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This podcast provides you the ability to listen to new regulatory guidance issued by the National Credit Union Administration, and occasionally the F D I C, the O C C, the F F I E C, or the C F P B. We will focus on new and material agency guidance, and historically important and still active guidance from past years that NCUA cites in examinations or conversations. This podcast is educational only and is not legal advice. We are sponsored by Credit Union Exam Solutions Incorporated. We also have another podcast called With Flying Colors where we provide tips for achieving success with the N C U A examination process and discuss hot topics that impact your credit union.
Hello, this is Samantha Shares. This episode covers N C U A’s Board Member Statements on Minority Depository Institutions and the board approved final interpretive ruling and policy statement. Note that the agency had technical difficulties with its board meeting and the there is no public recording of these statements as of today.
The following is an audio version of those issuances. This podcast is educational and is not legal advice. We are sponsored by Credit Union Exam Solutions Incorporated, whose team has over two hundred and Forty years of National Credit Union Administration experience. We assist our clients with N C U A so they save time and money. If you are worried about a recent, upcoming or in process N C U A examination, reach out to learn how they can assist at Mark Treichel DOT COM. Also check out our other podcast called With Flying Colors where we provide tips on how to achieve success with N C U A.
And now the Board Action Bulletin on M D Is followed by the statements of the Board.
Changes to the M D I Preservation Program Will Help Under-Resourced Communities
The N C U A Board unanimously approved a final interpretive ruling and policy statement that reflects the transfer of the M D I preservation program administration from the agency’s Office of Minority and Women Inclusion to its Office of Credit Union Resources and Expansion, updates the program’s features, and clarifies the requirements for a credit union to receive and maintain an M D I designation, among other changes.
“The final M D I policy statement will better enable hundreds of M D I credit unions to meet the needs of their members and communities,” Chairman Harper said. “Policy changes like this one make our country stronger.”
The revised policy statement is effective 30 days after date of publication in the Federal Register.
And now the statements of the board members.
As Prepared for Delivery on February 15, 2024
Chairman Todd Harper
Thank you, for your presentation and your work on these improvements to the policy statement governing the N C U A ’s minority depository institutions preservation program. My appreciation also extends to the teams in the Office of Credit Union Resources and Expansion and the Office of General Counsel for their efforts in completing these revisions. Thank you as well to Board Member Otsuka for suggesting incorporated language that underscores the importance of preserving the unique mission and characteristics of minority depository institution credit unions.
Nearly ninety years ago, Congress created the federal credit union system to meet the credit and savings needs of credit union members, especially those of modest means. A significant component to achieving that statutory mission is the work of minority depository institution credit unions or M D I credit unions.
Supporting and preserving M D I credit unions is a fundamental responsibility of the N C U A . It’s required not just under the system’s statutory mission but also in the specific requirements for supporting M D I credit unions set forth as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of twenty ten.
Today, one in ten federally insured credit unions is a minority depository institution. Together, these M D I credit unions provide under-resourced communities across the country with access to safe, fair, and affordable financial products and services. This access gives consumers greater opportunities to build a secure financial future for themselves, their families, and their communities. And, when smaller communities are stronger and more resilient, so are our financial system, our economy, and our entire country.
Today, the N C U A Board is considering final amendments to the Interpretive Ruling and Policy Statement 13 dash 1 to reflect changes in the agency’s structure and administration of its M D I preservation efforts. The revised policy statement also simplifies the definition of “community it services, as designated in its charter” to refer to an M D I credit union’s field of membership.
As previously stated, I have long had concerns about preserving the character of a failing M D I credit union during the resolution process. Notably, this revised policy statement addresses those concerns. Under the revised policy statement, in the event of a potential failure of an M D I credit union, the N C U A will contact M D I credit unions in its merger registry that qualify to bid on a particular failing institution to measure their interest.
Under this revised policy, the N C U A will additionally offer technical assistance to any M D I credit union desiring to bid, as well as two weeks to submit a bid, whenever possible. This vital change to maintain the character of a merging M D I institution will bring the N C U A emergency merger process in line with that of the Federal Deposit Insurance Corporation.
In closing, the final M D I policy statement will better enable hundreds of M D I credit unions to meet the needs of their members and communities. Policy changes like this one make our country stronger. I, therefore, support this final policy statement.
Vice Chairman Kyle Hauptman
I support this interpretive ruling and policy statement. Although substantially unchanged from the proposed version, I appreciate the clarifications in the final statement.
More than 10 percent of U.S. credit unions are Minority Depository Institutions serving nearly 5.3 million members. Credit unions are the original answer to financial inclusion. Started by people who were either overlooked by existing financial service providers or groups who wanted services tailored for their unique needs, credit unions have been a means for financial inclusion since their inception.
Many companies have admirable financial inclusion goals, but credit unions – especially M D I credit unions – provide members the ultimate power of ownership and control. This is true financial inclusion. We know one of the main reasons small credit unions go away is because of the regulatory burden associated with running one of these small institutions. It can be a thankless task, a labor of love, by someone who eventually retires. That’s when mergers often happen, since it’s easier for a larger institution to handle the endless paperwork and mandates. My point here is that if we don’t lighten the regulatory burden on small credit unions, those that pose little risk to our Share Insurance Fund, then our talk about inclusion is just that – talk.
The way credit unions operate, i.e., as a cooperative structure of member-owners, along with the nature of fields of membership, may be why there are nearly four times as many M D I credit unions as there are M D I banks.
To qualify as an M D I, a credit union must satisfy three requirements:
• Greater than 50 percent of the current membership must be a minority.
• Greater than 50 percent of the community it services, that is, its field of membership, must be a minority.
• And greater than 50 percent of its board of directors must be a minority.
The M D I designation comes with a host of technical assistance and support. This includes assistance to address challenges identified in examination reports. In 2023, appropriations language included M D I credit unions as eligible to receive Community Development Revolving Loan Fund funding regardless of the credit union’s low-income designation status.
Although examination standards for M D I and non-M D I credit unions are the same, the N C U A recognizes that M D I credit unions have a distinct mission and business model. During twenty twenty -three, the N C U A issued customized guidance to help examiners understand this business model compared to other financial institutions. In further recognition of the difference between M D I’s and non-M D Is, peer metrics were developed to help examiners compare M D I metrics with other M D I metrics instead of those of traditional peers.
Today’s Board item touches on ways to help M D I members preserve their own financial institution. A lot of work goes into starting a credit union and it takes even more effort to keep it going. As an agency that values inclusion, M D I’s represent the opportunity to include resources with our rhetoric.
Even before this final ruling and policy statement, the N C U A has walked the talk by budgeting thousands of support hours for small credit unions and M D I’s. I would like to emphasize that these support hours are outside the examination process and come at no cost to the credit union. I hope more credit unions will take advantage of the program.
Any group that succeeds in forming their own credit union should have the opportunity to succeed. In the case of small credit unions and M D I’s, that means additional considerations for their unique challenges.
Prepared Statement of N C U A Board Member Tanya Oatskahs
I want to step back and talk about why Congress directed Agencies to preserve and promote M D Is. During the nineteen eighties and early nineteen nineties, the savings and loan crisis dramatically reshaped the banking landscape. Almost 10 percent of banks failed or received government financial assistance. M D Is suffered from the same negative economic events as non-M D I banks, but due to their focus on historically marginalized and redlined communities, they did not have the same resources available to weather the crisis. And during the seven-year period between nineteen eighty three and nineteen eighty-nine the number of Black owned banks declined 22 percent, while the total number of banks in the inited states declined by only around 10 percent.
When Congress responded by enacting the Financial Institution Reform, Recovery, and Enforcement Act (F I R R E A) of nineteen eighty-nine, it recognized that concerted efforts were needed to preserve M D I’s because of their important roles serving historically underserved communities and the unique difficulties they face. F I R R E A established several important goals, including to preserve the number of M D Is, preserve the minority character in cases of merger or acquisition, encourage the creation of new M D Is, and provide for training, technical assistance, and education programs.
While the savings and loan crisis is behind us, the underlying challenges faced by M D I’s are still as relevant today as they were 30 years ago. M D I’s also faced similar challenges and higher rates of failure in the two thousand and eight financial crisis. From twenty twelve to twenty twenty one, the number of M D I credit unions dropped 38 percent. Like all credit unions, M D Is’ success and ability to thrive is connected to the economic stability of its community. If the community has fewer resources, less money for their share accounts, their credit union will have less resources, less money for loans, investment, innovation, and training. And, as we know, marginalized communities have fewer resources on average. The Federal Reserve Bank of St. Louis found Black families had about nine hundred fifty eight thousand dollars less wealth, on average, compared with White families, while Hispanic families had about one million and eleven thousand dollars less wealth, on average, than White families. Racial and ethnic wealth gaps have changed very little over the past few decades.
There is a lot of work to be done to close the racial wealth gap, but M D Is play an important role. One factor in creating and maintaining wealth is having access to safe, fair, and affordable financial services. Access to credit is what allows people to buy a car to get to work, own a home and build equity, or open a small business.
Yet sadly, racial disparities in lending still exist today across income levels.
• Data show that non-M D I banks reject Black and Brown borrowers at a rate that is two times that of their White counterparts, even when they have the same credit profile.
• 1 in 4 Black applicants from families making one hundred thousand dollars or more a year had their credit applications denied or approved for less in twenty twenty-two, compared with 10 percent of White households in the same bracket.
• For Asian applicants with annual incomes below fifty thousand dollars, 16.3 percent were denied a mortgage, compared with 11.3 percent of White applicants in that income bracket. This pattern continues across income levels, with high-income Asian applicants being 50 percent more likely to have their mortgage application denied than White applicants.
Capital access also remains a huge challenge for minority-owned small businesses.
• 60 percent of Black business owners faced challenges obtaining capital.
• Over a third of Latino business owners faced the same.
• Business owners of color are more likely to struggle accessing startup funding, growth funding, and capital with affordable interest rates.
• Among firms with gross receipts under five hundred thousand dollars, loan denial rates for minority firms were about three times higher, at 42 percent, compared to those of non-minority-owned firms, 16 percent.
A well supported system of M D I credit unions can help address these lending disparities. Black-owned banks approve a higher percentage of loans to Black applicants than other banks. It is likely the same is true for credit unions and I would like to see the N C U A do more research on these issues.
Closing the wealth gap and minimizing lending disparities doesn’t just benefit one group. Citibank conducted a study that found if we didn’t have a racial wealth gap it could have added up to 2.7 trillion dollars in income available for consumption or investment. Even more, the study found that providing fair and equitable lending to Black entrepreneurs could have resulted in the creation of up to 13 trillion dollars in estimated business revenue and potentially created 6.1 million jobs per year.
Providing an environment where M D Is can be successful is crucial to allowing M D I credit unions to support their communities. I appreciate that N C U A has increased staff hours allocated to M D Is under the Small Credit Union and M D I Support Program, adjusted its examination processes to recognize the distinctive business model of M D I credit unions, and hosted an M D I Awareness Month and an M D I Symposium. And I am encouraged that as the Chairman said M D Is continued to perform well and in twenty twenty-two, M D I’s reported 42.2 billion dollars in loans outstanding, an 8 billion dollars increase from the previous year. And I know the Vice Chair has been supportive of the formation of new credit unions – perhaps we will see continue to see interest in forming new M D I credit unions.
I support the revisions to the M D I Policy statement and appreciate the comments submitted during the rulemaking process. Some of the suggestions were outside the scope of the proposal, but I’d like to explore those ideas in other contexts.
This concludes the N C U A’s Board Member Statements on Minority Depository Institutions and the board approved final interpretive ruling and policy statement.
If your Credit union could use assistance with your exam, reach out to Mark Treichel on LinkedIn, or at mark Treichel dot com. This is Samantha Shares and we Thank you for listening.