NCUA Eases Rules on Obtaining Low-Income Designation; Move Could Open Up Hundreds of Millions for MBL (Misc News: August 8, 2012)
More small businesses will have greater access to needed capital from federal credit unions through a NCUA initiative to streamline the process for FCUs to receive a low-income designation. NCUA sent letters to more than 1,000 credit unions notifying them of their eligibility for the LICU designation on Tuesday.
“With this initiative, we are cutting regulatory red tape and expanding access to capital for small businesses, which should translate into job creation,” NCUA Board Chair Debbie Matz said. “Providing small businesses with the money needed to open their doors, create jobs or expand operations will help our economy. This action is particularly timely for the 27 states devastated by this summer’s historic drought.”
The list of those now eligible for this fast-track designation includes 44 Michigan credit unions.
One of the important benefits of the designation is the ability of LICUs to make unlimited member business loans. NCUA projects this initiative could unlock between $250 million and half a billion dollars in new, near-term business lending if all qualified federal credit unions participate. The initiative could double the number of LICUs and increase their member business lending by nearly 75 percent.
Rather than waiting for credit unions to complete the required paperwork to become a LICU, NCUA today contacted 1,003 credit unions alerting them of LICU eligibility. Credit unions receiving letters may now opt in with a simple reply that agrees to the LICU designation.
“NCUA’s decision to eliminate the red tape in applying for low-income designation provides a big boost for credit unions,” MCUL & Affiliates CEO David Adams said. “Michigan credit unions that are on the list should take advantage of this opportunity, which will allow them to help more of their members build their small businesses and gain access to supplemental capital.”
The initiative comes as CUNA and the leagues are making a major lobbying push to get congressional approval to expand member business lending authority for all credit unions. Currently capped at 12.25 percent of assets, a bill before Congress now would raise the limit it 27.5 percent for certain credit unions.
U.S. Senate Majority Leader Harry Reid has promised a floor vote on MBL, but so far it hasn’t happened because supporters are still trying to line up the votes to assure passage. Nine of Michigan’s 14 House members have signed on as cosponsors and both Michigan Senators are supporters as well.
NCUA’s initiative was incorporated into a relief and recovery package for drought-stricken states announced at the White House today. Of the LICU-eligible institutions, 470 federal credit unions—representing 47 percent of potential new LICUs, 52 percent of potential new assets, and 54 percent of potential new members—are headquartered in states identified by the National Oceanic and Atmospheric Administration as having “extreme” drought conditions this summer.
To qualify as a LICU, a majority of a federal credit union’s membership must meet low-income thresholds based on 2010 Census data. In addition to the exemption from the statutory 12.25 percent statutory cap on member business lending for credit unions, other advantages derived from the LICU designation include:
- · Eligibility for Community Development Revolving Loan Fund grants and low-interest loans,
- · Ability to accept deposits from non-members, and
- · Authorization to obtain supplemental capital.
“Member business lending by credit unions sensibly diversifies portfolios and fills a market need,” Matz said. “Credit unions often make the small business loans that other lenders avoid. A 2011 Small Business Administration-commissioned study also found that more than 80 cents of every dollar in credit union member business lending is an entirely new source of capital not available in the market today.”
The average member business loan for all credit unions is $223,000.
For more information about the LICU designation initiative, click here.