The Low-Income Definition, 22836-22839 [E8-8968]

Agencies

• National Credit Union Administration

[Federal Register Volume 73, Number 82 (Monday, April 28, 2008)]
[Proposed Rules]
[Pages 22836-22839]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-8968]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 73, No. 82 / Monday, April 28, 2008 / 
Proposed Rules

[[Page 22836]]



NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 701 and 705

RIN 3133-AC98


The Low-Income Definition

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

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SUMMARY: The NCUA is proposing to use median family income (MFI) to 
determine if a credit union qualifies for a low-income designation and 
assistance from the Community Development Revolving Loan Fund (CDRLF). 
The proposed rule will eliminate the confusion associated with 
adjusting median household income (MHI) in metropolitan areas with 
higher costs of living. Additionally, it will better align NCUA 
criteria for a low-income designation with the criteria for the 
addition of an underserved area to a federal credit union (FCU) field 
of membership and certification as a Community Development Financial 
Institution (CDFI).

DATES: Comments must be received on or before June 27, 2008.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web Site: https://www.ncua.gov/news/proposed_regs/
proposed_regs.html. Follow the instructions for submitting comments.
     E-mail: Address to regcomments@ncua.gov. Include ``[Your 
name] Comments on Proposed Rule Parts 701 and 705'' in the e-mail 
subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.

FOR FURTHER INFORMATION CONTACT: Moisette Green, Staff Attorney, Office 
of General Counsel, at the above address or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Background

    The Federal Credit Union Act (Act) authorizes the NCUA Board to 
define ``low-income members'' so that credit unions with a membership 
predominantly consisting of low-income members can benefit from certain 
statutory relief and receive assistance from the CDRLF. 12 U.S.C. 
1752(5), 1757a(b)(2)(A), 1752a(c)(2)(B), 1772c-1. NCUA defines ``low-
income members'' in parts 701 and 705 of its regulations generally as 
meaning members whose annual household income falls at or below 80% of 
the national MHI, but provides a differential for certain geographic 
areas with higher costs of living. 12 CFR 701.34(a)(2), 705.3(a)(1).
    In 2006, NCUA's Member Service Assessment Pilot Program (MSAP) 
recommended the Board consider reassessing the formula for determining 
if an FCU qualifies for a low-income designation. According to MSAP, 
using MFI would be more reflective of the regional economic diversity 
of the United States and of the circumstances in which FCU members 
live. The NCUA Outreach Task Force evaluated the MSAP recommendation, 
identified concerns with the current low-income formula, and agreed 
with MSAP that the standard for designating low-income credit unions 
should change from MHI to MFI.
    Specifically, NCUA proposes to revise the definition of ``low-
income members'' in Sec. Sec.  701.34(a)(2) and 705.3(a)(1) to base the 
determination on an ``income standard'' that relies on MFI or the 
alternative of median earnings. For metropolitan areas, the proposal 
defines low-income members as those living in an area, within the 
metropolitan area, where the standard is at or below 80% of either the 
standard for the entire metropolitan area or the national standard, 
whichever is greater. For members living outside a metropolitan area, 
the proposal defines low-income members as those living in an area 
where the standard is at or below 80% of either the statewide non-
metropolitan area standard or the national non-metropolitan area 
standard, whichever is greater.
    The Census Bureau designates Metropolitan Areas in accordance with 
the standards developed by the U.S. Office of Management and Budget. 
Metropolitan Areas contain a core urban area of 50,000 or more in 
population and one or more counties, including the counties containing 
the core urban area and adjacent counties with a high degree of social 
and economic integration with the urban core. U.S. Census Bureau, 
https://www.census.gov/population/www/estimates/metroarea.html (April 7, 
2008).
    The proposed rule will eliminate the confusion associated with 
adjusting the national MHI for metropolitan areas with higher costs of 
living. Additionally, it will better align the criteria for a low-
income designation with the criteria adding an underserved area to an 
FCU field of membership (FOM) and certification as a CDFI under 
Treasury Department regulations. See Interpretive Rulings and Policy 
Statement (IRPS) 03-1, 68 FR 18334 (April 15, 2003) (as amended by IRPS 
06-1, 71 FR 36667 (June 28, 2006)); 12 CFR 1805.201(b)(3)(ii)(D)(2)(i)-
(ii).
    The proposed amendment includes a five-year grandfather provision 
to allow existing low-income credit unions (LICUs) to qualify under the 
new MFI standard or adequate transition time if they no longer qualify 
for the low-income designation. The proposed rule is not changing or 
removing other current standards, which credit unions can use to 
qualify for a low-income designation, based on serving members who are 
enrolled as students in a college, university, high school, or 
vocational school. 12 CFR 701.34(a)(2)(ii).

Median Household Income Standard

    MHI divides the income distribution into two equal groups, half 
having household incomes above the median, half having incomes below 
the median. The Census Bureau defines ``household'' as all the people 
who occupy a housing unit, such as a house, an apartment or other group 
of rooms established as separate living quarters. A household includes 
the related family members and all the unrelated people, if any, such 
as lodgers, foster children, wards, or employees who share the housing 
unit. A person living alone in a housing unit, or a group of unrelated

[[Page 22837]]

people sharing a housing unit such as partners or roomers, is also 
counted as a household. Households do not include group quarters such 
as dormitories.
    In determining MHI for members of credit unions applying for a low-
income designation, NCUA currently applies allowances to the national 
MHI for geographical areas with higher costs of living. The 
geographical differentials are based on data from the Employment and 
Training Administration of the Department of Labor. The differentials 
are outdated and do not account for all national high-cost areas 
defined in the current lower living standard income level 
differentials. See 71 FR 31215 (June 1, 2006). Consequently, some 
credit unions may not be eligible for low-income designation due to the 
outdated geographical area differentials in the current regulation.
    In addition to the outdated differentials, two concerns related to 
using MHI as a standard to determine low-income eligibility exist. 
First, using MHI is inconsistent with the standard NCUA uses to assess 
whether an area is underserved and has caused confusion between the 
definitions of ``low income'' and ``underserved.'' Second, NCUA's use 
of the MHI standard is not consistent with the qualification standard 
used by other federal agencies with policies to foster low-income 
initiatives, specifically the Treasury Department's CDFI Fund.

Median Family Income Standard

    The Board believes MFI should be the standard used to determine 
whether a credit union qualifies for a low-income designation. MFI is 
the amount that divides the income distribution into two equal groups, 
half having family incomes above the median, half having incomes below 
the median. The median is based on family members 16 years old and over 
with income. The Census Bureau defines a ``family'' as a group of two 
or more people related by birth, marriage, or adoption and residing 
together. MFI is available from the U.S. Census Bureau for both non-
metropolitan and metropolitan areas. This is an advantage because it 
eliminates the need to adjust the income standard for areas with higher 
costs of living.

Inconsistency With Underserved Area Definition

    NCUA's low-income definition using the MHI standard preceded 
amendments to FOM provisions in the FCU Act regarding underserved 
areas. NCUA began using MHI to determine if a credit union qualified 
for a low-income designation in 1993. 56 FR 21645 (April 23, 1993). In 
1998, the FCU Act was amended to permit multiple common-bond FCUs to 
add underserved areas if, among other requirements, the area met the 
definition of an ``investment area,'' as defined in Sec.  103(16) of 
the Community Development Banking and Financial Institutions Act of 
1994. Credit Union Membership Access Act (CUMAA), Public Law 105-219, 
Sec.  101, 112 Stat. 913, 915 (1998) (codified at 12 U.S.C. 
1759(c)(2)(A)(i)); Public Law 103-325, Sec.  103(16), 108 Stat. 2163 
(1994).
    Treasury Department regulations, implementing the Community 
Development Banking and Financial Institution Act of 1994, include an 
MFI at or below 80 percent of the MFI for corresponding metropolitan 
area as a factor supporting the determination that an area is an 
investment area. 12 CFR 1805.201(b). As required by CUMAA, NCUA 
implemented the authority for service to underserved areas by looking 
to the definition of investment area and included the 80 percent of MFI 
standard among the criteria that can be used to qualify an underserved 
area as an investment area. NCUA Chartering and Field of Membership 
Manual, Chapter 3, II.A., Interpretive Rulings and Policy Statement 
(IRPS) 03-1, 68 FR 18334 (April 15, 2003) (as amended by IRPS 06-1, 71 
FR 36667 (June 28, 2006)). While the 80 percent of MFI standard is 
among the criteria that can be used to qualify an underserved area as 
an investment area, an FCU that adds an underserved area does not 
automatically qualify for the low-income designation.
    The low-income formula, however, did not change with the FOM 
amendments, causing inconsistency within NCUA regulations and creating 
confusion between the benchmarks used for determining low-income 
designation and if an area is underserved. The use of MFI as a standard 
to determine low-income status will bring uniformity and consistency to 
the regulations, and should eliminate industry confusion regarding the 
low-income designation and application for an underserved area.

Inconsistency With the Community Development Financial Institutions 
Fund

    Generally, the current MHI standard differs from the standard other 
federal agencies use to promote outreach programs, most importantly the 
Treasury Department's CDFI Fund. The CDFI Fund, through monetary awards 
and other benefits, helps promote access to capital and local economic 
growth in urban and rural low-income communities across the nation. 
Qualifying credit unions obtain assistance from the CDFI Fund to offer 
financial services to and further economic development of low-income 
members.
    The CDFI Fund uses MFI to implement the Community Development 
Banking and Financial Institutions Act of 1994, as previously 
discussed. This has created confusion and, in many instances, placed 
additional and unnecessary burdens on credit unions attempting to 
qualify for a low-income designation and assistance from the CDFI Fund.
    The CDFI Fund defines ``low income'' as an income, adjusted for 
family size, of not more than 80 percent of the metropolitan area MFI 
or, if appropriate, non-metropolitan area MFI. 12 CFR 1805.104(ee). 
Because credit unions may apply for financial assistance from the CDFI 
Fund, the Board believes it would be beneficial to align the low-income 
formula with the CDFI Fund criteria. This would reduce the regulatory 
burden on federally-insured credit unions attempting to qualify for 
benefits of a low-income designation and from the CDFI Fund.

Proposed Rule

    The proposed rule amends the definition of ``low-income members'' 
to use the MFI as an income standard instead of MHI. NCUA recognizes 
not all credit union members meet the Census Bureau's definition of 
``family.'' Therefore, the proposed rule permits credit unions to use 
the median earnings for individuals reported by the Census Bureau as an 
alternate income standard for MFI. It also defines the geographic areas 
NCUA will consider when determining whether a credit union qualifies 
for a low-income designation.
    Additionally, the proposed rule clarifies the process for removing 
a low-income designation. If a credit union no longer qualifies for the 
designation, a regional director will give the credit union written 
notice. Loss of the designation may result for various reasons, 
including changes in FOM or as a result of mergers, assumptions of 
member shares from liquidating credit unions, or other similar 
occurrences. A credit union will have five years after the date of the 
written notice to come into compliance with regulations applicable to 
credit unions that do not have a low-income designation. A credit union 
may appeal the loss of its low-income designation to the Board; an 
appeal must be filed within 60 days of the date of the written notice 
of loss of the designation. A credit union will submit its appeal 
through the appropriate regional office.

[[Page 22838]]

    The five-year period provides LICUs that lose their low-income 
designation adequate time to comply with regulatory requirements 
regarding secondary capital (Sec.  701.34 and part 702), member 
business loans (Sec.  723.17), nonmember deposits (Sec.  701.32), and 
CDRLF financial assistance (12 CFR part 705). The reasons for a five-
year period include the fact that NCUA regulations require a minimum 
maturity of five years for secondary capital, 12 CFR 701.31(b)(4)), and 
CDRLF loans have a maximum maturity of five years, 12 CFR 705.7(c). If 
a LICU loses its designation under the MFI standard and must repay 
secondary capital, a CDRLF loan, nonmember deposits, or reduce its 
member business loans, the five-year period should provide adequate 
time to make the necessary adjustments.
    Finally, the proposed rule makes a conforming amendment to Sec.  
705.3, namely, that the meaning of low-income members will be the same 
in that section as in Sec.  701.34 and will clarify that credit unions 
qualifying for the low-income designation under Sec.  701.34 may apply 
for assistance from the CDRLF. Part 705 and Sec.  701.34 would continue 
to apply to state-chartered credit unions in accordance with Sec.  
741.204.

Five-Year Grandfather Provision for Current LICUs

    The Board does not anticipate changing from MHI to MFI will have a 
significant impact on the number of credit unions qualifying for a low-
income designation. To offset any potential adverse impact from the 
change to the MFI standard, the proposed rule includes a grandfather 
provision to permit current LICUs not meeting the new standard to 
retain the designation for a five-year period after a final rule 
becomes effective. During this five-year period LICUs may take 
advantage of the benefits associated with a low-income designation, 
including continuing to be eligible for CDRLF program. The reasons for 
a five-year period for a grandfather provision are the same as those 
noted above for a five-year period following a loss of the designation 
for other reasons. By the end of five years after the effective date of 
a final rule, all LICUs must qualify for the designation using the MFI 
standard. Any LICU failing to qualify under the MFI standard would 
automatically lose the low-income designation at the end of this five-
year period. Loss of the low-income designation for failure to meet the 
MFI standard within five years of the effective date of a final rule 
would not be appealable to the Board.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact any regulation may have on 
a substantial number of small entities. 5 U.S.C. 603(a). For purposes 
of this analysis, NCUA considers credit unions having under $10 million 
in assets small entities. Interpretive Ruling and Policy Statement 03-
2, 68 FR 31949 (May 29, 2003). As of December 31, 2007, out of 
approximately 8,410 federally insured credit unions, 3,599 had less 
than $10 million in assets.
    This proposed rule directly affects all low-income credit unions, 
of which there are approximately 1,087. NCUA estimates approximately 
692 low-income credit unions are small entities. Therefore, NCUA has 
determined this proposed rule will have an impact on a substantial 
number of small entities.
    NCUA has determined, however, the economic impact on entities 
affected by the proposed rule will not be significant. The proposed 
rule will better align criteria for a low-income designation with the 
criteria for the addition of an underserved area to a federal credit 
union field of membership under IRPS 03-1 (as amended by 06-1) and 
certification as a CDFI. The proposed rule will establish one income 
standard for determining a low-income designation, underserved areas, 
and investment areas. It will also eliminate the confusion within the 
credit union industry due to the use of different income standards. 
NCUA believes the proposed rule will reduce the regulatory burden for 
LICUs and any economic impact will be minimal. Additionally, NCUA has 
proposed a five-year period for LICUs affected to make necessary 
adjustments. Accordingly, the Board certifies this rule will not have a 
significant economic impact on a substantial number of small entities. 
NCUA invites comment from the public on whether the proposal will have 
a significant economic impact on small entities.

Paperwork Reduction Act

    The proposed rule does not contain a ``collection of information'' 
within the meaning of section 3502(3) of the Paperwork Reduction Act of 
1995 (44 U.S.C. 3502(3)) and would not increase paperwork requirements 
under the Paperwork Reduction Act of 1995 or regulations of the Office 
of Management and Budget.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. The proposed rule would not have substantial 
direct effect on the states, on the connection between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
determined this proposed rule does not constitute a policy that has 
federalism implications for purposes of the executive order.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    NCUA has determined that this proposed rule would not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Public Law 105-277, 112 
Stat. 2681 (1998).

Agency Regulatory Goal

    NCUA's goal is to promulgate clear and understandable regulations 
that impose minimal regulatory burden. We request your comments on 
whether the proposed amendment is understandable and minimally 
intrusive if implemented as proposed.

List of Subjects

12 CFR Part 701

    Credit unions, Low income, Nonmember deposits, Secondary capital, 
Shares.

12 CFR Part 705

    Community development, Credit unions, Loans, Low income, Technical 
assistance.

     By the National Credit Union Administration Board, on April 17, 
2008.
Mary F. Rupp,
Secretary of the Board.

    For the reasons stated above, NCUA proposes to amend 12 CFR parts 
701 and 705 as follows:

PART 701--ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS

    1. The authority citation for part 701 continues to read as 
follows:


[[Page 22839]]


    Authority: 12 U.S.C. 1752(5), 1757, 1765, 1766, 1781, 1782, 
1787, 1789; Title V, Public Law 109-351, 120 Stat. 1966.

    2. Amend Sec.  701.34 by revising paragraph (a) to read as follows:


Sec.  701.34  Designation of low income status; Acceptance of secondary 
capital accounts by low-income designated credit unions.

    (a) Designation of low-income status. (1) A regional director will 
designate a federal credit union as a low-income credit union if a 
majority of its membership qualifies as low-income members. As provided 
in Sec.  701.32, low-income credit unions may receive shares from 
nonmembers.
    (2) A regional director will remove the designation if the federal 
credit union no longer meets the criteria of this section and will give 
the credit union written notice. The credit union will have five years 
after the date of the written notice to come into compliance with 
regulatory requirements applicable to credit unions that do not have a 
low-income designation. A federal credit union may appeal the loss of 
its designation as a low-income credit union to the Board within 60 
days of the date of the notice from the regional director. An appeal 
must be submitted to the regional director.
    (3) Definitions. The following definitions apply to this section:
    Geographic area means an area within the United States, including 
any State, the District of Columbia, American Samoa, Guam, the Northern 
Mariana Islands, Puerto Rico, the Virgin Islands, or any territory of 
the United States or a geographic unit that is a county or equivalent 
area, a unit of a local government, incorporated place, census tract, 
block numbering area, Zip Code Tabulation Area, block group, or Native 
American, American Indian, or Alaskan Native area, as such units are 
defined or reported by the U.S. Census Bureau.
    Income standard means the median income for families or median 
earnings for individuals, as reported by the U.S. Census Bureau.
    Low-income members means those members: enrolled as students in a 
college, university, high school, or vocational school; living in a 
geographic area within a Metropolitan Area, where the median income is 
at or below 80% of the greater of the Metropolitan Area income standard 
or the national Metropolitan Area income standard; or living in a 
geographic area outside a Metropolitan Area, where the median income is 
at or below 80% of the greater of the statewide, non-Metropolitan Area 
income standard or the national non-Metropolitan Area income standard.
    (4) Any credit union designated as a low-income credit union on the 
[EFFECTIVE DATE OF THE FINAL RULE] will have five years from that date 
to meet the criteria for low-income designation under paragraph (a)(1) 
of this section.
* * * * *

PART 705--COMMUNITY DEVELOPMENT REVOLVING LOAN FUND FOR CREDIT 
UNIONS

    3. The authority citation for part 705 continues to read as 
follows:

    Authority: 12 U.S.C. 1772c-1; 42 U.S.C. 9822 and 9822 note.

    4. Amend Sec.  705.3 by revising paragraph (a) to read as follows:


Sec.  705.3  Definitions.

    (a) The term ``low-income members'' means those members defined in 
Sec.  701.34 of this chapter.
* * * * *
 [FR Doc. E8-8968 Filed 4-25-08; 8:45 am]
BILLING CODE 7535-01-P