February 9, 2009

Michael Fryzel, NCUA Chairman
Rodney Hood, NCUA Vice-Chairman
Gigi Hyland, NCUA Board Member

Dear NCUA Board Members:

The National Federation of Community Development Credit Unions represents more than 200 credit unions that serve low-income communities. They serve those hardest hit by the recession in cities, rural areas, and reservations across the United States -- people who under the best of circumstances have meager financial reserves, few resources, and limited access to affordable credit from the banking system.  They, and their communities, are suffering especially severe damage from the current crisis.

Our member community development credit unions (CDCUs) have expressed widespread dismay and distress at NCUA’s proposal for averting the threat to the corporate credit union system.  While CDCUs recognize the gravity of the situation, they are concerned that the cost and structure of the plan would result in the reduction of their services, loss of staff, and the outright demise of many low-income credit unions, which play an indispensable role in serving people most in need of credit union service. 

Unless and until a better solution can be devised – one that can avoid the harm to low-income and small credit unions -- the Federation supports the effort to allow corporate credit unions to access the Central Liquidity Facility directly.  The lack of access to the CLF seems to us an anomaly that can no longer be sustained.  Infusing funds into the corporates directly from the CLF is a wholly appropriate use of the federal financing system, and is likely to prove far more effective than the indirect method that NCUA has employed recently. 

We have reviewed available 5300 call report data for the period ending 12/31/08, as it appears on NCUA’s web site.  Our initial analysis indicates that harm to CDCUs would be substantial and widespread under the NCUA proposal.

• Approximately 62% of CDCUs would have negative income in 2009.
• We estimate that 18% of CDCUs would fall below the “well capitalized threshold of 7% net worth, while 10.1% would fall below the “adequately capitalized” threshold of 6%.  

While the economic impact of the NCUA proposal is not unique to CDCUs, damage that would be sustainable for other credit unions could prove irreparable or fatal for many CDCUs. Providing affordable financial services to low-income communities is, by definition, the most difficult task in the financial system.  It is labor-intensive, requiring higher operating costs; delinquency and charge-off rates, while remarkably low in view of the population served, are nonetheless higher than for credit unions serving more prosperous members.  The diminished net worth and revenue lost by CDCUs under NCUA’s plan would be extremely difficult to restore or replace.  Given the strictures of Prompt Corrective Action (PCA), which impose increasingly harsh regulatory actions on credit unions with sub-par capital, it is likely that some CDCUs would be plunged into a death spiral.  Their demise would be an irreparable loss to many low-income communities. 

We would appreciate the opportunity to explore further with you the appropriate responses to this crisis.  I can be reached at 212-809-1850 ext. 216, or crosenthal@cdcu.coop. 

Sincerely yours,

Clifford N. Rosenthal
President and CEO

Cc:    Dan Mica, CUNA; Fred Becker, NAFCU