Can a state-chartered credit union in Oklahoma get the federal 'low-income credit union' designation, or is that reserved for federal credit unions?

Subject

Attorney General opinion concerning whether a state-chartered credit union may qualify for a low-income designation if it meets the criteria required by the National Credit Union Administration.

Plain-English summary

Oklahoma has roughly 55 credit unions, but only ten are state-chartered. The other 45 are federally chartered, and 32 of those have a "low-income designation" from the NCUA, which gives them four key benefits: exemption from the aggregate member business loan cap, eligibility for the Community Development Revolving Loan Fund grants, expanded ability to accept non-member deposits, and the ability to issue secondary capital that counts toward net worth. Combined, the low-income-designated federal credit unions in Oklahoma hold $16.3 billion in assets (79% of the credit-union market), versus $1.34 billion for state credit unions (6%).

A state representative asked whether state-chartered credit unions can also get the low-income designation. The AG said yes, on two grounds.

First, Oklahoma's "parity provision" (6 O.S. § 2023) authorizes a federally insured state credit union to "exercise any of the powers of a federally chartered credit union" unless prohibited by Oklahoma law. The legislative purpose is to "equalize and maintain the quality of competition between state and federal credit unions." Nothing in Oklahoma law prohibits state credit unions from obtaining a low-income designation, so the parity provision lets them do it.

Second, federal regulation 12 C.F.R. § 741.204(b) explicitly contemplates state credit union low-income designations, providing that "the state regulator shall make the low-income designation with the concurrence of NCUA. The designation will be made and reviewed by the state regulator on the same basis as that provided in § 701.34(a) of this chapter for federal credit unions."

What this means for you

For state-chartered credit unions in Oklahoma

You can apply for the low-income designation. The mechanics: the Oklahoma State Banking Department (which oversees state credit unions) makes the designation with NCUA concurrence. Use NCUA's existing designation forms (OAC § 180:10-1-3 lets the Banking Department accept NCUA forms in lieu of state forms). If you meet the NCUA's low-income criteria (which look at member income data relative to local or national medians), you should be eligible.

Once designated, you get the four federal benefits and any associated state regulatory accommodations. This is potentially significant: the parity-equalization purpose of § 2023 means the legislature wanted state credit unions to be able to compete with federal ones, and the low-income designation has been a major competitive advantage federal credit unions have used.

For state credit union board members and management

If you serve a community with significant low-income membership, evaluate whether the designation is worth pursuing. The Community Development Revolving Loan Fund grants alone can be material. The non-member deposit authority lets you take deposits from outside your traditional field of membership, which can fund growth.

For the Oklahoma State Banking Department and State Credit Union Board

This opinion authorizes you to make low-income designations for state credit unions. NCUA's process under 12 C.F.R. § 741.204(b) requires your designation, with NCUA concurrence. NCUA has indicated this is "worthwhile and would benefit state-chartered credit unions and their members" (78 Fed. Reg. 4030-1, January 18, 2013). NCUA's Examiner's Guide also envisions this process. Develop a process or rule for how state credit unions apply for the designation.

For low-income communities, CDFIs, and community development advocates

This opinion expands the pool of credit unions eligible for low-income designation status in Oklahoma. State credit unions with significant low-income membership but currently unable to access the federal benefits should now be able to. If you work with a state credit union, encourage them to consider applying.

For credit union attorneys

The opinion is grounded in the parity provision, which has been on the books since 1977 (SB 191). The AG cites the prior 1999 OK AG 72 opinion for the proposition that "the authority of state-chartered credit unions to exercise the same powers as federal credit unions under 6 O.S. 2023 (1991) is limited in two ways: (1) If otherwise provided by the Legislature; and (2) If the state credit union board prohibits it by rule." Neither limitation applies here.

Common questions

What's a "low-income designation"?

A federal designation under 12 C.F.R. § 701.34(a)(2) for credit unions whose membership is predominantly low-income. The criteria look at NCUA-approved measures of member income (typically 50% or more of members earning less than 80% of area median income, but criteria can vary).

What benefits come with the designation?

(1) Exemption from the aggregate member business loan cap (currently 1.75 times the credit union's net worth). (2) Eligibility for grants and low-interest loans from the Community Development Revolving Loan Fund for Credit Unions. (3) Ability to accept non-member deposits from any source, not just public units or other credit unions. (4) Ability to offer secondary capital accounts that count toward the credit union's net worth.

How does the designation process work for a state credit union?

Per 12 C.F.R. § 741.204(b), the state regulator (Oklahoma State Banking Department) makes the designation with NCUA concurrence, on the same basis as federal credit unions under 12 C.F.R. § 701.34(a). In practice, this means using NCUA's data and criteria, with the Banking Department issuing the designation.

Are there state-law restrictions that might still block the designation?

The AG specifically considered this and found none. The 1999 OK AG 72 opinion involved a different issue (community-based membership in conflict with a then-existing Oklahoma statute requiring common-bond membership), but that conflict has been resolved by subsequent legislative changes. On low-income designation, Oklahoma law is silent, and silence here is permissive, given the parity provision.

How many other states have authorized this for their state credit unions?

Per the NCUA data cited in the opinion (December 2023), 725 federally insured state credit unions across 40 states already hold low-income designations. Oklahoma is now joining that group.

Background and statutory framework

Oklahoma credit union law is in Title 6, Chapter 38 (§§ 2001 to 2027). The parity or "wild card" provision at § 2023 is the key:

A credit union chartered under the laws of the State of Oklahoma, the member accounts of which are insured under Title II of the Federal Credit Union Act, may exercise any of the powers of a federally chartered credit union doing business in this state, until otherwise provided by the Legislature; and provided that the State Credit Union Board may by rule prohibit the exercise of any such power . . . [in order to] equalize and maintain the quality of competition between state and federal credit unions.

The opinion parses "any" broadly under State ex rel. Porter v. Ferrell ("the use of the word 'any' within a statute is equivalent and has the force of 'every' and 'all'"). "Power" is read using Black's Law Dictionary as "the right, ability, or authority to do something." The low-income designation, plus its associated benefits, is plainly such a "power."

Federal authorization comes from 12 C.F.R. § 741.204(b), which explicitly contemplates state credit union low-income designations and provides the state-regulator-with-NCUA-concurrence process. NCUA publications confirm that "all federally insured credit unions that meet the eligibility criteria can receive the low-income designation," with state-chartered credit unions noted as potentially having additional restrictions (none of which apply to Oklahoma per this opinion).

Citations

• 6 O.S. § 2001 (definition of credit union)
• 6 O.S. § 2001.1(C) (Banking Department support to State Credit Union Board)
• 6 O.S. § 2006(A)(5)(i) (state credit unions may participate in federal guaranteed loan programs)
• 6 O.S. § 2006(A)(8)(b)(10) (state credit unions may make federal-credit-union-authorized investments)
• 6 O.S. § 2023 (parity / wild card provision)
• 12 U.S.C. § 1752(1) (federal credit union definition)
• 12 U.S.C. § 1757(6) (low-income credit union deposit authority)
• 12 U.S.C. § 1757a(b)(2) (member business loan cap exemption)
• 12 U.S.C. § 1772c-1 (Community Development Revolving Loan Fund)
• 12 U.S.C. § 1781(a) (state credit union eligibility for share insurance)
• 12 U.S.C. § 1790d (low-income credit union secondary capital authority)
• 12 C.F.R. § 701.34(a)(2) (low-income designation criteria)
• 12 C.F.R. § 705.2 (qualifying credit union for revolving loan fund)
• 12 C.F.R. § 741.204(b) (state regulator low-income designation with NCUA concurrence)
• OAC § 180:10-1-3 (Banking Department may accept NCUA forms)
• OAC § 180:10-5-5 (state credit union accounts approved for federal credit unions)
• Rogers v. Quiktrip Corp., 2010 OK 3, 230 P.3d 853 (statutory construction)
• State ex rel. Porter v. Ferrell, 1998 OK 41, 959 P.2d 576 ("any" means "every" and "all")
• 1999 OK AG 72 (parity provision; two limitations)

Source

• Landing page: https://oklahoma.gov/oag/opinions/ag-opinions/2024/ag-opinion-24-13.html
• Original PDF: https://oklahoma.gov/content/dam/ok/en/oag/opinions/ag-opinions/2024/AGO24-5%202024%20OK%20AG%2013.pdf

Original opinion text

GENTNER DRUMMOND
ATTORNEY GENERAL
ATTORNEY GENERAL OPINION
2024-13

The Honorable Stan May
Oklahoma House of Representatives, District 80
2300 N. Lincoln Blvd., Room 300.3
Oklahoma City, OK 73105

September 19, 2024

Dear Representative May,

This office has received your request for an official Attorney General Opinion in which you ask, in effect, the following question:

Can a federally insured credit union chartered under the laws of the State of Oklahoma qualify as a low-income designated credit union if it meets the criteria as determined by the National Credit Union Administration?

I. SUMMARY

Yes. Both Oklahoma and federal law confirm that a federally insured credit union chartered under Oklahoma law is authorized to obtain a low-income designation in the same manner as a federal credit union.

First, Oklahoma law authorizes state credit unions to obtain a low-income designation. Although Oklahoma credit union laws do not directly speak to obtaining a low-income designation, title 6 section 2023 authorizes a federally insured state credit union to "exercise any of the powers of a federally chartered credit union doing business in this state" unless otherwise prohibited by law. 6 O.S.2021, § 2023. The plain and expansive language of this "parity" or "wild card" provision encompasses the ability to obtain a low-income designation, which is a benefit otherwise available to federal credit unions. In fact, thirty-two of Oklahoma's forty-five federal credit unions currently have and are presumably exercising the benefits of a low-income designation.

Second, federal law authorizes state credit unions to obtain a low-income designation. Although federal statutes do not directly speak to state credit unions obtaining a low-income designation, federal regulations implicitly sanction state credit unions' ability to obtain a low-income designation. See 12 C.F.R. §§ 701.34(a)(2), 741.204(b) (2022).

II. BACKGROUND

A. The Legal Background of Credit Unions.

A credit union is a "cooperative non-profit" financial institution "incorporated for the purpose of promoting thrift among its members[] and creating a source of credit . . . at legitimate rates of interest for . . . productive purposes." See 12 U.S.C. § 1752(1); 6 O.S.2021, § 2001(1).

In 1934, Congress formally recognized federal credit unions through the enactment of the Federal Credit Union Act. By 1970, Congress created the National Credit Union Administration ("NCUA") to govern federal credit unions and extended federal share insurance to all credit unions. In 1977, Congress amended the Federal Act to expand the powers of federal credit unions considerably. Shortly thereafter, the Oklahoma Legislature enacted title 6, section 2023, which authorized federally insured state credit unions to exercise any of the powers of a federally chartered credit union.

B. The Low-Income Designation.

The Federal Act provides several exemptions or benefits to credit unions serving predominately "low-income" members: (1) exemption from the aggregate member business loan limit; (2) eligibility to participate in the Community Development Revolving Loan Fund for Credit Unions; (3) expanded ability to accept non-member deposits from any source; (4) ability to offer secondary capital accounts and include those accounts in the insured credit union's net worth.

Regulations promulgated by the NCUA demonstrate when credit unions qualify for the "low-income" designation. See 12 C.F.R. § 701.34(a)(2). While this regulation explains how federal credit unions can receive and maintain the low-income designation, it is silent as to state credit unions. Nevertheless, the regulations elsewhere provide that a federally insured credit union must "[o]btain a low-income designation in order to accept nonmember accounts, other than from public units or other credit unions, provided it has the authority to accept such accounts under state law." 12 C.F.R. § 741.204(b). The regulation further details that "[t]he state regulator shall make the low-income designation with the concurrence of NCUA. The designation will be made and reviewed by the state regulator on the same basis as that provided in [section] 701.34(a) of this chapter for federal credit unions." Id.

C. Oklahoma Credit Unions.

In or around 1923, the first credit union in Oklahoma was formed. As of late 2023, approximately fifty-five credit unions are headquartered in Oklahoma. Only ten of those credit unions obtained their charters from the State of Oklahoma. Thus, approximately 81% of Oklahoma credit unions are federally chartered. The total assets of the state credit unions equal approximately $1.34 billion, while the total assets of the federal credit unions in Oklahoma equal approximately $19.47 billion. None of the state credit unions hold a low-income designation, but thirty-two out of forty-five federal credit unions hold a low-income designation, including the two largest credit unions in Oklahoma. The total assets of the low-income designated federal credit unions equal approximately $16.3 billion.

III. DISCUSSION

A. Oklahoma law authorizes state credit unions to obtain a low-income designation.

The Oklahoma Legislature has provided that:

[a] credit union chartered under the laws of the State of Oklahoma, the member accounts of which are insured under Title II of the Federal Credit Union Act, may exercise any of the powers of a federally chartered credit union doing business in this state, until otherwise provided by the Legislature; and provided that the State Credit Union Board may by rule prohibit the exercise of any such power . . . .

6 O.S.2021, § 2023. This "parity" or "wild card" provision expressly authorizes a state credit union to exercise the same powers as a federal credit union unless otherwise prohibited by the Legislature through statute or the State Board through regulation.

The words and phrases used in the parity provision convey an expansive scope. The term "power" is broad enough to encompass any action, inaction, right, ability, authority, privilege, benefit, liability, or license. The inclusion of the word "any" erases all doubt that the scope of the parity provision is broad: intended to encompass all such rights, abilities, or authorities of a federal credit union. See State ex rel. Porter v. Ferrell, 1998 OK 41, ¶ 9, 959 P.2d 576, 578 ("The use of the word 'any' within a statute is equivalent and has the force of 'every' and 'all'.").

Here, federal credit unions have the power to obtain a low-income designation and to exercise the benefits that flow therefrom. That power plainly falls within the scope of the broad language of the parity provision. Accordingly, the parity provision authorizes a state credit union to obtain a low-income designation and exercise the same power and benefits that flow therefrom unless otherwise prohibited by Oklahoma law.

The legislative intent is plainly expressed in the text of the parity provision: to "equalize and maintain the quality of competition between state and federal credit unions." 6 O.S.2021, § 2023; see also 1999 OK AG 72, ¶ 5. The legislative history also confirms the Legislature's intent for section 2023 to place state credit unions on an even playing field with federal credit unions.

The next question is whether the low-income designation is otherwise prohibited by Oklahoma law. "[T]he authority of state[-]chartered credit unions to exercise the same powers as federal credit unions under 6 O.S. 2023 (1991) is limited in two ways: (1) If otherwise provided by the Legislature; and (2) If the state credit union board prohibits it by rule." 1999 OK AG 72, ¶ 6. No such limitation can be found here. Oklahoma statutes and regulations are silent on whether or how a low-income designation can be obtained by a state credit union.

B. Federal law authorizes state credit unions to obtain a low-income designation.

There is nothing within the text of the Federal Act that speaks directly to whether a state can obtain a low-income designation or the benefits that flow therefrom. At the same time, nothing within the text of the Federal Act limits or prohibits a state credit union from obtaining a low-income designation. Federal regulations specifically sanction state credit unions obtaining a low-income designation by providing that a federally insured credit union must "[o]btain a low-income designation in order to accept nonmember accounts, other than from public units or other credit unions, provided it has the authority to accept such accounts under state law." 12 C.F.R. § 741.204(b). This regulation further provides that "[t]he state regulator shall make the low-income designation with the concurrence of NCUA."

It is, therefore, the official Opinion of the Attorney General that:

A federally insured credit union chartered under the laws of the State of Oklahoma can qualify as a low-income designated credit union if it meets the criteria as determined by the National Credit Union Administration.

GENTNER DRUMMOND
ATTORNEY GENERAL OF OKLAHOMA

GARRY M. GASKINS, II
SOLICITOR GENERAL