Busting the myth that all credit unions are better than all banks
There’s a popular myth that credit unions are inherently the more community-minded option when choosing between a bank and a credit union. This is often the case, as they are cooperatively owned and operated and are not-for-profit. However, many credit unions’ loan portfolios are primarily made up of consumer loans, which isn’t necessarily a bad thing, but if you’re here on this blog, you’re probably looking for a larger portion of your banking assets to go to housing loans and small business loans, which strengthen the communities where they’re given. Although data on CU loan portfolios are not easy to get, there are two designations- besides the CDFI designation- that indicate their commitment to serving low-and-middle-income communities.
Low-Income Designation (LID)
A designation accredited by the National Credit Union Administration (NCUA), the Low-Income Designation (LID) is earned when a majority of a credit union’s members qualify as low-income. Because low-income people are so seldom served well by traditional banking institutions, LID credit unions—aka Low-Income Credit Unions (LICUs)--are both needed and appreciated by their customers. Like the CDFI designation, credit unions that earn the Low-Income Designation receive federally-funded benefits to provide additional services to their low-income customers. Additionally, the NCUA provides training and resources to help credit unions address the specific difficulties of providing loans to underserved populations. Essentially, LICUs are primarily serving low-and-middle-income communities and receive significant support services from the NCUA to do so. Learn more at NCUA's website.
Community Development Credit Union (CDCU)
This designation also indicates that the credit union demonstrates a commitment to serving low-income members. However, CDCUs achieve their rating through different ways and institutions. While low-income designations are awarded by the NCUA, the CDCU moniker is received simply by joining Inclusiv (formerly called the National Federation of Community Development Credit Unions). This is a non-federal, “certified CDFI intermediary that transforms local progress into lasting national change.” While they may help their members obtain federal grant money, Inclusiv is not a federal regulatory unit, and being a member of Inclusiv (having the CDCU designation) does not guarantee that the institution is recognized by the NCUA as a Low-Income Credit Union. However, CDCUs are often LICUs and CDFIs, as well as being members of Inclusiv.
Members of this coalition of credit unions benefit from many resources provided by Inclusiv, including education and training for CDCU members and staff, provision of products focused on low-income consumers, technical assistance and consulting services, and more. The federation even has a capital fund used to invest in their members and expand the impact of their products and service throughout their communities. Inclusiv’s diverse board and staff are made up of individuals who have devoted their careers in banking to serving low- and middle-income neighborhoods and families. To learn more about Inclusiv and what it means to be one of their members, visit their website, or check out their directory of CDCUs.
When choosing a banking institution, and leaning towards a credit union, don’t assume that they’re all equally serving their communities. Look for institutions which have shown their commitment to low-and-middle-income families by getting certified as a LICU or a CDCU, as they have the support and resources to thoroughly serve their members.