right now. And that’s permanent, by the way. Individual development accounts. In some programs that I’ve seen, what the
credit union participants have done is they’ve been able to get non-member deposits, because
you have to get from the individual development account perspective you get match monies. And with those match monies the members who
are participating in this individual development account would get monies and the match money
from different sources, governmental sources, could be a 501(c)(3) organization and so forth. But, at any rate, those organizations that
put monies into your credit union as a low-income designated credit union don’t need to be
members. So, it can help facilitate individual development
account programs. And the wealth building initiatives, as previously
mentioned, just general ones from a lending perspective. Perhaps investing in an activity in your community,
payday lending or as I mentioned, just granting more car loans to members or auto loans; that
will help them in wealth building. Or, microenterprise programs as long as it
is well-planned and monitored. So, those monies, those funds can be used
for those avenues. Now, some potential risks and drawbacks. Initially, depending on the size of your credit
union’s amount of money that you get, funds could cause your net worth ratio to drop. For a smaller credit union, that’s maybe
$1 million in assets and also a small credit union, if you’re getting 20% of your shares
in non-member deposits. That could cause your assets to increase quite
a bit. And if your net worth is close to the adequately
capitalized level, which is generally 6% of your assets, it could cause it to drop below
that. And in that case you have to develop a net
worth restoration plan. So, monitor that, measure that out. in the long run it might be beneficial, but
you need to be wary of that. Another risk is you may not have the liquidity
to redeem those non-member deposits when they become due. So, you need to really plan that out. And do you know your non-members? You need to know who’s depositing funds
in there, because if they’re depositing money in there and they’re looking and it’s
coming from a source that you’re not aware of and they’re bringing in large sums of
deposits, and it may be from a source you don’t know, and they could be doing potentially
illegal activities – you don’t want that to happen because that could cause negative
reputation risk to your credit union. So, you need to know your non-members. Member business lending exemption. In August, President Obama announced some
initiatives that the government had in order to combat the drought and to provide drought
relief for people and for institutions across the United States when we were in a drought
over the summer. If you go to YouTube, and I watched it last
night, if you enter in “Obama…”what did I do? I think I entered “Obama and NCUA” and
it came up with a White House site. It’s about a three-minute long YouTube video. He does mention NCUA and he mentions in the
same breath as he’s mentioning the initiatives that all the government agencies are offering
to combat drought relief. And what he mentions is that NCUA is making
– allowing 1,000 more credit unions to do more small business lending. So, basically what he’s referring to is
what we did at that time is send out those letters to the 1,000 potential low-income
designated credit unions that indicated to them that they were eligible. That was basically what he’s referring to
in his presentation. So, the member business lending limit exemption,
how can you use it to benefit your credit union? You can offer small community businesses even
more much needed capital. A lot of small businesses need that capital
out there. In some cases some of the larger financial
institutions aren’t offering to capital to these smaller institutions and they need
it. So, it can be helpful to those businesses
and help grow your community. May diversify business types and your business
portfolio, hence not having a large concentration risk in one particular industry. And you can improve your credit union’s
financial condition. If you need funds out there and loans out
there, can help improve your bottom line. However, with the benefits, obviously with
member business lending comes risks and drawbacks. Now, one is that you can allow your business
portfolio to grow too quickly. And as with any loan product, if you allow
your loans to grow too quickly it could cause liquidity risk at your credit union and could
enhance that. So, that needs to be definitely well-managed. The second bullet point which I’m sure that
we’ve talked about, in several letters, and I’m sure your examiners for those of
you that do member business lending have discussed with you, poor underwriting in these loans
can result in large losses. They really need to be well thought out if
you’re doing member business lending, whether it’s a member business loan that qualifies
as a member business loan per our regulations or otherwise. Because, as most of you are probably aware,
a large percentage of small businesses and newly started businesses, don’t make it. So, you really need to have strong policies
out there and procedures – you really need to know the types of loans that you’re granting
and have expertise in those types of loans. And then monitor those loans accordingly,
grade them accordingly, and make sure that your reserves and your allowance for loan
losses are adequately funded to cover those types of losses. But, you really need to underwrite those well. And, maybe this isn’t the right product
for your credit union. Just because you can do this product doesn’t
mean you should do this product. It has to be part of a well thought out plan. Kind of goes to the next slide, the next point,
not a strategically advantageous product. And putting all your eggs in one basket. Some credit unions out there were chartered
to make member business loans. I totally understand that. So, you have the expertise; you know what
you’re doing. You’re doing it probably in one industry. That makes sense. But, if you’re starting a program, or you
don’t know what you’re doing and you put all your eggs in one basket, and you have
a very high concentration, that could cause additional risk to your credit union if that
industry or that product suffers. So, that could cause negative impacts and
significant negative impacts to your credit union. The final benefit that I was going to go over
is the CDRLF loans and grants. Vanessa touched upon those earlier about what’s
available through the Community Development Revolving Loan Fund. And the Office of Small Credit Union Initiatives
offers that and administers that fund. So, how can you use it? There are two main ways. There are loans that are out there for raising
liquidity if you need it. The interest rate is still only 0.4%, which
is pretty good. I believe the loans are generally five years
and maturity on that. And there is certain payback period that is
in the note for that. So, it provides you liquidity for a relatively
longer term at a lower interest rate. The grants, and enhancements to better serve
your members. Those first four bullet points go over grant
funding rounds that were available under the 2012 TAG Program, the Technical Assistance
Grant Program. And this new initiative that Vanessa mentioned
a little early, when you collaborate with another credit union to reduce expenses, there
could be additional funding available. And I believe that was just announced recently
as well. So, that’s available right now. However, there are some drawbacks – risks
and drawbacks. Yes, the loan is at 0.4% through the Community
Development Revolving Loan Fund. However, it is 0.4% and it’s still not free. So, in some cases you might be able to get
a non-member deposit from a financial institution, bank or credit union, for possibly less than
that if they’re looking at a way to help your low-income designated credit union. So, there is some additional costs associated
with that, that if you were going to get the loan you certainly need to budget for that
in your pro forma financial statements. Grants – there is a large and competitive
pool so there are no guarantees, with an additional 600, 700 new low-income designated credit
unions that pool has just become much more large and much more competitive. So, again, there’s no guarantee. The funding – we haven’t gotten funding
announced yet. It’s going to be coming with the presidential
budget as t how much will be allowed for grant funding this year. We don’t know that at this time. If you don’t implement the program you could
lose the award. With each grant, in your commitment letter
for a grant it will list by what time you need to expend the funds for that grant. So, pay heed to that because if you don’t
implement the program within that timeframe you can lose your award. And, finally, it’s reimbursed after the
implementation of your program. So, again, with this program don’t do the
service or spend the money on the program before you get approved for funding from the
Office of Small Credit Union Initiatives, because if you do you won’t be able to be
awarded funds. And, in summary, low-income designation, the
benefit of the low-income designation can help your business strategy. However, the low-income designation benefits
can’t be your business strategy. The way it usually works out best is you have
a business strategy and you figure out ways in which it can enhance your business strategy. It may be a way that you learn more about
your members. So, you might take of a little bit of a churn
from that, but obviously safety and soundness – you need to maintain that in order to
make sure that you’re a self-sustaining credit union for years to come so you can
continue providing those excellent benefits that you are right now to your modest means
members. As I mentioned, benefits – they offer advantages
but could lead to unforeseen losses if not properly managed. So, ensure new products and services are strategically
relevant to your membership and part of a well managed plan. If you’re a one single sponsor shop and
you don’t have a lot of self-employed borrowers or self-employed members. Let’s say that maybe they work at the plant
during the week and maybe they have a side business landscaping or what not. If you don’t have a lot of members that
do that, member business lending may not be the right product for you, just as an example. So, they need to be strategically relevant
to your membership and part of a well managed and monitored and controlled plan. The second to last slide, view NCUA as a resource,
be that the Office of Small Credit Union Initiatives, the Office of Consumer Protection, any of
the offices here and your examiners. Because as an examiner and assignments that
I’ve done where I’ve been a supervisor, I’ve really liked the fact that when credit
unions have said, “Okay, we’ve done our due diligence. NCUA, what do you think about this product
or service? I’ve seen this investment opportunity; is
this legitimate? Is this something that is per our regulations?” And we can have this open discussion with
your credit union. So, do view us as a resource. And, last but not least, thank you for what
you do because without you there would be no us. So, without further adieu I’m going to turn
over the presentation to Vanessa who is going to finish us up. Vanessa Lowe: Thank you, Elliot. So, just a couple more slides here at the
end. The next one is…I ended with a picture of
Real Solutions, again, because I really like their program. All right, so this is the Real Solutions page. And what I like about the way that this particular
page is laid out is it talks about how they’re helping credit unions develop different products
and services in different categories. And they call them all Solutions. So, solutions essentially for serving low-wealth
individuals. So, they have them categorized as lending
products, savings products, transaction products, and there’s more further down on the page. So, I just want to really encourage you to
go to that website and see what kind of testimonials and different sort of products and services
you can find there. What’s really nice is to read about other
credit unions who may have struggled with offering, for example, the alternative to
payday loan products and how they successfully figured out how to offer that to their market. So, definitely want you to check that out. Finally, this is a list of, again, for those
of you who were somewhat new to the low-income designation and now sort of more conscious
about sort of serving the underserved, here’s a series of suggested letters to credit unions
and regulatory alerts that you may want to share with your board, read and become familiar
with, because they definitely speak to serving a large population of underserved. The Examiner’s Guide actually has a separate
chapter in it, Chapter 23 for Low-Income Credit Unions. And, remember, I think the Examiner’s Guide
is one of the best resources for credit unions to use. The more you read the Examiner’s Guide the
better prepared you are for your examiner coming in because that’s essentially the
bible that they use to come in and check for safety and soundness within your institution. The next is Supervisory Letter 10-CU-01. And this is a letter, again, written to the
examiners to essentially talk about – each credit union you check for safety and soundness
in pretty much the same way, but it points out some of the unique features of a low-income
designated credit union. And it talks through some of the products
that they might see that they might not see another credit union’s, like the non-member
deposits and like the secondary capital. So, very helpful piece to have on hand, particularly
if you have a new examiner on staff who may not have been introduced to those products
yet. Then there is the Regulatory Alert that talks
about the short-term, small amount loans. That’s the payday loan alternatives that
NCUA came up with. And then there is Service to the Underserved,
Interpretive Ruling guidance there. If you’re thinking about expanding into
an underserved area, that was updated back in 2008, so that might be helpful. And then there is another NCUA letter that
talks about the risks in business lending and how to have sound risk management practices
if you’re doing business lending. Very, very interesting and helpful to have
if you’re doing member business lending. And then, finally, on a related note is a
letter about concentration risk which if you’re thinking about expanding your business lending,
again, as Elliot mentioned that could pose a bit of a challenge. So, it’s something to be aware of. So, this is just a list of what we covered. We did an overview of the underserved market
and talked about why it’s so important to serve that market. It’s essentially the growth opportunity
and definitely offers a better product – the credit unions can offer better products and
services than the alternative financial services industry is offering to that market. We reviewed just sort of one way to look at
a strategic assessment and planning process for thinking through what is currently your
business model for serving your credit union and your members, to how you might look at
what changes need to be made to that business model so that you can better serve all of
your members including that predominance of low-income people who you’re serving. Then we just did a very, very brief sample
of targeted products and services. Again, I encourage you to go to the Real Solutions
website and learn about some even more unique and different ways of serving low-wealth individuals. Elliot talked through the low-income designation
benefits and gave some examples of specifically how you might use those benefits in some of
those products and services. But, also talked through some of the pitfalls
and some of the things you need to be aware of in taking on things like secondary capital
and non-member deposits. We went through the list of guidance and just
ignore that last one. We were supposed to remove that. All right. So, we are now going to go through some of
your questions. But, I wanted to sort of suggest, you know,
when you get a lot of information it can be a little overwhelming, so take out a pen and
paper and just start maybe jotting three things that you’ll do to move forward. Three things maybe that you got from this
presentation. Just sort of three things to be thinking about
as you now consider how you can strategically incorporate low-income members into your overall
business plan. All right, Kathryn, I’m going to turn it
over to you. Kathryn Baxter: Thank you, Vanessa and Elliot. We do have some questions that we are going
to entertain at this particular point. And I think what I’m going to do, start
with Elliot, we have a question for you. It’s about non-member deposits. And the question says, “Will you please
provide the non-member deposit limits resource again?” Elliot Weiss: Okay. That’s a good question because that actually
just changed. Well, six months ago it changed. The non-member deposit limits that we have
in our regulation Section 701.32 of NCUA’s regulations is the greater of 20% of the credit
union shares, or, $3 million. Last year, and the NCUA approved increasing
the limit from $1.5 million to $3 million. So, that limit has increased. So, it’s the greater of $3 million or 20%
of total shares. You can exceed that limit, but you need to
get a waiver from your regional director. So, you need to apply to your regional office
and request what limit that you want above that. And list why you need that limit, liquidity,
and you have to have a plan for the use of those monies. So, if you need to apply to exceed that limit
I would suggest reading through Section 701.32 of NCUA’s regulations. And you can find a link for that on NCUA’s
website. Kathryn Baxter: Okay. Thank you Elliot. And I’m going to give you another question. So, here’s one. It says, “Can we offer services such as
check cashing and money orders to non-members?” Elliot Weiss: There is a, I believe, and I’m
not an expert about the regulations, but I believe there is a regulation that under the
credit union’s incidental services that you are allowed to offer those type of products
to the credit union’s non-members. I believe that’s available for all credit
unions under the incidental powers. So, there’s a section of the NCUA’s Incidental
Powers that does allow credit unions to offer, a non-low-income credit union to offer such
services to members such as, though check cashing is one of them. And one of them might have to do with credit
unions that members are eligible to be members of your credit union. So, that would be in NCUA’s incidental powers
regulation as to whether or not you’re allowed to do that. Kathryn Baxter: Okay. Now here’s a question for Vanessa. What source of data is used to determine that
more than 50% of a credit union’s members are low-income? Vanessa Lowe: Thank you, Kathryn. Okay, so it’s actually a pretty complicated
database that we use and it’s called [Geocoding]. The data that’s used to determine whether
someone is low-income through the automated system is essentially looking at census data. And the census has identified those pockets,
those geographic pockets, census tracks, MSAs [Metropolitan Statistical Areas] where there
are concentrations of low-income people. And so what happens is the member’s address
data is overlaid with the census data, and if that member lives in let’s say a census
tract where the median family income is below 80%, according to the census data then that
member is counted as low-income. So, it’s a lot of census data. And each member, there’s actually about
23 different tests because it may compare that census tract to the larger MSA. It may compare the zip code to the larger
MSA. It may compare the MSA to the state. So, there’s a lot of different tests in
order to see if that member might qualify as low-income. Kathryn Baxter: Okay. Here’s another question. And this is to either Vanessa or Elliot. Can either the NCUA or preexisting low-income
credit unions provide a sample secondary capital policy or plan for the rest of us to use? Elliot Weiss: I think the question is can
we provide a sample secondary capital policy. And I don’t know that we have before. When we were doing the Community Development
Capital Initiative I mentioned earlier today, where we had TARP money that was available
for secondary capital, there was a checklist that we provided to credit unions. And I don’t recall whether we posted it
on the website. Did we post it on the website, Vanessa? Okay, so it was on NCUA’s website. I don’t believe it’s still there, the
checklist. Vanessa Lowe: No, but OSCUI could find it
and probably provide that since it was loaded. Elliot Weiss: And I believe it contained pretty
much everything that was required now for secondary capital policy or plan that you
need to submit to your regional director. So, we could probably do that. We could post that. It’s a great suggestion. We could do that. Kathryn Baxter: Okay. The next question is to Vanessa. Do you have any idea when the next round of
grants will open in 2013? Vanessa Lowe: So, like we said, the grant
round is always announced after the federal budget is announced. And so because, let’s be honest, that’s
been a bit of a political football for the last many years, we can’t say exactly. It’s usually though, in the last couple
years, I think it’s been late April. But, stay tuned and all of the low-income
designated credit unions will receive an automated email as soon as that is announced. Kathryn Baxter: Okay. Next question is for Elliot. Who would have received the notice that – apparently
this credit union wants to know who would have received the notice that we were eligible
for low-income designation. Would it be the CEO? How can you find out if your credit union
is eligible? Elliot Weiss: So, I believe what we did, back
in August we sent a letter out to a thousand credit unions indicating – 1,000 federal
credit unions indicating that they were eligible for the designation. My understanding is that we sent it to the
manager or the CEO of the credit union indicating that those credit unions were eligible, indicating
through those credit unions who let us know whether they qualified. So, the manager or CEO got it, however, they
should have run it by the credit union’s board of directors and then provided a joint
response. That’s my understanding is that when my
office, the Office of Consumer Protection, sent that out it went to the CEO or manager. Kathryn Baxter: Okay. Next question. Can the NCUA help if we are a state-chartered
credit union to get designated if we qualify for the low-income designation? Elliot Weiss: Okay. So, yes, it’s a good question. For state-chartered credit unions, we’re
working on a way to make it a lot easier for the state-chartered credit unions to qualify. We’re not quite there yet. We’re working with our programs to see what
we can do to make it easier as we did for the federal credit unions. Until that time, what my office can do, the
Office of Consumer Protection, is we can determine whether your credit union qualifies for the
low-income designation relatively easily. What we would need from your credit union
is your AIRES share download. And what we’d want you to do is to get that
to us securely. You could Federal Express us a disk, that
way you have a tracking number. Maybe not Federal Express, but overnight mail
us the disk, somehow that you have a tracking number for that. Or, you can send it to us securely. There is a link that we have where you can
email that and the email would be encrypted, where that AIRES share file would be encrypted
in transit to us and it would go to our servers which are also secure. And we could test that for you. So, there are options available for the state-chartered
credit unions. I would encourage you to contact our Office
of Consumer Protection. Actually, I’ll give you the number. It’s 703-518-1150. Again, 703-518-1150. Or, you can email us at [email protected] And
let us know, as a state-chartered credit union, whether you want the designation. If you email us, though, however, don’t
email us your AIRES share download. Ask us first for the link to do it securely. And we can give you the link to do that secure
so that it will be encrypted. But, if you just send us a regular email to
[email protected], that won’t be secure. That won’t be encrypted as far as sending
your share data. And as we’re aware that is sensitive data. But, there’s a secure way for your credit
union to do that. And you can talk to us and we can let you
know how to do that. Kathryn Baxter: Okay. Next question, Vanessa. After we received our designation, what are
our next steps to become a CDFI? Vanessa Lowe: So, CDFI is a designation conferred
by US Treasury. I used to work for the Community Development
Financial Institutions Fund. That is who administers the CDFI program. They both certify financial institutions as
being CDFIs, and they also have grant programs available. If a low-income designation credit union feels
like it’s ready to pursue a CDFI certification, you can go to and download the
certification application, which is different than the funding application. You can submit a certification application
at any time. And review that and start working on the application. The main issue that credit unions sometimes
struggle with to be certified is the criteria that says that they need to have a target
market, sort of a target market. If you’re low-income designated you have
proven to NCUA that more than half your membership is low-income. But the CDFI fund has a different eligibility
criteria to prove that you are predominately serving a low-income, or otherwise underserved
population. And so there are three different criteria. It can be based on low-income, and they’re
looking for 60% test as opposed to just more than 50%. It could also be a demographic serving a traditionally
underserved market, African Americans, Latinos, etc. And then there is a geographic market of what
they call the target market which is those census tract areas that have been shown to
be impoverished or otherwise very much underserved. So, it’s an involved application, but if
you have enough staff time to dedicate to it you can do that. Also it’s worth noting that there is assistance
available from a couple of organizations, but we know that the National Federation of
Community Development Credit Unions helps credit unions to apply for the CDFI certification. Kathryn Baxter: Thank you, Vanessa. We have another question that I’m going
to direct to the OSCUI Training Manager, Diane Rector. A credit union asked the question, “How
can I get more information on the CEO Boot Camp?” Diane Rector: Hello. This is Diane Rector. We’re in the planning stages of our CEO
Boot Camp. More information will be posted on our website
within the next couple of weeks. We have selected six sites for our CEO Boot
Camps which will be in California on May 4, and Alexandria, Virginia on May 8, in Collinsville,
Illinois on June 11, and Columbus, OH on July 17, and Dallas, Texas on September 18, and
then Birmingham, Alabama on September 25. More information will be posted to the website. And what we are doing is we are partnering
with the various leagues, inter-mutual, the federation, and CUES and some other agencies
to partner with this. And the target audience will be credit unions
$50 million and less. And we are encouraging CEOs and their successors
to come out. So, if you have any additional questions you
can email us at [email protected] Thank you. Kathryn Baxter: Okay. Thank you, Diane. I have another question for either Elliot
or Vanessa. The credit union asks, “Is it possible for
a credit union to lose its low-income designation if its market area changes?” Elliot Weiss: This is Elliot. I’ll take this. It is possible to lose your low-income designation? Yes it is. What we would do, if you change your target
market, the common question that I’ve had in working for the Office of Consumer Protection
is that credit union maybe was a state credit union and they applied to be a community charter
and they asked, “Well, can I still be a low-income designated credit union?” And the answer is yes. What it depends on basically is the composition
of your members. If you’re a community charter credit union,
we also look at potential members. We can look at potential members in addition
to existing members to determine whether your credit union qualifies for the designation. That’s another way we can qualify community
charter credit unions. However, if you change the composition of
your field of membership, and it does dramatically change your membership, you could lose the
designation. What our regulations allow though, if say
we test your credit union and find out that it does not, all of a sudden if falls out
of compliance with the designation, less than 50% of your members meet our low-income member
definition, then we basically give the credit union a five-year grace period to come into
compliance with that regulation. And our office could allow even a longer period
if your credit union has non-member deposits on the books, or secondary capital that you
might lose if you don’t have the designation. So, it wouldn’t be automatic. The potential does exist for the credit union
to lose a low-income designation. We do allow a grace period in the regulations
for your credit union to come into compliance with that. Kathryn Baxter: Thank you, Elliot. We are going to entertain a few more questions. If we don’t get to all of your questions,
we certainly will post these on our website when we post the webinar. So, here’s another question for Vanessa. You mentioned the $50,000 grant is to help
a group, not just one credit union, improve efficiencies and operations to better serve
its members. How about a project to help credit unions
work in the community to grow membership and use of products and services in the unique
socioeconomic environment in which they operate. Vanessa Lowe: Well, it sounds like you’ve
got some good language to start that application. Remember that the key for this grant is that
it needs to result in significant savings in the credit union’s operational costs. And so that could be staff costs. So, it sounds like you might be suggesting
that if a shared staff person would be going out and doing outreach. So, yes, if there are several credit unions
who each have a different – have an individual staff person who is doing that kind of outreach
and you consolidate it down and it results in credit union operational savings, then
that could be a possibility. Okay. There is a also a new product initiative that
is in the regular grant round, so that’s not part of the $50,000 grant. There is a new product initiative that funds
new products or services. And so what you described there might fit
under that category. Kathryn Baxter: Okay. Very good. All right. We have time for a few more questions. There was a question as to whether there is
going to be a Boot Camp in Hawaii, CEO Boot Camp in Hawaii. So, I’m going to let Diane Rector answer
that question. Diane Rector: I would love to have a CEO Boot
Camp in Hawaii, but not this year. We might do it next year. What we’re doing is we’re trying to do
a pilot program to see if we get any takers for the CEO Boot Camps. And maybe we can do that next year. However, we will be in Hawaii in July. And I believe it’s July 17 or 18, that Saturday. Sorry, it’s July 20. That Saturday. And that will be open and available to all
credit unions. So, even though we don’t have a Boot Camp,
we will not have a Boot Camp in Hawaii this year, we will post all the PowerPoints and
all the resources available for the Boot Camps online, so you’ll be able to get that information
online. So, if you need additional information on
that, you can email me at [email protected] Thank you. Kathryn Baxter: Thank you, Diane. Here’s another question for either Vanessa
or Elliot. If the community definition never changes,
but the economic composition of the community changes, can you lose the low-income designation? Elliot Weiss: This is Elliot. It’s kind of along the same lines as I discussed. Yes. You can lose the designation. Well, I guess it really would depend. If the economic composition of your community
changes, but the actual composition of your membership does not, and you still have greater
than 50% of your membership that qualifies as low-income per our rules and regulations,
then no – you would not lose the designation. However, if the economic composition of your
community changes to be, for a lack of a better term, more affluent, less modest means persons,
and the composition of your members changes in the same manner, and it ends up being that
you have less than 50% of your total membership meeting the low-income definition, then yes,
you would end up losing the designation and as I mentioned before you have that five-year
grace period. When I mentioned about the community charters,
it’s either or. You qualify either based on – for community
charters, you can use the actual membership or the potential in the community. So, we would look at it from that perspective. Kathryn Baxter: Okay. We’re going to have one more question and
then we will close out our webinar. This question is going to be to either Vanessa
or Elliot. The credit union says that they’re still
afraid to engage in non-member activities like check cashing. “Maybe we need some help with policy and
understanding risk and controlling it. Where should we go for guidance?” Vanessa Lowe: I think, again, the Real Solutions
website has some real life stories of credit unions that have gotten over that barrier
of years of serving those who are low-income and outside of the membership right now. So, I think using that resource. And also talk to your league, because maybe
they’re already very much engaged in the Real Solutions, so there may be some meetings
going on and some trainings going on that you’ve missed. So, that would be one suggestion. Elliot Weiss: And as I mentioned earlier today,
just because of products out there and non-member services out there, it doesn’t mean you
have to do it. You don’t have to offer non-member services
to your non-members. But if you want to, like Vanessa said, there
are resources available there where you can get some information so that you can weigh
out the benefits versus the risks of taking on such an initiative. Kathryn Baxter: Well, okay, we’d like to
thank everybody for joining us this afternoon. We hope you’ve gotten a lot of information
from our webinar. The Office of Small Credit Union Initiatives
is going to host webinars monthly. So, watch our website, please, for the announcements
on what the topic will be each month. And stay tuned. In a couple of weeks this webinar will be
posted and you will get an announcement on that so that you can access it. We hope you all had a good opportunity listening
and we fielded as many questions as we could. The rest we will post on the website. Thank you and have a wonderful afternoon.

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