Treasury Program to Help CDCUs Expand Assistance to America’s Main Streets

(September 30, 2010 – New York, NY)  Eight months after its launch by Secretary of the Treasury Geithner on February 3, the U.S. Department of the Treasury’s Community Development Capital Initiative (CDCI) has invested nearly $70 million in financial institutions that specialize in serving low-income and disadvantaged communities.  The program targeted community development credit unions (CDCUs) and community development banks that are certified by the U.S. Department of the Treasury Community Development Financial Institutions (CDFI) Fund.

A co-founder and leader of the CDFI movement, the Federation represents more than 230 CDCUs nationwide. The Federation and its allies in the CDFI movement worked closely with the Treasury Department throughout 2009 and early 2010 on the development of the CDCI program.  Since the program launch in February, the Federation provided intensive technical assistance and support to over one-hundred credit unions applying for CDFI certification and CDCI funding. During this process, the Federation worked closely with NCUA, the CDFI Fund and the Treasury Department on ways to structure the investments to generate the most impact for CDCUs and the communities they serve.

“The Treasury Department’s CDCI is a milestone in the history of the CDCU movement,” said  Federation President/CEO Clifford N. Rosenthal. “The Federation has worked for more than two decades to win support for credit unions that serve low-income communities across the country. The establishment of the CDFI Fund in 1994 was a great victory. This is another. The Community Development Capital Initiative will strengthen credit unions and enable them to expand services to low-income communities at a critical time in our nation’s recovery,” he added.

The Federation also announced a telephone press briefing to be held on Friday, October 1, at 12:15pm Eastern Daylight Time.  The Federation will provide an analysis of CDCI awards, as well as comments on the process and expected impact of Treasury’s investments on CDCUs.  To join the conference call, dial: (800) 567-5900, then enter the following access code: 404451.

Understanding Treasury’s CDCI Investments

Although the funding and authority for CDCI is provided by and through the Treasury Department’s Troubled Asset Relief Program (TARP), this should not be considered by any means a “bailout” program, Rosenthal stressed. “Credit union applicants were subjected to rigorous review by the National Credit Union Administration (NCUA), the Treasury Department, and the CDFI Fund to ensure that they are both financially viable and are focused on serving low-income communities,” he noted. CDCI awards are not grants, but  rather  secondary capital loans, which for low-income credit unions are classified as net worth, subject to certain conditions, on their balance sheets. Secondary capital is vital for low-income credit unions, because they – like other credit unions – lack the power enjoyed by banks to build capital by selling stock.

Eligible credit unions were allowed to apply for up to 3.5% of their total assets, or $35,000 in secondary capital for every million in assets. The basic structure of the investments made to CDCUs through this program includes a rate of two-percent for the first eight years, escalating to nine-percent for an additional five years, should credit unions choose to retain the loans. “We expect that most participating credit unions will repay the loan by the eight-year mark, if not earlier,” Rosenthal said.

Small and Mid-Sized Credit Unions Benefit

Among the recipients of the loans were some of the smallest credit unions in the country, with assets of $1 million or less. The largest credit unions that participated had several hundred million in assets, less than most of the nation’s banks. Additionally, all the CDCU recipients were required to have both low-income designation from their credit union regulator and CDFI certification from the Community Development Financial Institutions Fund.

“Making this program a success took a lot of hard work from the Treasury Department, the CDFI Fund, and NCUA,” Rosenthal said. “The statutory constraints governing TARP unfortunately limited participation. But we appreciate everything the federal agencies did to make this program available even to some of the smallest, most resource-poor credit unions in the country.”  

Apart from the intensive technical assistance provided by the Federation’s staff, invaluable legal assistance with the loan closings was provided by a number of pro bono attorneys throughout the country. “The Lawyers Alliance of New York City was enormously helpful in connecting our CDCUs nationwide with attorneys that could review the closing materials,” Rosenthal said. “We don’t believe the CDCI program could have succeeded without their help.”  

Hope Federal Credit Union (Jackson, MS), a $129 million-in-assets CDCU, serving nearly 24,000 members across Missisippi, Arkansas, Louisiana, and Tennessee, was the first CDCU to be approved for CDCI funds.  Hope FCU CEO Bill Bynum called the investment a breakthrough for low-income communities. “By investing in credit unions and other community development financial institutions, Treasury is supporting a key segment of the nation’s finance sector,” he said. “Hope [FCU] has experienced steady increase in demand for credit over recent years as many traditional lenders have restricted their lending. The Administration and Congress are to be saluted for helping to insure that the nation’s hardest hit communities have access to the financing needed to stimulate economic recovery.”

Genesee Co-op Federal Credit Union, a $9.5 million-in-assets CDCU, based in Rochester, NY, was also among the first round of CDCUs to close on CDCI funds. According to CEO Melissa Marquez, the credit union decided to participate in the program precisely to address the issue of growth.  

“CDCI secondary capital is making it possible for our community development credit union to grow,” she said.  “Without this investment, Genesee Co-op FCU was trying to shed deposits, making it more difficult to lend since our loans-to-shares were already at 80%. The $300,000 we received in CDCI secondary capital enables us to serve more members and reach out to other underserved neighborhoods in our community. We can increase our deposits and make affordable loans because our net worth is stronger as a result of this infusion of secondary capital. We are truly grateful to the Federation for working closely with Treasury throughout this entire process and helping our credit union to secure this much needed assistance!”

The list of CDCI awards is available below: