While the Low Income Designation (LID) is automatic for some credit unions, it is elusive to others. Management of credit unions serving working class populations can misinterpret not receiving the automatic approval to mean their credit union is ineligible for the designation.
This is particularly confusing for the CEO of a CDFI Certified credit union that did not automatically receive the Low Income Designation. What should you do if you know your credit union serves working class people, but was not automatically approved?
There are a few easy steps to obtain it, even if you went through the process and were previously denied.
The NCUA’s process for providing the designation is fixed, driven by an analysis of member addresses. Don’t let that scare you away. For some credit unions, it can be more difficult to obtain than a CDFI certification, but it is still far less work. In fact, it may take you less than 20 minutes. The hurdle is that unlike the CDFI Fund’s guidance on obtaining the CDFI Certification, there is not well documented guidance on effort you can invest in the process to obtain the Low Income Designation. CU Strategic Planning has received verbal guidance over the years on approved means to document a credit union’s service to low income populations.
Credit unions located in pockets of geographic poverty come by the designation naturally. Credit Unions located in higher wealth areas serving working class people can have a more difficult time. Given all credit unions are chartered to serve working class people, far more credit unions are eligible for the designation than those that follow through to obtain it.
Understanding the process is the first step. A credit union qualifies for the designation when the majority of its membership (50% + one member) qualifies as low income (NCUA 2017).
For those that receive it automatically, it is because the NCUA periodically evaluates federal credit unions by analyzing member addresses during a regular examination. For federally insured state credit unions, the analysis is performed by the applicable state supervisory authority in compliance with state, then federal, regulations. A credit union’s examiner does the analysis. But the credit union provides the data, and that is key to unlocking the designation.
The Key is the Calculation
Successfully earning the designation requires documenting “50 percent, plus one member.” Every member counts either for or against a credit union reaching the threshold. Examiners analyze the Aries Report to sort members counting “for” and “against.” Consider that this is literally 50 percent of members, plus one member: A single member is the determination.
There is only one aspect of the Aries Report that is used to sort the members into “for” and “against.” It is the location of a member’s address.
As a result, preparing your Aries Report for the analysis is permissible and will result in approval for credit unions serving working class populations that did not automatically receive the designation. There are important steps to prepare an Aries Report for approval.
Steps to Prepare your Aries Report for approval
If your examiner has already reviewed your Aries Report and you did not take these steps to prepare your file, request a second review after completing:
Remove from the file all members with PO Boxes listed as the address. A PO Box does not have a residential street address. Therefor every PO Box automatically counts against the credit union’s 50 percent, plus one member. An address that does not count for a credit union receiving the designation does count against it. This is the primary reason many eligible credit unions do not receive the designation.
Create a tab on the Excel sheet labeled “students.”
Identify and place all students on this tab. Every student is considered low income and automatically counts towards achieving the 50 percent, plus one.
The key is using the permissible means of eliminating members that count against the designation, and identifying those members that count towards the designation. At 50 percent, plus one member- EVERY member counts.