How do Underserved Areas, LIDs and CDFI Certifications Differ?

Learn the differences between an Underserved Area, Low Income Designation (LID), and Community Development Financial Institution (CDFI) Certification.

Underserved Areas, a Low-Income Designation (LID), and Community Development Financial Institution (CDFI) Certification can all play in a vital role in Credit Union growth. Learn about which path is best for your institution.

This post is meant to serve as a primer to better understand the differences between Underserved Areas, LIDs and CDFI Certifications. While superficially similar, they each play a role in providing different benefits to your credit union in serving underserved communities and low-income populations. We will explore each of these three concepts from a functional standpoint to better understand their nature and benefits.

What is an Underserved Area?

The Federal Credit Union Act defines an underserved area as a “local community, neighborhood, or rural district” that is an “investment area” as defined in Section 103(16) of the Community Development Banking and Financial Institutions Act of 1994. Underserved areas are not granted or certified for a specific credit union. They exist as independent geographic areas for expansion and are available to federally-chartered Multiple Common Bond Credit Unions (those with Select Employee Group-based Field of Membership) and state-chartered credit unions with parity provisions. Underserved areas act as “community rules” for a Federal Multiple Common Bond.

The four major requirements for an underserved area, as it relates to credit unions, include:

  • The operation of a qualifying service facility, or pledge to open one, within two years of approval
  • Meeting the NCUA’s definition of a community:
  • The area to be served is in a recognized single political jurisdiction, i.e., a city, county, or their political equivalent, or any contiguous portion thereof;
  • The area to be served is in multiple contiguous political jurisdictions, i.e. a city, county, or their political equivalent, or any contiguous portion thereof and if the population of the requested well-defined area does not exceed 2,500,000; or
  • The area to be served is a Combined Statistical Area (CSA) or its equivalent, or a portion thereof, where the population of the CSA or its equivalent does not exceed 2,500,000.
  • The area will generally qualify as a rural district if it has well-defined, contiguous geographic boundaries, and the total population of the proposed district does not exceed 1,000,000.
  • At least 85% of the population of an underserved area must come from areas that meet the below distressed criteria:
  • An area that wholly consists of or is wholly located within an Empowerment Zone or Enterprise Community designated under section 1391 of the Internal Revenue Code (26 U.S.C. 1391);
  • An area where the percentage of the population living in poverty is at least 20 percent;
  • An area in 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;
  • An area 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;
  • An area where the unemployment rate is at least 1.5 times the national average;
  • An area meeting the criteria for economic distress that may be established by the Community Development Financial Institutions Fund of the United States Department of the Treasury.
  • Currently is underserved by other depositories:
  • The concentration-of-facilities ratio posits that the number of depository institution facilities must be higher than the sum of an area’s combined census tracts. 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).

Note that underserved areas designated by the NCUA bare a separate designation to those assigned by the Consumer Financial Protection Bureau. Credit unions themselves cannot expand the definition of an underserved area; however, they can leverage their current federal charter to increase their Field of Membership in these counties.

What is a Low-Income Designation?

The NCUA’s LID is concerned predominantly with where a credit union’s members live as well as under what economic conditions relative to the statistical area as defined by the US Census Bureau. Credit unions qualify for an LID if most of its membership (50.01%) qualifies as low-income members. Functionally, “low-income members” can be defined as those:

  • who make less than 80 percent of the average for all wage earners as established by the Bureau of Labor Statistics;
  • whose annual household income falls at or below 80 percent of the median household income for the nation as established by the Census Bureau;
  • who are military personnel; or
  • who are full-time or part-time students in a college, university, high school, or vocational school.

A credit union with a low-income designation has greater flexibility in accepting nonmember deposits insured by the NCUSIF, are exempt from the aggregate loan limit on business loans and may offer secondary capital accounts to strengthen its capital base. It also may participate in special funding programs such as the Community Development Revolving Loan Fund for Credit Unions (CDRLF) if it is involved in the stimulation of economic development and community revitalization efforts.

The CDRLF provides both loans and grants for technical assistance to low-income credit unions. The requirements for participation in the revolving loan program are listed in Part 705 of the NCUA Rules and Regulations. Only operating credit unions are eligible for participation in this program.

What is Community Development Financial Institution Certification?

The CDFI Certification is managed as one arm of the US Treasury’s CDFI Fund. Contrary to an LID, the CDFI uses metrics related to a credit union’s borrowers rather than its members. A credit union can qualify for the CDFI Certification if 60% of its loans within the past twelve months are obtained within a CDFI-eligible target market. A target market is defined using indicators of economic stress based on demographic data collected from the US Census.

The certification is a designation for organizations that provide financial services in low-income communities and to people who lack access to financing. CDFIs include regulated institutions such as community development banks and credit unions, along with non-regulated institutions like loan and venture capital funds.

CDFI Fund logo

CDFIs are eligible to apply for multiple programs offered by the CDFI Fund that provide direct funding through awards or grants and indirect funding, such as through a bond guarantee program. For CDFI credit unions, this could mean access to grant awards that can help grow capabilities and further the mission of serving members and their communities. CDFIs can also access resources such as technical assistance, training, and capacity-building initiatives to support their mission.

In 2020, the CDFI Fund awarded a total of $45.31 million to 81 credit unions. When more credit unions become CDFI certified and successfully apply for funding, more CDFI Fund dollars can flow into credit unions to improve members’ financial lives.

To apply for CDFI Certification, your organization must apply to the CDFI Fund for review. The application must demonstrate that the applicant meets each of the following requirements:

  • Is a legal entity at the time of certification application;
  • Has a primary mission of promoting community development;
  • Is a financing entity;
  • Primarily serves one or more target markets;
  • Provides development services in conjunction with its financing activities;
  • Maintains accountability to its defined target market; and
  • Is a non-government entity and not under the control of any government entity (Tribal governments excluded).


While all three of these potential approaches can lead to growth in their own way, it can still be confusing to understand which is best for an individual credit union. This is why it is vital to pinpoint the avenue best suited to your particular institution, both in terms of the application process and eventual benefits. CUCollaborate’s Consulting Services and Products are designed precisely with this in mind, allowing us to find the best solution and path to growth specifically tailored to your credit union.

Contact us today to learn more and begin the process!

Field of Membership Expansion

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