2023 MDI Congressional Report

Chairman’s Message

Each year, the National Credit Union Administration reports to Congress on the composition and financial condition of the minority depository institution credit unions we supervise and insure and on our ongoing efforts to preserve and protect them. These reports are prepared and submitted under Section 308 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended by Section 367 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Minority communities have, for hundreds of years, often been kept out of the financial mainstream, with the effect of denying them basic economic opportunities and creating legacy poverty. Credit unions designated as minority depository institutions work to address these historical inequities.

MDI credit unions support minority communities in a variety of ways. As credit unions, MDIs offer essential services to people who may otherwise have to rely on costly alternatives. They provide loans for people who might otherwise have difficulty obtaining credit, if they can obtain it at all. These loans may be packaged with savings accounts and financial education that improves members’ ability to plan and control their budgets. MDIs often work with community organizations to expand outreach. All these efforts give people an alternative to predatory lenders, who trap consumers in a cycle of debt.

Through these efforts, MDI credit unions are advancing the broader mission of promoting economic equity and justice within the financial system. In doing so, they also help build a middle class and strengthen our democracy.

MDI credit unions turned in another year of solid performance in 2023. As the financial data later in this report describes, MDIs reported growth rates in membership, assets, and lending that exceeded those of the credit union system overall. One particular data point shows MDIs increased payday alternative loans, an important option for borrowers who might otherwise have to turn to predatory lenders.

Taken together, these data demonstrate how MDI credit unions—with a focused mission, a strong sense of purpose, and dedicated staff and management—can perform well in today’s marketplace while expanding opportunities.

For its part, the NCUA in 2023 continued to find opportunities to expand and refine its support for MDIs, including:

• Chartering one new MDI;
• Approving field-of-membership expansions that gave MDIs the chance to reach 4.7 million potential new members;
• Providing $1.4 million in Community Development Revolving Loan Fund grants to 42 MDI credit unions;
• Drafting an updated Interpretive Ruling and Policy Statement for the MDI Preservation Program, which became effective in March 2024, to better enable MDIs to meet their members’ needs;
• Hosting an MDI Awareness Month, a national MDI symposium, and MDI-related sessions during the agency’s annual Diversity, Equity, and Inclusion summit; and
• Issuing a 2023 Research Note from the Office of Chief Economist showing MDI credit unions serve populations that will be especially vulnerable to climate financial risk, and two-thirds of total MDI assets are invested in MDI communities. This will be a future challenge for the NCUA and for these credit unions in particular.

Finally, this report includes examples of ways MDI credit unions serve their communities, connect to them, learn about their needs, and tailor their products and services accordingly. We encourage you to visit MDI credit unions in your state or district to see first-hand how they are improving the financial well-being of their members. The agency’s online Credit Union Locator can help you find them.

Todd

NCUA Chairman

The Minority Depository Institutions Difference

MDI credit unions exist to provide access to safe, fair, and affordable financial products and services to minority individuals and communities traditionally underserved by the financial system. Supporting and preserving MDIs is central to NCUA’s vision of strengthening communities and protecting consumers by ensuring equitable financial inclusion through a safe, sound, and evolving credit union system.

Federally insured credit unions self-designate as MDIs by affirming in the NCUA’s Credit Union Online Profile that more than 50 percent of their current members, the communities they serve, and their boards of directors are from one or a combination of the four minority categories defined in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989: Asian Americans, Black Americans, Hispanic Americans, or Native Americans.

As of December 31, 2023, 492 federally insured credit unions—more than one in 10 of all federally insured credit unions—held the MDI designation. They were located in 35 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.

The number of MDI credit unions declined slightly over the past year, to 492 from 503 at the end of 2022. This tracks a long-running industry trend and is largely due to mergers and to some credit unions no longer meeting the specific MDI designation requirements. However, this slight decline did not prevent MDIs from significantly increasing the number of people they served. Total membership climbed to more than 6.5 million, an increase of approximately 1.5 million members from 2022.

MDIs traditionally tend to be small institutions. At the end of 2023, the average MDI credit union held about $180 million in assets. By comparison, average assets for all federally insured credit unions were approximately $490 million. Nonetheless, MDI credit unions, as a group, show financial performance metrics compatible with, and in several instances exceeding, the credit union system overall, as the Financial Performance Highlights section of this report demonstrates.

Appendix 3 of this report lists all federally insured, MDI-designated credit unions as of December 31, 2023.

MDIs Find Ways to Serve Members

MDI credit unions are structured and positioned to respond to the needs of the people and communities they serve. Through their established community presence, they create local bonds and use their understanding to design services and products to meet members’ distinct needs. Those may include innovative savings or loan programs, outreach to financial deserts, education to help members control their budgets, or simply adjusting their processes with respect for an individual member’s situation. This section of the report includes examples of the work MDIs perform and the benefits to their members.

Affordable Housing

An MDI in the Southwest worked with a local housing non-profit to prevent a member from falling into homelessness. The credit union provided a mortgage loan when the member's home purchase was on the verge of falling through.

The member sold their mobile home and was expecting to close on a new home, having gotten approval for a loan from a mortgage company. However, the approval was rescinded, despite the member’s good credit history, because the member held an individual taxpayer identification number, which is issued by the federal government to people who need a taxpayer ID but lack a Social Security number.

The credit union's mortgage department took an application right away, contacting other parties involved to gain time to process the loan and arrange an extension of the mobile home sale.

Expanding Safe, Fair and Affordable Access

A small MDI in South Carolina analyzed its potential membership and discovered a largely Hispanic underserved area that it made a significant effort to reach.

The credit union first created Spanish versions of applications, loan documents, and disclosures. It then began the design and construction of a full-service branch in that community, staffed with bilingual employees. By providing easily reachable services to a population that was not used to having them, the credit union’s actions reflect its commitment to provide members a safe place to deposit their money and fair and affordable loan products, important elements to developing and maintaining financial security.

Addressing Basic Needs

A Texas MDI serving an area where a quarter of the residents live at or below the poverty line took particular notice of the fact that low-income members had difficulty purchasing reliable vehicles. Prices were rising while incomes were not. Downpayments, along with taxes and the costs of titles and licenses, created obstacles to ownership. Sub-prime lenders were typically charging 25 percent interest, and monthly payments often led to defaults. So, the credit union created a first-time buyers downpayment assistance program that provides loans to match downpayments up to $2,500.

Providing Consumer Education

A New Jersey MDI serves a low-income, 85-percent-minority population with limited access to financial services. One need is housing, and one barrier to obtaining homeownership is a lack of financial management skills. More than three-quarters of residents rent, though some had the financial capacity to purchase a home. The MDI created a financial counseling program to teach members about household budgeting, financial management, overcoming debt, credit reports, and the steps involved in obtaining a mortgage.

Once a session is completed, one of the credit union’s counselors works with the member to apply the lessons learned, including coming up with an action plan. The credit union continually monitors the program to find ways to make it more effective. Data shows about one-quarter of members receiving counseling improved their financial situation—such as building savings and reducing debt—and about one in five members who participate in the sessions are eventually approved for a mortgage.

Financial Performance Highlights for MDI Credit Unions in 2023

MDI credit unions overall saw improved financial performance metrics in several categories in 2023, in some instances outpacing growth in the credit union system generally:

• The 492 MDI credit unions reporting at the end of 2023 is a slight decrease from year-end 2022, when there were 503. This was largely due to mergers and credit unions that may, perhaps due to changes in membership demographics or board make-up, no longer meet the specific requirements of the MDI designation. Over the course of 2023, 13 credit unions became newly designated as MDIs.
• The 492 MDI credit unions served more than 6.5 million members, a substantial increase from 2022, when membership stood at more than 5 million. This represents an increase of 25.6 percent compared to the 3.0 percent membership growth for all federally insured credit unions generally during the same period. The membership change is, in part, the result of larger credit unions becoming MDIs and mergers creating larger institutions.
• Of those 492 MDI credit unions, 393 also held the low-income credit union designation, and 109 were certified as Community Development Financial Institutions. The low-income and CDFI designations open opportunities for grant support not available to MDIs alone.
• As a group, MDI credit unions’ total assets were $88.8 billion at the end of 2023, up from $64.7 billion in 2022, an increase of 37.3 percent compared to the 4.1 percent growth in assets for all federally insured credit unions as a group during the same period.
• MDI credit unions tend to be smaller institutions. The average MDI held assets of about $180 million at the end of 2023, up from $129 million in 2022. In 2023, average assets for all credit unions stood at approximately $490 million.
• MDI credit unions reported $59.3 billion in loans outstanding compared to $42.2 billion at the end of 2022, primarily concentrated in one-to-four-family-unit first-mortgage loans ($23 billion) and used vehicle loans ($12 billion). The loan growth rate was 40.7 percent compared to 6.4 percent for all federally insured credit unions overall during the same period.
• Over the course of 2023, MDI credit unions approved $30.1 million in payday alternative loans compared to $24.1 during 2022, an increase of 24.9 percent. Overall, all federally insured credit unions increased payday alternative lending by 19.2 percent over the same period.
• The net worth ratio for MDI credit unions at the end of 2023 was 11.58 percent, compared to the 10.70 percent net worth ratio for the credit union system as a whole. This is slightly above the average net worth ratio over the last five years of 11.40 percent for MDIs, while the industry generally was in-line with its 10.68 percent average over the same period.
• Return on average assets was 85 basis points at the end of 2023 compared to 69 basis points for federally insured credit unions overall. ROAA declined from 2022 levels for both MDIs and credit unions as whole, though MDIs saw a much smaller decrease, indicating they maintained profitability as the country continued to rebound from the COVID pandemic.
• MDI credit unions had a delinquency rate of 91 basis points, compared to rate of 83 basis points for federally insured credit unions overall.
• MDI credit unions had a net charge-off rate of 69 basis points compared to 61 basis points for all federally insured credit unions.
• MDI credit unions had a loan-to-share ratio of 80.9 percent compared to 85.2 percent for federally insured credit unions overall.
• Of the 492 MDI credit unions reporting at the end of 2023, 474, or 96.4 percent, reported a net worth ratio of at least 7 percent, the statutory standard for a “well-capitalized” institution, which aligns closely to the 98.4 percent for federally insured credit unions overall.

A package of tables and charts in Appendix 1 provides more detailed information about the financial trends in MDI credit unions as of December 31, 2023.

The three charts below show the distribution of MDIs, membership, and assets state-by-state.

The NCUA’s MDI Preservation Program

The NCUA Board approved, on June 18, 2015, an MDI Preservation Program Interpretive Ruling and Policy Statement, updated in March 2024, detailing the NCUA’s objectives for preserving and encouraging MDI credit unions in accordance with FIRREA goals. These objectives are consistent with the NCUA’s mission and strategic goal of ensuring a safe, sound, and viable system of cooperative credit that protects consumers. Since its inception, the program has evolved to better meet the needs of MDI credit unions, their members, and their communities.

During 2023, the NCUA’s support for MDIs included:

• Chartering one new MDI, For Members Only Federal Credit Union, in Chicago, Illinois, which offers services to its members that include share and share draft accounts, personal loans, debit cards, and online banking.
• Another credit union, The Morning Star Federal Credit Union, became an MDI in 2023. Located in Lame Deer, Montana, the credit union makes a priority of reaching unserved and underserved populations, offering a variety of basic financial services, including share accounts, share draft accounts, share certificates, debit cards, unsecured loans, and online banking.
• Approving field-of-membership expansions for 21 MDIs, thereby adding 891 new member groups or geographic areas and more than 4.7 million potential members.
• Providing more than $1.4 million in Community Development Revolving Loan Fund technical assistance grants to 42 MDI credit unions. The amount of 2023 grants awarded to MDIs represented a five-fold increase from 2022, and the number of MDI grantees more than doubled. Of these, the NCUA made 23 grant awards totaling more than $1 million under its MDI Capacity Building Initiative. Congress, at the NCUA’s request, made all MDIs, regardless of whether they also held a low-income credit union designation, eligible for CDRLF grants for the 2023 grant round. That eligibility was not extended for 2024.
• Hosting an MDI Awareness Month—which is being repeated in 2024—that showcased MDIs’ work and included outreach to the credit union industry generally to raise awareness about the importance of these credit unions and their impact.
• Hosting an MDI Symposium that covered current research on topics of interest and benefit to MDIs and discussed how the NCUA can better serve them. The two-day symposium brought representatives from 22 MDI credit unions together with agency staff and credit union industry stakeholders. The agency plans to hold another symposium in 2024.
• Hosting workshops during the agency’s Diversity, Equity, and Inclusion summit with a particular emphasis on areas of interest for MDIs, such as reaching financial deserts.
• Issuing guidance to credit union examiners providing instruction on MDIs’ particular business model and on using MDI peer metrics. This guidance helps examiners to better understand the context of MDI credit unions in terms of the members and communities served and the products and services they offer.
• Continuing the agency’s Small Credit Union and MDI Support Program, which directs resources to credit unions who identify a need. Program-appropriate activities include providing credit union personnel with assistance or guidance on areas such as, discussing NCUA and third-party resources available to support small credit unions and MDIs, support applying for grants or technical assistance, and providing training and appropriate materials to credit union staff. The NCUA’s three regional offices supported 194 MDI credit unions under the program in 2023.
• Providing online training and information resources through the agency’s Learning Management System, which offers materials at no cost to credit union board members, management, and staff. The LMS includes 105 courses and resources covering topics of interest and challenges specific to MDIs. One example is the “Discovering MDIs” webinar created for Awareness Month that drew 156 participants. At the end of 2023, 146 MDI credit unions had LMS accounts, and 35 credit unions had staff who had taken an LMS course.
• Assisting—through field staff and staff from the agency’s Office of Credit Union Resources and Expansion—MDIs in areas that included merger planning, CDRLF grant applications, and Community Development Financial Institution certification.

Going Forward

The NCUA plans several specific efforts to support MDI credit unions during 2024:

• Allocating 4,600 staff hours across the agency’s three regions to MDIs under the Small Credit Union and MDI Support Program. These hours are separate from routine credit union examination hours. Examiners under this program provide information and assistance to address MDIs’ needs in areas such as staff development, profitability strategies, and preparing for examinations.
• Continuing the ongoing review of agency examination processes to recognize the distinctive business model of MDI credit unions, providing greater insight into MDI credit union strategies and member needs while simultaneously providing MDI credit unions with useful metrics to benchmark their work against their peers.
• Reprising the successful 2023 events:
  • MDI Awareness Month in June, highlighting MDIs’ service, partnerships, and progress over the last year and making a priority of outreach to eligible credit unions that have not yet taken advantage of the MDI designation;
  • The Diversity, Equity, and Inclusion Summit in July; and
  • The MDI Symposium in October, which will again feature collaborative work sessions enabling attendees to share their efforts at advancing access to financial services.
• Offering grants and loans to MDIs also designated as low-income credit unions through the Community Development Revolving Loan Fund.
• Continuing to research potential effects of climate-related financial risk on MDIs and their communities to build a knowledge base for future policy.
• Developing new, targeted, training and information resources to help MDI credit unions build capacity, extend outreach, and conduct strategic planning.

The NCUA’s Role in the Credit Union System

Created by the United States Congress in 1970, the National Credit Union Administration is an independent federal agency that insures deposits at federally insured credit unions, protects the members who own credit unions, charters and regulates federal credit unions, and promotes widespread financial education and consumer financial protection. The NCUA protects the safety and soundness of the credit union system by identifying, monitoring, and reducing risks to the National Credit Union Share Insurance Fund. Backed by the full faith and credit of the United States, the Share Insurance Fund provides up to at least $250,000 of federal share insurance to more than 135 million members in all federal credit unions and most state-chartered credit unions.

The NCUA’s mission is to protect the system of cooperative credit and its member-owners through effective chartering, supervision, regulation, and insurance.

Credit unions are member-owned, not-for-profit cooperative financial institutions that provide members with safe, fair and affordable financial products and services.

The NCUA’s Office of Credit Union Resources and Expansion supports the growth of all credit unions, with a particular focus on low-income-designated credit unions and minority depository institutions. In addition to overseeing the MDI Preservation Program, CURE is responsible for chartering and field-of-membership services, grants and loans, and providing online training at no charge through the agency’s Learning Management System.

Some of CURE’s programs, including grants and loans, have specific eligibility requirements. Others, such as training resources, are available to any credit union.

The NCUA continually evaluates and refines its efforts to assist credit unions, especially with regards to underserved outreach, promoting financial security, improving member service, and expanding membership. Anyone who is interested in more information about MDIs or the agency’s Preservation Program may contact the MDI program by email at CUREMDI@ncua.gov.