On February 3, 2010, Secretary of the Treasury Timothy Geithner announced a new program to help two specific types of credit unions and banks expand their credit and services “to the country’s hardest hit communities.” The announcement was the culmination of six months of groundwork and collaboration with Treasury by the Federation, on behalf of low-income credit unions, and our counterparts representing community development banks.
The Community Development Capital Initiative (CDCI) is a program of the U.S. Department of the Treasury. Using returned funds from the Troubled Assets Relief Program (TARP) to support the continued viability, growth and expansion of CDFI-certified depository institutions, CDCI will make low-interest secondary capital deposits in CDFI-certified community development credit unions and community develoment banks.
Although the funding and authority for the CDCI are provided by and through the Treasury Department’s Troubled Asset Relief Program (TARP), this is not a “bailout” program and is quite different from other elements of TARP. However, the funding and authority for the CDCI are provided by and through TARP, and so CDFI credit unions and banks must comply with all Treasury guidelines regarding transparency, reporting, and monitoring.
Which credit unions are eligible for the CDCI?
The CDCI is restricted to credit unions that (a) are certified by the Treasury Department’s Community Development Financial Institutions (CDFI) Fund AND (b) have low-income designation from NCUA or state regulators.
What kind of funding is available?
This is NOT a grant program. Funds provided to credit unions must be in the form of secondary capital loans – deeply subordinated debt that is classified as net worth, subject to certain conditions, on the balance sheet of low-income credit unions. Currently, low-income credit unions are the only credit unions eligible to accept this kind of loan.
Is this part of the $30 Billion Program Treasury Announced for Community Banks?
No, it is separate from that. There is no set amount for CDCI, but it will probably be less than $1 billion.
What are the terms?
The basic terms for the loans are:
Two-percent (2%) for the first eight years, escalating to nine-percent (9%) for an additional five years, should credit unions choose to retain the loans.
Credit unions may choose to apply for CDCI funds for terms 8 or 13 years. If applying for 8 years, funds must be returned to Treasury by the end of the 8th year in order to avoid the rate increase.
Writedown of CDCI secondary capital begins at 5 years before maturity.
Credit unions must write down 20% of CDCI funds in each of the 5 years (Important: writedown funds do not count towards your regulatory net worth).
How much can credit unions get?
Credit unions can apply for amounts up to 3.5% of their total assets (e.g., $35,000/million in assets).
What are the conditions and restrictions?
Credit unions must be approved by NCUA to participate in the program. NCUA must ascertain the applicant credit union is “viable.” Credit unions that fall short of this standard may be able to access CDCI funds if they are able to raise dollar-for-dollar match funds from non-federal sources.
Who administers the CDCI program?
Treasury’s Office of Financial Stabilization, in cooperation with NCUA and the Treasury Department’s CDFI Fund.
Treasury's CDCI Program is currently closed. All CDCI applications must have been submitted to NCUA by April 30, with subsequent Secondary Capital Plans submitted by May 10.
NCUA is currently reviewing Secondary Capital Plans and will be sending it's decisions directly to Treasury. NCUA Board Chairman Matz has expressed publicly that no CDCI application will be denied before passing through her desk, so any appeals should be made directly to her office.
(July 23, 2010) According to NCUA sources, more than 80 credit union applications for the Community Development Capital Initiative (CDCI) have been forwarded to the Treasury Department with a positive recommendation for funding. Several more are in the process of a second-stage review within the agency.
Information obtained from Federation members indicates that Treasury has reviewed some of the credit unions recommended by NCUA and that it has “preliminarily approved” some applications, while stressing that this does not constitute “a binding obligation.” The credit unions that have received this preliminary approval are being individually notified by a letter from Treasury, informing them that they have 30 days from the date of notification to execute the standard legal agreements, which are published on Treasury’s website.
Credit unions are being encouraged to have their attorneys review the Treasury documents. The Federation has had pro bono counsel review the Treasury agreements and terms of the program. NCUA has also reviewed the documents to ensure that they do not conflict with NCUA’s statute or regulations.
A legal review of the Senior Subordinated Debt Form is available below; however, credit unions should not regard this informational memo as a substitute for a thorough review by their own attorneys.
(July 5, 2010) The CDFI Fund recently notified credit unions whose CDFI certification had expired and was automatically extended, that they will be required to submit a re-certification application.one condition of receiving the CDCI investments, credit unions are obliged to have a current CDFI Fund certification. Credit unions who were certified several years ago may need to re-certify by July 30.
For credit unions that applied to the Community Development Capital Initiative (CDCI), the CDFI re-certification application must be received by the CDFI Fund by 5:00pm EDT on July 30, 2010.
For credit unions that did NOT apply to the Community Development Capital Initiative (CDCI), the CDFI re-certification application must be received by the CDFI Fund by 5:00pm EDT on August 30, 2010.
CDFI Re-certification Toolkit
To help CDCUs with the re-certification process, the Federation is offering fee-based technical assistance to all credit unions through its CU Breakthrough™ consulting service, and limited free telephone consultations to member CDCUs. Additionally, the Federation has developed an application toolkit with templates to assist credit unions with re-certification. The toolkit is free to members and $150 to non-members. To order a toolkit, please contact Oulga Caesar, Office Manager, at ocaesar@cdcu.coop or (800) 437-8711 x208.
For more information about our certification resources and technical assistance, please contact Melanie Stern atmstern@cdcu.coopor x211, or Brian Gately at bgately@cdcu.coopor x201.
Responding to a request by the Federation, NCUA and the U.S. Department of the Treasury have agreed to modify the viability standards for credit unions applying to the Community Development Capital Initiative.
According to a letter from Tawana James, Director of NCUA’s Office of Small Credit Union Initiatives, “NCUA has adjusted its evaluation criteria with respect to non performing loans... [and the] new formula will give greater weight to LICU’s cushion against delinquencies even in worst-case scenarios… Preliminary review of the latest data indicates that by using NCUA’s new formula, additional LICUs will qualify for CDCI without matching funds,” her letter read.
Based on the results of the new formula, credit unions will be notified if the new standards change their eligibility to participate in the program.
To view NCUA's letter to the Federation on the new "viability" standards, please click here.
Responding to concerns voiced by the Federation, NCUA issued an opinion letter on March 31, recommending that CDCUs requiring a 1-to-1 match for CDCI investments be allowed to apply for terms of either 8 or 13 years.
The opinion letter is in direct response to concerns that CDCUs requiring a match to be considered viable will be challenged to identify outside investors willing to match Treasury's secondary capital investments for terms of 13 years, effectively serving as a barrier for many CDCUs to participate in the program.
NCUA's letter contends that CDCUs should be allowed to apply for funds with terms of 8 or 13 years, with the assertion that any and all Treasury funds could be returned after 2 years.
To read NCUA's Opinion Letter on CDCI Maturity Terms, please click here.
Although the funding and authority for the CDCI is provided by and through the Treasury Department’s Troubled Asset Relief Program (TARP), this is not a “bailout” program and is quite different from other elements of TARP. However, the funding and authority for the CDCI are provided by and through TARP, and so CDFI credit unions and banks must comply with all Treasury guidelines regarding transparency, reporting, and monitoring.
Credit unions participating in the CDCI program will have several compliance issues to deal with. The Federation does not believe that these are terribly burdensome for the great majority of credit unions, or that they should discourage credit unions from participating. In order to provide credit unions with the accurate information, we have assessed these issues and their possible impact on credit unions.
We gratefully acknowledge the guidance that CUNA has given to the Federation. However, this memo is presented for informational purposes only. This is not intended to provide legal advice, and neither the Federation nor CUNA assumes any liability in providing this information. Larger credit unions, in particular, may wish to consult their attorneys if they have further questions. It is our understanding that the Treasury Department may be available to answer specific question addressed to them. On request, the Federation will locate the appropriate Treasury Department staff to which questions may be addressed.
Please note that for the purposes of this memo, certain legal provisions not applicable to credit unions have been omitted. For credit unions that receive over $25 million in CDCI funds, there are additional compensation and corporate governance restrictions. Based on our current information, the Federation believes that few, if any, credit unions will be requesting those amounts; however, please notify us if you are in that group, and we will attempt to provide additional information and support.
To view our memo on executive compensation regulations under CDCI, please click here.
Informal guidance regarding Executive Compensation is available by calling Kurt Slawson at Treasury at (202) 927-9460, or Ms. Pat Geoghegan (pronounced “Gagen”?) at: (202) 927-8729.
Credit Unions with executive compensation and corporate governance compliance questions, can also email: tarp.compliance@do.treas.gov.
Additional resources and the Interim Final Rule on Executive Compensation are available by clicking here.
For reporting requirements, the Use of Capital Survey for CPP can be found by clicking here.
NCUA requires that all credit unions applying for CDCI Funds complete Secondary Capital Plans, regardless of whether they require a match or not. For CDCUs completing Secondary Capital Plans in-house, the Federation has several resources available to assist you:
The Federation has developed several templates to assist credit unions to complete their Secondary Capital Plans. If your credit union is interested in using one of our templates, please contact Pablo DeFilippi at (800) 437-8711 x304 or pablo@cdcu.coop, or Brian Gately at (800) 437-8711 x201 or bgately@cdcu.coop.
NCUA & Federation Community Development Capital Information for CDCUs - On March 4, 2010, National Credit Union Administration (NCUA) Board Chairman Debbie Matz and Federation President/CEO Cliff Rosenthal held a joint audio conference. The call was designed to provide low-income credit unions with specifics about the U.S. Treasury Department’s new Community Development Capital Initiative (CDCI) and was open to low-income designated credit unions interested in applying for secondary capital from the Treasury Department’s Community Development Capital Initiative. The session was attended by over 100 participants, and included information from NCUA, the U.S. Treasury Department, and the Federation. Detailed notes from this call are available by clicking here.
Treasury Department Community Development Capital Informational Conference Call Summary - On February 17, 2010 the CDFI Fund and U.S. Treasury Department’s Office of Financial Stability hosted an informational conference call regarding the Community Development Capital Initiative. Donna Gambrell, Director of the CDFI Fund; Michael Tae, Director of Investments at the Treasury Department's the Office of Financial Stability; and Cliff Rosenthal, President/CEO of the Federation led an information session for credit unions. Detailed notes from the call are available by clicking here.
