Appendix B to Part 701 of the NCUA’s regulations – Chartering and Field of Membership Manual (Chapter 3, Section III) – outlines the requirements for federal credit unions to provide service to underserved communities. These requirements include demonstrating the area:
- Is a local community;
- Meets the standards of economic distress to qualify as an investment area;
- Has significant unmet needs, and
- Is underserved by other depository institutions.
This document provides additional, detailed guidance on complying with these general requirements, as well as the requirement to develop an appropriate business plan.
Describe Proposed Area of Expansion and Provide Qualifications
To apply for an expansion to serve an underserved community, a federal credit union must identify a geographic area it proposes to expand services to. The Federal Credit Union Act requires that a federal credit union demonstrate a proposed area of expansion meet several criteria that indicate it is underserved.
Describe Local Community or Rural District
Provide the NCUA a clear description of how a proposed underserved area qualifies as a well-defined local community or a rural district. This includes presumptive communities. A presumptive community includes a single political jurisdiction or portion thereof; combined statistical area or core-based statistical area or a portion thereof with a population at or below 2.5 million people; a rural district with a population of 1 million or less; or an area the NCUA previously determined is a local community. If the credit union is requesting a previously determined local community, the area must requalify based on economic distress criteria using the most recent decennial census. The requested area’s population should be based on the most current information available.
Below are examples of underserved communities that qualify as a well-defined local community or rural district:
- 10 contiguous census tracts in Jackson and Clinton Counties, Iowa, which qualify as a rural district
- 5 contiguous census tracts in Scott County, Iowa (a portion of a single political jurisdiction)
Document common interests or interaction
A federal credit union does not need to demonstrate common interests or interaction if the area requested for expansion is a presumptive community. To request approval to add an area that is not part of a presumptive community, a federal credit union must provide the NCUA compelling evidence that supports how the area’s residents interact or share common interests. NCUA Letter to Federal Credit Unions, 18-FCU-02, Requests to Serve a Well-Defined Local Community Using the Narrative Approach, provides guidance on how to prepare a narrative to submit to the NCUA.
Provide Geographic Boundaries
Describe the geographic boundaries of the underserved area the federal credit union is applying to expand services to, and provide a map of the proposed area. A description may include the names of the political jurisdictions the area would encompass or, for areas within a single political jurisdiction, street boundaries.
Example: The community is a portion of Scott County, Iowa, with the boundaries as follows: beginning at the intersection of U. S. Interstate Highway 74 and 53rd Street. Proceed west on 53rd Street to the intersection of Division Street. Proceed south on Division Street to the intersection of Locust Street. Proceed northeast on Locust Street to U.S. Interstate Highway 74 and 53rd Street, the starting point.
Describe Area Population
Provide the most recent American Community Survey (ACS) U.S. Census Bureau data to show the total population of the requested underserved area(s).
Example: The area has an estimated population of 35,658 (ACS 2014-2018 five-year estimates). The seven census tracts, location, and their population estimates are:
Demonstrate Area is an Investment Area
A federal credit union requesting to serve an underserved area must demonstrate how the area qualifies as an investment area (as defined by the CDFI Act). Credit unions can identify underserved areas using the U.S. Department of Treasury’s CDFI Fund website (opens new window).
Up to 15 percent of the population in an underserved area may be located in “non-distressed” census tracts. To calculate the percentage of a community’s population in “non-distressed” tracts, use tract-level census data. (County-level data will not provide this calculation.) When analyzing one or more counties, select all census tracts in the county.
A federal credit union should include a copy of the CDFI Fund results and map demonstrating the area’s qualifications as an investment area with its application.
Demonstrate Area is Underserved by Other Depository Institutions
A proposed area meeting the CDFI definition of an investment area (that is, it is distressed and has significant unmet needs) must also be underserved by other depository institutions. To meet the statutory criteria outlined in the Federal Credit Union Act §1759, the concentration of depository institution facilities among institutions among the population of the proposed area’s non-distressed census tracts must be higher than that in the area’s combined census tracts (concentration-of-facilities ratio). If there are no non-distressed tracts in an area, the concentration-of-facilities ratio can be calculated using a non-distressed census tract that adjoins the area.
An area automatically qualifies as underserved by other depository institutions (a concentration-of-facilities ratio is not required) if the NCUA has designated it as an underserved county based on data produced by the Consumer Financial Protection Bureau (CFPB). Federal credit unions can access the CFPB’s list of underserved counties on the NCUA’s website.
The NCUA’s Office of Credit Union Resources and Expansion (CURE) can calculate the concentration-of-facilities ratio for a federal credit union. To request this service, email the census tract data (csv or Excel spreadsheet) to firstname.lastname@example.org.
If obtained prior to submitting an application to the NCUA, a federal credit union should include the ratio analysis with its application to expand services. If the NCUA calculated the ratio more than 90 days before receiving an application from a federal credit union, the agency may recalculate the ratio during the application review process.
Develop a Business Plan
A federal credit union must include a business plan that describes how it will provide service to an underserved community when it submits an application to expand services to the NCUA. The business plan must demonstrate the federal credit union’s ability and intent to serve the community. It must be commensurate with the population, geographic size, and demographic diversity of the community. To show ability and intent to serve, the plan should include the topics outlined in this section, at a minimum.
Products and Services Attractive to Underserved Area Residents
Describe any existing or new products or services that will benefit new members, and indicate the fees associated with such products or services. Describe the audience for key products and services. Do not include products or services provided by a vendor, such as investment or insurance services.
- Prime Share Draft Program (members over age 50)
- Overdraft Program (alternative to predatory lenders)
- Debit/ATM/POS card with no annual fee
- Second Chance Deposit Builder/Low-Dollar Loan Program
- Small Short-term Loans (alternative to predatory lenders)
Marketing or Community Outreach and Products and Services Available
Describe existing and planned promotions or programs that the credit union will use to reach the residents of the underserved area and encourage federal credit union membership.
- Organizations in the community the federal credit union will partner with for outreach
- Marketing booth with brochures at local employers and at the annual community festival
- Onsite school visits within the underserved area
- Advertising through the local chamber of commerce
- Financial literacy programs held within the underserved area
Methods of Joining the Federal Credit Union
Describe the methods a potential member from the underserved area can use to join the federal credit union.
Example: Residents can apply for membership online or at one of our two branch offices. The federal credit union has plans to purchase an office location within two years, located at 123 street name, within the requested underserved area.
Ways Members Can Access Services After Joining
Describe service delivery options, including those other than the federal credit union’s physical office(s) in the community. Alternative service delivery options may include shared branches, online access, mobile services, and non-credit union owned ATMs (with or without a fee).
Example: ABC federal credit union has two offices in the community located at Main and Locust Streets in Akron, Ohio, and 23rd Street and Utica Road in Kent, Ohio. Both locations have surcharge-free ATMs. Members have access to an additional 25 surcharge-free ATMs in the community. Members have access to free mobile banking, online banking, bill payer, and remote deposit capture. Members also have access to free services at one of the ABC Network of shared branches (provide addresses).
Significant Unmet Needs
An integral part of the business plan is an analysis of a community’s significant unmet needs for loans or one or more of the financial services credit unions are authorized to offer. A business plan must include a one-page “Significant Unmet Needs for Credit Union Services” (SUN) section that describes how the federal credit union will meet a major credit or depository need in the community.
A federal credit union must support the credit or depository need with objective reasons and supporting documentation derived from an identified, authoritative source of the federal credit union’s choice. Third-party documentation is generally most compelling. The following examples are for illustration purposes only and not intended to be a complete SUN narrative.
Example: There are limited options for low-cost checking accounts in the underserved area (Source: 123financialtimes.com). ABC Federal Credit Union offers share draft accounts with no monthly fees and no minimum balance. Residents can open a share account with just $5. ABC offers financial counseling and financial literacy seminars. ABC will partner with the XYZ foundation for outreach in the community. The XYZ foundation works with low-income residents to find financial services, employment, and affordable housing. Through the XYZ foundation, ABC can offer financial literacy training and help residents develop a budget.
Example: Payday lending and cash advance companies are present throughout the underserved area as follows:
|Type||Financial Institution or Other||Costs/Fees|
|Cash advance company||ABC Cash Advances||20% interest/$35 fee|
|Check cashing company||CDE Check Cashers, Inc.||$35 fee|
|Pawn shops||FGE Pawn Shop||$30 fee, other|
|Loan company||Loans, Inc.||$100 fee, 25% interest.|
The presence of these facilities results in an extremely high interest rate for residents of the underserved area. (Source: https://abcpayday.com). ABC Federal Credit Union can serve as a low-cost alternative to these higher cost providers. The federal credit union offers a courtesy-pay checking program with a low-fee, low-rate, line-of-credit loan for small short-term loan needs, free overdraft protection, and low-cost emergency loans. Efforts to promote these better alternatives to the underserved in the community will include direct mail, social media, and branch marketing.
Service Facility Requirement
Within two years after approval, the credit union must establish and maintain an office or service facility in the community. A service facility is a place where shares are accepted for members’ accounts, loan applications are accepted, and loans are disbursed. This definition is different than the definition of a service facility for the purpose of multiple-common-bond credit unions adding occupational and associational groups. Most notably, for underserved area expansions, a service facility does not include an ATM or interest in a shared branch network.
A federal credit union with a service facility in the community should provide the location, operating hours, and services available. For a new facility, the application must indicate the plans for adding the facility within two years. The plan should include a tentative location, service offerings, and operating hours. The plan should also provide the timeframe for having the branch operational.
Service Status Report
A federal credit union must regularly review its business plan to determine if it is meeting the needs of the community. This includes tracking the number of members added from the underserved community. The NCUA may require periodic service status reports about how an FCU is meeting the underserved community’s needs.
A federal credit union that has been approved to serve an underserved area and is submitting an application to serve an additional underserved area must provide a report on each existing underserved community when submitting an application to the NCUA. The following table is a suggested format to provide the statuses of previously approved underserved areas:
|Period 1||Period 2||Period 3||Period 4|
|# of Members|
Additional Application Support
A federal credit union may include additional support with its application to expand services to an underserved area. This may include:
- Growth goals for loans, shares, and members specific to the underserved area
- Current and pro forma financial statements
- Financial impact of adding an underserved area, such as discussing the costs for added employees, fixed assets, and other related costs incurred to serve the underserved area (It is helpful to provide implementation timeframes with associated costs.)
The Community Development Banking and Financial Institutions Act of 1994 requires an investment area to meet at least one of the following criteria:1
- Encompassed or located in an empowerment zone or enterprise community designated under section 1391 of the Internal Revenue Code of 1996 (26 U.S.C. 1391);
- Percentage of population living in poverty is at least 20 percent;
- Within a metropolitan area where the median family income is at or below 80 percent of the metropolitan area median family income or the national metropolitan area median family income (whichever is greater);
- Located outside of a metropolitan area where the median family income is at or below 80 percent of the statewide non-metropolitan area median family income or the national non-metropolitan area median family income (whichever is greater);
- Unemployment rate is at least 1.5 times the national average;
- Located outside of a metropolitan area with a county population loss between the most recent decennial census and the previous decennial census of at least 10 percent; or
- If located in a county outside of a metropolitan area, the county net migration loss during the five-year period preceding the most recent decennial census is at least five percent.
The Office of Management and Budget (OMB) classifies groups of two or more core-based statistical areas (CBSAs) that have high degrees of interdependence as a combined statistical area. For more information, see OMB Bulletin No. 20-01, Revised Delineations of Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and Guidance on Uses of the Delineations of These Areas (opens new window).
A group of two or more counties OMB classified as either a metropolitan statistical area or micropolitan statistical area. OMB’s 2010 standards (which appeared in the Federal Register on June 28, 2010) provide that each CBSA must contain at least one urban area of 10,000 or more population.
For more information, see OMB Bulletin No. 20-01, Revised Delineations of Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and Guidance on Uses of the Delineations of These Areas (opens new window).
Metropolitan Statistical Area
OMB delineates metropolitan statistical areas according to published standards that are applied to Census Bureau data. The general concept of a metropolitan statistical area is that of a core area containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core.
Current metropolitan statistical area delineations were announced by OMB effective March 2020. Each metropolitan statistical area must have at least one urbanized area of 50,000 or more inhabitants. For more information, visit www.census.gov/programs-surveys/metro-micro/about.html (opens new window).
Micropolitan Statistical Area
OMB delineates micropolitan statistical areas according to published standards that are applied to Census Bureau data. The general concept of a micropolitan statistical area is that of a core area containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core.
Current micropolitan statistical area delineations were announced by OMB effective March 2020. Each micropolitan statistical area must have at least one urban cluster of at least 10,000, but with fewer than 50,000 people. For more information, visit www.census.gov/programs-surveys/metro-micro/about.html (opens new window).
A presumptive community includes a(n):
- Single political jurisdiction or portion thereof;
- Combined statistical area or core-based statistical area or a portion thereof with a population at or below 2.5 million people;
- Rural district with a population of 1 million or less; or
- Area the NCUA previously determined is a local community.
A place where shares are accepted for members’ accounts, loan applications are accepted, and loans are disbursed. This definition is different from the definition of a service facility for the purpose of multiple common bond federal credit unions that add occupational and associational groups. Most notably, for underserved area expansions, a service facility does not include an ATM or interest in a shared branch network.
A federal credit union that applies to expand service to an underserved community must demonstrate that a proposed area of expansion:
- Is a well-defined local community, neighborhood, or rural district;2
- Qualifies as an investment area by meeting established economic distress criteria;
- Has significant unmet needs; and
- Is underserved by other depository institutions.
The Community Development Financial Institutions Fund’s economic distress criteria establishes that a proposed investment area’s location determines the geographic units a federal credit union can use as the basis for an underserved area.4
For a metropolitan area, the permissible geographic units are limited to:
- Groups of census tracts;
- Block groups; or
- American Indian or Alaskan Native areas.
For a non-metropolitan area, the permissible geographic units are limited to a(n):
- County (or equivalent area);
- Minor civil division that is a unit of local government;
- Incorporated place;
- Census tract;
- Block numbering area;
- Block group; and
- American Indian or Alaskan Native area
1 12. U.S.C. 4702 (16) defines investment area as defined in Section 103(16) of the Community Development Banking and Financial Institutions Act of 1994. We will use criteria as provided by CDFI.
2 See Chapter 2, Sections V.A.1 and V.A.2. of the Chartering and Field of Membership Manual.
3 See 12. U.S.C. 1759(c)(2).
4 Id. § 1805.201(b)(3)(ii)(B).