By Ray Birch
WASHINGTON—More military credit unions could achieve a low-income designation (LICU) if NCUA would make a small change to its rules, asserts the Defense Credit Union Council (DCUC).
DCUC is working with the Northwest Credit Union Association in highlighting this issue.
The change to the agency’s low-income designation regulations would allow credit unions to recognize military post office boxes—APOs (Armed Forces Post Office) and FPOs (Fleet Post Office)–to be included in their calculations for low-income designation. A credit union must have 50% plus one of its members to qualify as low income to receive the designation. However, NCUA’s current regulations do not allow for APOs and FPOs to be recognized as an address.
“Therefore, military members who are stationed overseas cannot be included in the low-income calculation for a credit union,” explained DCUC CEO Anthony Hernandez. “This is unfortunate, as many of these military members overseas qualify as being low income.”
Low-income members are those members whose family income is 80% or less of the median family income for the for the metropolitan area where they live or national metropolitan area, whichever is greater.
The Big Benefit
The big benefit for military credit unions and their members is a low-income designation provides them with advantages to serve more members and to serve the underserved in a greater capacity, explained Hernandez.
“A credit union receives a low-income designation and they can receive accept nonmember deposits, issue secondary capital, apply for grants, and are not restricted by an MBL cap, which gives them the ability to provide additional products and services to their members. There are many advantages to this designation that would only help military credit unions better serve the military and their entire membership as well. The juice is certainly worth the squeeze here.”
But the obstacle remains regulations around not permitting members whose address is a post office box to be included in the low-income calculation. Hernandez said the reason for the rule is that post office boxes make it difficult to determine a person’s income level based on where they live.
A Quick Analysis
Anthony Hernandez
The most cost-efficient way to get a low-income designation is to provide NCUA with an Automated Integrated Regulatory Examination System (AIRES) download with member names and addresses. The NCUA runs a quick analysis, often times responding the same day and notifying credit unions if they qualify for the low-income credit union designation, Hernandez explained.
“You could be low income but have a post office box inside a wealthy zip code. And the reverse could be true—you could be high income and have a PO box in a low-income neighborhood,” noted Hernandez.
The DCUC is recommending NCUA amend its rule 701.34 (2) to allow for the term “low-income members” to also include those of the military serving abroad with APOs or FPOs.
“Nearly all credit unions serve military members, and there are a number of credit unions that would qualify for the LICU designation with these simple and fair changes,” Hernandez said.
Issues to be Worked Out
Other matters would also need to be worked out, including how to calculate a servicemembers’ financial status, should housing allowance be counted towards income, and how rank and military service time might impact financial status.
“I believe the NCUA will support this change,” said Hernandez. “There are some sticking points around rank and some of the benefits military members receive…but there are sharp people in the DoD who have already figured this out, so why don't we have NCUA and the DoD work together on this and come up with some guidelines?”
A Key Priority
Hernandez said this effort to include APOs and FPOs for a credit union’s low-income calculations is one of DCUC’s key priorities.
“This is all about financial inclusion,” said Hernandez. “NCUA Chairman Rodney Hood and board members Todd Harper Mark McWatters have all said financial inclusion is what they're trying to achieve. This is a bipartisan issue and I believe we can get this done. Military members serving overseas deserve to benefit from the additional products and services that are offered by low-income designated CU’s, including greater opportunities to obtain a business loan. The current rule unfairly discriminates against these members and the credit unions they belong to. This could be remedied with a simple technical correction to the current rule.”