Understanding the Challenges Facing Minority Credit Unions

Monica Davy became director of NCUA's Office of Minority and Women Inclusion in July 2015. The Office of Minority and Women Inclusion plays a key role in the preservation of minority depository institutions. The NCUA Report sat down with her to discuss some of her office's initiatives.

This is the final article of this two-part series.

Q: The Office of Minority and Women Inclusion also has another unique task, and that's persevering minority depository institutions. Tell us more about that?

A: That's right, the OMWI office administers NCUA's program for preserving existing and encouraging the formation of new minority credit unions. This task involves a lot of coordination with our different offices, including our regional offices, who supervise the examiners in the field, and our Offices of Small Credit Union Initiatives and Consumer Protection.

At the end of 2015, we supervised 634 minority depository institutions, which is more than 10 percent of all federally insured credit unions. These credit unions are often the only federally insured financial institutions serving low- to moderate-income, underserved or unbanked populations, so we try to do what we can to help them survive and provide services to their communities.

Q: What kind of assistance does NCUA offer these credit unions?

A: We provide a number of different services for minority depository institutions, and in many cases, it's our examiners who are some of the most critical parts of our efforts. For example, an examiner coordinated a mentor relationship between a minority credit union and a larger credit union that was able to help the minority credit union with bank reconciliations and subsidize its operating expenses.

Also, our Office of Small Credit Union Initiatives provides valuable training at no cost to minority depository institutions. They also provide valuable consulting services that can help credit unions develop new products and services, and find new ways to improve their financial performance.

NCUA also works with these institutions to find paths for growth through expansions of their charters or by adding potential new members to their fields of membership through select employee groups and associations.

Finally, NCUA also provides grants and low-interest loans to these credit unions if they have a low-income designation— which many of them do—through the Community Development Revolving Loan Fund.

Q: What are some of the challenges that minority depository institutions face?

A: Minority depository institutions face similar challenges that all small credit unions face. But, they also face some unique challenges as well.

First, the average return on assets ratio for minority depository institutions was -0.25, compared to the average return on assets of 0.81 percent for all federally insured credit unions. The primary reason for this is their higher overall operating expenses. We have also seen a number of minority credit unions merge or fail in recent years due to a number of factors, including the inability to grow and generate earnings or the lack of resources to stay abreast of new technology. As you know, many small credit unions face similar concerns as well.

As I said, minority depository institutions also have some unique challenges. For example, a credit union can lose its minority depository institution designation simply by having a single minority board member step down. Also, many of these institutions have difficulties getting minority participation on their boards of directors due to the lack of compensation, or the misconception that they lack qualified candidates. And we are working with these credit unions and other stakeholders to minimize these challenges where we can.

It's also important to remember that the designation is also voluntary. Credit unions have to select it and they can step out of the program at any time. Part of the reason for this could be the lack of incentives for carrying the designation. It's not like the low-income designation, which gives those credit unions a number of benefits, such as grants, access to secondary capital or the ability to accept non-member deposits.

We are looking at what we can do from our end to try to change that, and find new incentives or benefits for these credit unions. This may require some regulatory changes.

Q: Are there particular challenges in your office's role of preserving these institutions?

A: There is a misconception that Dodd-Frank gives OMWI the authority to preserve minority depository institutions at all costs. That simply is not true. First and foremost, NCUA has to protect the safety and soundness of the credit union and Share Insurance Fund. So, if an MDI is in jeopardy and a non-MDI has a more cost-effective solution to save it, Dodd-Frank does not authorize us to go with the more costly proposal from another MDI just to preserve the failing credit union's MDI status. This is based on the way we interpret the law. Short of some regulatory change or different interpretation, our hands are tied in this regard. Therefore, the proactive services that we provide become much more important and essential.

Q: Is there anything you would like to add?

A: Just that we want to hear from minority credit unions themselves. Let us know how our office and NCUA can support your institution. Interested minority credit unions can email us at omwimail@ncua.gov.