NCUA Vice Chairman Kyle S. Hauptman Final Interpretive Ruling and Policy Statement 13-1, Minority Depository Institution Preservation Program

As Prepared for Delivery on February 15, 2024

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 MDI 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 MDI credit unions as there are MDI banks.

To qualify as an MDI, 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 MDI 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 MDI 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 MDI and non-MDI credit unions are the same, the NCUA recognizes that MDI credit unions have a distinct mission and business model. During 2023, the NCUA issued customized guidance to help examiners understand this business model compared to other financial institutions. In further recognition of the difference between MDIs and non-MDIs, peer metrics were developed to help examiners compare MDI metrics with other MDI metrics instead of those of traditional peers.

Today’s Board item touches on ways to help MDI 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, MDIs represent the opportunity to include resources with our rhetoric.

Even before this final ruling and policy statement, the NCUA has walked the talk by budgeting thousands of support hours for small credit unions and MDIs. 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 MDIs, that means additional considerations for their unique challenges.