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Prelude: Before the Federation
In the 1960s Americans found that an unprecedented wave of prosperity was not enough to lift millions of citizens out of grinding poverty. In 1964, President Lyndon Johnson declared an unconditional War on Poverty and mobilized the federal government to fight this war on many fronts, one of which was the battle for affordable, equitable access to credit.
Since 1908, credit unions had served “people of modest means” in the U.S. Now, for the first time, they became an instrument of anti-poverty policy, coordinated by the new federal Office of Economic Opportunity. Starting in mid-sixties, the OEO fostered hundreds of new credit unions, often linked to local anti-poverty organizations, known as Community Action Agencies. But without sufficient resources, technical support, or realistic business plans, by 1970 many of these fledgling institutions failed.
The survivors regrouped to fight another critical battle. In 1970, legislation to provide deposit insurance for credit unions was making its way through Congress. The proposed financial requirements would have excluded credit unions serving empoverished communities, thus consigning them to certain death. But an informal coalition of “limited-income” credit unions, aided by the OEO, successfully fought to be included under the deposit insurance program. Their victory set the stage for the emergence of the Federation.
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The Seventies: Birth of the Federation
Building upon their success, in the spring of 1974, the coalition created a permanent national organization to fight for their interests. Instead of the “Federation of Limited-Income Credit Unions,” they chose a new name to capture their shared mission and aspirations. The term “community development credit union,” or “CDCU” was introduced, to the credit union vocabulary, and in July of that year, the Federation of Limited Income Credit Unions became the National Federation of Community Development Credit Unions.
After the setbacks of the OEO experiment, the Federation needed a new, compelling vision to restore credit unions to a role in the fight against poverty. That vision was captured in a 1975 master plan, popularly called the Blue Book, after its cover. The Blue Book called for the federal government to invest $18 million to strengthen CDCUs by providing comprehensive technical and financial support. This new fund, managed by the Federation, would implement programs for capital infusion, minimal subsidy, and acquisition of data processing capability designed to strengthen and expand services of recipient credit unions.
The campaign for this fund occupied the Federation for the remainder of the decade. Under the supportive administration of President Jimmy Carter, the Federation won a small grant in 1977, enabling it to hire its first paid director, Jim Clark. By 1979, the Federation and its allies had won a victory with the passage of P.L. 96-123, which established the Community Development Revolving Loan Program (CDRLP) for Credit Unions. It was a mixed victory, however. Whereas the Federation had called for an $18-million fund to be managed by the CDCU movement, Congress appropriated only $6 million, and gave control to the National Credit Union Administration the federal regulator and insurer of credit unions and the Community Services Administration, successor to the OEO.
Despite these disappointments, the Federation ended the decade on a note of triumph. By 1980, 33 CDCUs were selected to receive low-cost deposits from the new CDRLP. The Federation won federal funding to provide technical assistance to the CDCUs in the fledgling program, and expanded its office staff to ten. There was much reason for hope -- but the dawn of a new decade left little time to savor the movement's success.
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The 80s: The Decline and Rise of the Federation
"As we come together for the Federation’s Sixth Annual Meeting, once again CDCUs are faced with a grim and uncertain future. The recently enacted budget cutbacks will have a devastating effect on the lives of the poor people throughout the country. ... CDCUs, since their memberships are comprised mainly of low-income individuals, will be adversely affected. . .. Survival once again becomes the key word." - Federation President Al Alayon at NFCDCU’s 6th Annual Meeting (November 1981)
In November 1980, Ronald Reagan defeated Jimmy Carter in an electoral landslide. Within the year, the Reagan Administration began dismantling federal programs for the poor. The Community Services Administration was replaced by the Office of Community Services (OCS) in the Department of Health and Human Services, which was charged not with advocating for the poor, but rather with cutting anti-poverty programs.
The Community Development Revolving Loan Program was virtually suspended. At the same time, federal funding for the anti-poverty Community Action Agencies dried up, depriving many CDCUs of the vital sponsorship they had enjoyed . The Federation's own federal funding expired; its staff of 13 was laid off; and the Federation's office was closed. A part-time, skeleton operation was maintained at the home of staff member Clifford Rosenthal, who became the uncompensated executive director in April 1983 when Jim Clark left the organization. The Federation's membership shrank by almost half, to less than 60 credit unions.
The Birth of the Capitalization Program
Despite the bleak outlook, the Federation planted the seeds for rebirth. In 1982, the Federation's leadership gathered at a rustic, state-owned retreat in Pacific Grove, California to plan for a new capital source, looking not to government but to the private sector. The Capitalization Program for CDCUs was born that fall, thanks to a $30,000 loan from the Adrian Dominican Sisters, one of a small, dedicated group of social investors. Thus, the Federation became one of the first national “community development financial intermediaries in the United States specialized nonprofits that gather investments from foundations, religious organizations, banks, and government to channel into local community development organizations.
Rebuilding the Federation in the 1980s was a slow, challenging task. It began with small grants from several New York City foundations, which enabled the Federation to reopen its office and resume paying staff. Annie Vamper, a former credit union manager and NCUA staff member, joined Executive Director Clifford Rosenthal; on the two-person staff, her duties included providing technical assistance to CDCUs and serving as the Federation's financial officer.
Diversification became the Federation's strategy for survival. The Federation continued its public-sector advocacy, while stepping up its approach to the private sector. It continued to work nationally but initiated local programs near its New York headquarters. By the second half of the decade, this strategy would bear fruit.
Progress in Washington
The Federation labored for much of the decade to revive the suspended federal Community Development Revolving Loan Program. By 1987, the Federation's advocacy made possible the transfer of the program from the inhospitable Office of Community Services to the National Credit Union Administration. But it took two more years before Congress ordered the release of CDRLP funds.
Meanwhile, the Federation had found new allies among Reagan Administration officials. Intrigued by the self-help approach of CDCUs, the White House Low-Income Opportunity Board invited the Federation to prepare a study of the CDCU movement. On December 17, 1986, the Federation released An Analysis of the Role of Credit Unions in Capital Formation and Investment in Low- and Moderate-Income Communities. The study did not produce federal funding, but the Federation benefited greatly from increased recognition. Like the Blue Book of 1974, the new study laid out a program for national policies to support CDCUs. One of the Federation’s most ambitious recommendations was to establish a “national neighborhood banking corporation” to support community-based financial services. This goal would be realized in 1994 with the establishment of the Community Development Financial Institutions Fund.
A Local “Laboratory”
In the eighties, the Federation made New York City the testing ground for new programs and advocacy strategies. Like many other urban and rural areas in the early 1980s, New York City had suffered an epidemic of bank branch closings resulting from sky-high interest rates and the advent of the automated teller machine. The Federation responded with a number of initiatives aimed at highlighting the role of CDCUs in providing financial services and promoting economic development. It helped community groups organize new CDCUs in New York , Chicago, Vermont, and elsewhere. To demonstrate the role of CDCUs in promoting employment, it created a model Community Credit Union Job Training Program. To expand CDCU housing lending, the Federation created an innovative loan participation syndicate, through which credit unions combined their resources to finance a multi-family low-income housing cooperative. At the end of the decade, the Federation established a program to support business lending by CDCUs.
The Capitalization Program Takes Off
In 1986, the Federation’s Capitalization Program emerged as the driving force for the Federation’s financial growth. That year, the program grew from barely $100,000 in assets under management to nearly $1 million, thanks to major new investments by the John D. and Catherine T. MacArthur Foundation and the Seton Enablement Fund. Over the next three years, major investments flowed in from the Presbyterian Church (USA) Foundation and Chemical Bank. By the end of the decade, the Federation raised its investments in individual CDCUs to the insured maximum of $100,000.
New challenges arose on the regulatory front, however. In November 1988, following a high-profile scandal at a credit union in Omaha, Nebraska, NCUA issued emergency regulations limiting the amount of outside, or “non-member,” deposits a low-income credit union could raise. NCUA began an extensive purge of its roster of low-income credit unions, reducing the number of officially designated credit unions from 325 to 195.
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The Nineties: Fulfilling the Promise
The nineties would see near-exponential growth of the Federation Bmore capital raised, more programs launched, a doubling of membership, and greater advocacy successes than the Federation had ever enjoyed.
But the decade of promise began under a cloud. On May 19, 1990, the Federation's Associate Director Annie Vamper died at the age of 57, after a lingering illness. On the regulatory front, NCUA, the agency she had once worked for, seemed bent on eliminating CDCUs. By 1992 the number of low-income-designated credit unions sank to an all-time low of 142. Mergers and forced liquidations became ever more common, and no CDCUs were chartered in 1990, 1991 or 1992. The agency did reinstitute the Community Development Revolving Loan Program -- a bright spot, but only a small one.
Facing an uphill battle in Washington, the Federation strengthened its strategic alliance with the leading trade organization of the overall credit union movement, the Credit Union National Association (CUNA). CDCUs participated energetically in CUNA's Operation Grassroots, to preserve the tax exemption of credit unions, and the Federation played an increasingly visible role in CUNA's activities. CUNA substantially increased its support to the Federation, enabling it to expand its capacity and initiate new programs.
Building CDCU Network
Throughout the nineties, the Federation augmented its overall national strategy by promoting networks among groups of CDCUs sharing distinctive characteristics.
With funding from the Ford Foundation, the Federation established regional networks of CDCUs in North Carolina , Philadelphia, Chicago, and New York . In 1990, the Federation launched its Faith-based Credit Union Network in New York City with a grant from Trinity Church. A year later, it went national with support from the Ford Foundation, and in March 1992, the Federation convened the first-ever National Faith-based Credit Union Conference, an event that would be successfully repeated throughout the 1990s.
Early in the 1990s, the Federation facilitated the emergence of a network of youth programs among CDCUs. These projects, from Massachusetts to Mississippi to Washington State, taught young people about credit union operations, promoted financial literacy, and developed leadership skills in low-income communities. Finally, in the mid-1990s, the Federation initiated a network for Latino credit unions, which followed in the path of the faith-based credit unions by convening a groundbreaking national conference in 1999 in San Antonio , Texas.
Expanding Human Resources for CDCUs
For CDCUs eager to expand their impact but constrained by their small staffs, the Federation developed a new pool of resources in the 1990s, thanks to the Corporation for National and Community Service. The Federation became a national program sponsor of AmeriCorps* VISTA – the “domestic Peace Corps,” a federal service program aimed at alleviating poverty and strengthening low-income communities. Starting in 1992, the Federation supplied dozens of VISTA volunteers annually to CDCUs around the country, helping them their financial education, marketing, volunteer recruitment, microenterprise, Individual Development Account (IDA), and other programs.
The CDFI Era
One of the Federation's greatest advocacy triumphs came in September 1994, when the Community Development Financial Institutions (CDFI) Fund was signed into law by President Bill Clinton, its biggest supporter. The Federation had pressed for such a fund since the mid-eighties. In 1990, it helped assemble a group of community development credit unions, loan funds, and banks that later became known as the Coalition of Community Development Financial Institutions. This coalition led the fight to establish the CDFI Fund.
The CDFI Fund made its first investments in 1996. Over the next few years, it provided millions of dollars in grants and deposits to CDCUs and to the Federation itself. CDFI Fund awards enabled CDCUs to establish new branches, add new products and services, upgrade their technology, and dramatically increase their net worth. The Fund's support fueled the dramatic growth of the Federation's Capitalization Program and helped launch the CDCU Institute™.
A Full-Service Capitalization Program for CDCUs
While the Capitalization Program grew substantially in size through 1995, it could only provide CDCUs with federally insured deposits. That changed dramatically in the second half of the nineties: Aided by major grants from the Ford Foundation, the CDFI Fund, and the Citigroup Foundation, the Federation transformed the Capitalization Program into a virtual one-stop shop for CDCUs, adding jumbo deposits, net-worth grants, IDA matching grants, microenterprise collateralization deposits, and more to its product menu. The Federation's assets grew to $16.1 million by the end of the decade, supported by net worth of nearly $4.9 million, enabling it to manage a new high-risk, high-impact investment in CDCUs: secondary capital.
The Federation successfully advocated with NCUA to introduce secondary capital to the credit union movement in 1996. As permitted by NCUA, secondary capital is long-term, deeply subordinated debt that temporarily boosts the net worth of a credit union as it works to generate additional primary capital. Secondary capital enables credit unions to grow far quicker than internal generation of earnings would otherwise permit. By NCUA regulation, secondary capital is available only to low-income credit unions.
CUMAA and Prompt Corrective Action
Secondary capital became an important defensive tool for CDCUs, as well an aid to growth, with the passage of the Credit Union Membership Access Act of 1998 (known as “CUMAA,” or H.R. 1151). While permitting credit unions to expand their membership broadly, this legislation had a major downside: It imposed mandatory capital (net worth) standards on credit unions for the first time. Credit unions that slip below a net-worth ratio of six-percent face prompt corrective action," (PCA), a series of progressively harsh regulatory sanctions. PCA poses particular threats to CDCUs, which typically find it hard to generate surplus internally because of their labor-intensive, high-risk, low-income market. To counteract the PCA threat, the Federation won legislative language that permitted low-income credit unions to count secondary capital toward their net-worth requirement. In recent years, the Federation’s secondary capital investments in CDCUs have promoted growth and spared many CDCUs debilitating PCA sanctions.
Throughout the Clinton Administration, NCUA was headed by Chairman Norman D'Amours. The former New Hampshire congressman, appointed to NCUA in 1993, was a strong advocate of expanding credit union service to low-income communities. Under his leadership, NCUA reversed the population decline of low-income credit unions; the number of credit unions designated as low-income by NCUA grew by hundreds, even though very few new credit unions actually were chartered. At the same time, D'Amours vigorously pressed the overall credit union movement to expand its service to low-income communities. While the Federation supported the goals of his initiative, the confrontational style of D'Amours polarized the credit union movement and in fact hindered progress.
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Entering the 21st Century: A Five-Year Retrospective
As the Federation began its second quarter-century in 1999, its vital signs were stronger than at any point in its history. That strength was sorely tested in the following years.
1999: The Anniversary Year
The Federation celebrated its twenty-fifth anniversary with a yearlong series of new programs and special events.
In April, thirty-two CDCU officials from across the country traveled to Manchester, New Hampshire to inaugurate the Community Development Credit Union Institute™. Two years in the planning, the CDCU Institute™ was the most ambitious educational program in Federation history. Its curriculum covered credit union operations, financial management, strategic planning, human resources, community economic development, and more; students were required to spend a week each spring and fall for three years at Southern New Hampshire University’s School of Community Economic Development. Also partnering with the Federation was CUNA’s Center for Professional Development.
Worldview: The Twenty-Fifth Anniversary Meeting of the Federation was the signature event of the year. Held in June at the VISTA Hotel at the World Trade Center in New York City, it was the largest gathering in Federation history, bringing together 500 CDCU leaders, supporters, and colleagues. Reflecting the Federation’s expanding global interests, the meeting attracted credit union representatives from Kenya, Jamaica, the United Kingdom, Australia, and Canada. Famed consumer advocate Ralph Nader, Reverend Jesse Jackson, Ford Foundation leader Melvin Oliver, Martin Eakes, CEO of the Center for Community Self-Help in North Carolina, top NCUA officials, and other national figures highlighted the meeting. To commemorate the event, the Federation premiered Dollar by Dollar: A Video History of the CDCU Movement, a documentary drawn from the recollections and vision of dozens of leaders of the CDCU movement.
The Federation’s anniversary year culminated in November with the First Latino Credit Union Conference, held in San Antonio, Texas. The conference convened CDCUs, other U.S. credit unions with significant Latino membership, and participants from Mexico, Puerto Rico, Central America and South America. The bilingual program addressed demographics, bicultural marketing, service to non-citizens, financial education, international money transfers, and other issues for credit unions serving the Latino market. The first event of its kind on U.S. soil, the conference greatly elevated the visibility of Latino issues within the U.S. credit union movement.
2000: Greeting the New Millennium
2000: Greeting the New MillenniumIn hindsight, it is difficult to recall the apprehension that preceded “Y2K.” There was widespread fear of catastrophic failures in all computer-dependent systems, potentially accompanied by terrorism. But with few exceptions, the new millennium dawned uneventfully for CDCUs and the credit union movement. For the Federation, following a year of unparalleled activity, Y2K was a year to consolidate recent initiatives and redouble its advocacy, especially with respect to the CDFI Fund.
The Federation had strongly supported the creation of the federal CDFI Fund. However, in its first few years, the Fund supported disappointingly few CDCUs. To help credit unions obtain the funds they needed to grow, the Federation led a successful fight to create the “Small and Emerging CDFI” program, or SECA. Prompted by Congressional pressure, the CDFI Fund officially announced the creation of SECA in November 2000. The number of CDCUs obtaining funds increased significantly a year later to 25.
The new century also brought a new regulatory framework for credit unions. In August 2000, the phase-in of mandatory capital standards and “Prompt Corrective Action” (PCA) began. As credit union regulators prepared to implement PCA, the Federation’s focus shifted to educating credit unions, assisting them with “net-worth restoration plans” and, in some instances, supplying secondary and primary capital to help CDCUs meet the new standards.
2001: Surviving Tragedy
The Federation began 2001 with an ambitious agenda. In January, with support from the CDFI Fund, Federation staff began traveling the country to conduct a series of regional seminars. Over the next two years the Federation would train hundreds of staff of CDCUs, trade associations and loan funds in market analysis, community lending, and financial projections. These seminars helped CDCUs to gain access to capital both from federal and private sources.
The Federation’s faith-based credit unions – one-third of its membership – acquired new prominence in 2001. Shortly after its inauguration, the Bush Administration established the White House Office of Faith-Based and Community Initiatives. The Federation’s staff and Chairman, Rita Haynes, met with this office to put faith-based CDCUs on the Administration’s radar. Later that year, the Federation expanded its decade-old faith-based program by launching its “Harlem Plugged” project for credit unions founded by African-American congregations in New York City.
In 2001 the Federation added its first research department. The Federation joined with representatives of community development banks, loan funds, venture capital funds, and microenterprise lenders to launch the most comprehensive research effort in the history of the CDFI movement, the CDFI Data Project. Through annual surveys, the project began to document the scope and collective impact of CDFIs. Since 2001, the Federation has gathered and analyzed data about the overall CDCU movement, and prepared in-depth analyses detailing the distinctive characteristics of faith-based CDCUs, rural and urban credit unions, and CDCUs of varying age.
September 11, 2001 brought a great and awful divide in American history. Located a few short blocks away from the World Trade Center, the Federation’s offices were enveloped by the debris of the collapsing towers. Although the Federation’s staff escaped physical harm, its operations were seriously disrupted for weeks. For months afterwards, reporting to work at the Federation meant a lengthy, stressful journey, ending with a grim walk through the scarred streets of lower Manhattan, breathing air tainted by the smoldering ruins.
Despite the difficulties in travel and communication following September 11, the CDCU movement quickly demonstrated its resilience. In October, the Federation proudly held the first graduation ceremony for the CDCU Institute™ at Southern New Hampshire University. In early November, CDCUs reaffirmed their commitment by traveling to Birmingham, Alabama for the Fourth National Faith-Based Credit Union Conference.
2002: The Struggle for Recovery
As the new year began, the Federation battled to regain a sense of normalcy. But the economy, already faltering before September 11, staggered deeper into recession. CDCUs experienced tremendous economic pressure, as rising unemployment and declining interest rates squeezed operating margins. The private-sector funders of community development struggled to meet extraordinary new demands with shrinking charitable budgets.
The Federation pressed forward. Its Second National Latino Credit Union Conference, held in San Diego, California in April, broke new ground for the Federation: an appearance by a Cabinet official, Secretary Mel Martinez of the U.S. Department of Housing and Urban Development (HUD). At the conference, Secretary Martinez announced a HUD/Federation collaboration to curb predatory lending, promote home ownership, and improve the drastically substandard living conditions in the colonias – rural communities near the U.S./Mexico border.
In October, the Federation rolled out a new national financial-literacy campaign, with the support of the American Express Economic Independence Fund. The campaign was launched with the first-ever Financial Literacy Day in New York City, keynoted by NCUA board member Deborah Matz. Using Your Path to Financial Freedom, a curriculum developed for the Federation by the National Endowment for Financial Education (NEFE), the Federation began training volunteer financial-literacy instructors working with credit unions across the United States.
The Federation’s Capitalization Program expanded in size and diversification in 2002. A $3-million investment by the Ford Foundation enabled the Federation to introduce a new product to help CDCUs fight predatory lending, its Predatory Relief and Intervention Deposits™, or PRIDEs™. The federal CDFI Fund provided a $2-million grant and loan package to support PRIDEs™, secondary capital, and a new technology grant program. These major investments reinforced the Federation’s reserves and enhanced its ability to support CDCUs in new ways.
2003: Regaining Momentum
Although the scars of 9-11 remained and dislocations persisted in 2003, the Federation stepped up its advocacy, added new capital products for CDCUs, and launched new programs.
The CDFI Fund once again demanded the Federation’s attention. Among all of the Fund’s programs, SECA -- the Small and Emerging CDFI Assistance program -- had proven the most accessible to CDCUs, but the Fund abruptly eliminated it in its 2003 round. Working with the CDFI Coalition, which Federation Executive Director Cliff Rosenthal chaired, the Federation fought successfully to revive SECA. Congress also restored $10 million in CDFI Fund appropriations that had been slated for cuts by the Bush Administration.
The Federation implemented its new technology grant program in 2003. Initially focused on the needs of small credit unions, the Federation invested nearly a quarter-million dollars in grants to 19 CDCUs. The grants enabled CDCUs to expand their lending, upgrade software, add new technology such as audio response units, and generally enhance the quality and quantity of services to low-income communities. In total, the Federation’s Capitalization Program invested nearly $4 million in CDCUs during 2003, as deposits, equity-like secondary capital, Individual Development Account (IDA) matching grants, and anti-predatory PRIDEs™.
The Federation’s financial literacy campaign, Each One, Teach Many expanded broadly in 2003. Federation staff trained credit union officials from New Jersey to Hawaii. The Federation’s Financial Literacy Day in New York City became institutionalized as an annual event; in October, the Federation used the occasion to formalize collaboration with the Internal Revenue Service to promote the Earned Income Tax Credit (EITC) by low-wage workers nationwide. Held at St. Mark’s FCU, a sixty-year old institution in Harlem, the Federation’s second Financial Literacy Day brought together an impressively diverse group of CDCU officials and volunteers, a bank CEO, the NCUA chairman, banking regulators, and community groups in the common cause of promoting financial literacy and fighting financial predators.
In 2003 the Federation introduced an ambitious new strategy to expand the scope of the CDCU movement: the Community Development Partners program. This initiative aims to ally CDCUs with large, high-capacity “mainstream” credit unions, in order to extend credit union service much more broadly in low-income communities. In a historic press conference at CUNA’s Governmental Affairs Conference on February 24, 2004, the Federation introduced its first twelve Community Development Partners, which serve a combined 4.6 million members and account for $42 billion in credit union assets. The Federation announced its goals of developing new products, opening new delivery channels, and documenting best practices for serving the low-income market.
Purchasing a home is an important means for low-income people to begin building wealth and breaking the cycle of poverty. However, many CDCUs have limited capacity to originate mortgages and hold them in their portfolios – especially if the mortgages are not to borrowers with high credit scores. To address this issue, the Federation announced its plans for the CDCU Mortgage Center™ in 2003. The CDCU Mortgage Center™ is a multi-faceted strategy that will provide access to state-of-the-art automated underwriting; build the capacity of CDCUs to originate mortgage loans and provide home ownership counseling to their members; and help CDCUs to expand the market for loans to borrowers who cannot qualify for prime rates.
In 2003, the Federation entered a new partnership to address the needs of people with disabilities, who are heavily represented in low-income communities. Research has shown that people with disabilities are disproportionately unbanked, vulnerable to predatory lenders, and hampered by government restrictions on building their assets. To address these challenges, the Federation joined with leading advocates for the disability community in a five-year campaign funded by the U.S. Department of Education, the Asset Accumulation and Tax Policy Project. Over the next five years, the Federation will help CDCUs expand their products and services for people with disabilities; form links with local organizations that serve people with disabilities; and expand its financial education campaign to include information specific to the needs of people with disabilities.
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