A tireless advocate for CDCUs and the low-income communities they serve, the Federation works closely with the NCUA to address examination and compliance issues, and to focus agency resources to help CDCUs and LICUs make a greater impact in their communities.
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NCUA and Treasury's Community Development Capital Initiative (CDCI)
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.
Using returned funds from the Troubled Assets Relief Program (TARP) to support the continued viability, growth and expansion of CDFI-certified depository institutions, the Community Development Capital Initiative (CDCI) is a program of the U.S. Department of the Treasury that made low-interest secondary capital deposits (equity-like subordinated debt, which counts toward their regulatory net worth) in CDFI-certified CDCUs and community develoment banks.
Although funding and authority for the CDCI was provided by and through TARP, this was not a “bailout” program and was quite different from other elements of TARP. However, the funding and authority for the CDCI were provided by and through TARP, so CDFI credit unions and banks that received CDCI funds were also required to comply with TARP guidelines regarding transparency, reporting, and monitoring.
Through the CDCI program, low-income credit unions (LICUs) and community development banks obtained up to 3.5 percent of their assets in low-cost secondary capital, at a rate of two-percent for at least eight years, increasing to nine percent afterwards. Low-income credit unions are the only credit unions with the power to accept secondary capital; however, in order to participate in this initiative, all credit unions must also be certified CDFIs.
Eligibility for the CDCI program was determined by NCUA in conjunction with Treasury, and highly rated credit unions that were well capitalized qualified readily, in the absence of material negative trends. Credit unions that fell below that standard could still qualify for funds if they could obtain matching secondary capital from non-governmental sources.
In addition to extensive outreach with NCUA and Treasury officials on CDCI program parameters, the Federation committed $1 million in secondary capital to serve as match for member CDCUs to receive Treasury Funds.
According to the final numbers released by Treasury on September 30, 84 community development financial institutions received a total of $570 million in secondary capital investments. With 48 recipient institutions, credit unions represented 57% of this total, yet received $70 million or 12% of the total funding. Community Development Banks got most of the CDCI money – but the great majority of it was refinanced from the earlier Capital Purchase Program. In all, only $111 million of the CDCI funding was NEW money, and we’re happy to report that credit unions got the better portion of that. The administration had budgeted $800MM for this program, so plenty was left unclaimed.
For additional information and resources on the CDCI program, please click here.
Serving Low-income Communities: Recommendations for NCUA Examinations
In February 2005 following a series of intensive discussions between CDCU and NCUA leaders, NCUA published its CDCU/LICU Examinations White Paper, which provided guidance to examiners about the unique operating characteristics of credit unions serving low-income memberships. However, many CDCUs reported that examiners and supervisors were not even aware of the White Paper, much less follow its guidance.
A central issue is that CDCUs are routinely compared to credit unions that are not truly their peers. CDCU characteristics differ significantly from the average credit union, and even from other low-income designated credit unions, which are much more likely to have employee payroll deduction groups. Many CDCU members handle all their transactions in person, making many CDCU’s operations much more labor intensive.
In 2006, NCUA released its Member Service Assessment Pilot Program: A Study of Federal Credit Union Service (MSAP). MSAP was compiled in response to a request from the Government Accountability Office and the House Ways and Means Committee.
MSAP recommended that the NCUA:
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Evaluate the effectiveness of NCUA programs focused on assisting low- and moderate-income individuals
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Consider the enhancement and full utilization of the system to monitor federal credit unions receiving benefits under the loan program program
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Consider reassessment of NCUA’s formula for determining if an federal credit union qualifies for low-income designation.
The Federation followed-up NCUA’s study by releasing its own analysis of the MSAP in a white paper titled: Serving Low-income Communities: Recommendations for the NCUA Outreach Task Force.
In its analysis, the Federation found that:
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The current definition of “low-income” does not seem to be broken, so there is no obvious need to either enlarge or restrict it.
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NCUA policies have inappropriately restricted access to capital for low-income credit unions.
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NCUA examination and supervision practices often undermine the goal of expanding credit union services to low-income people.
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The Community Development Revolving Loan Fund (CDRLF) administered by NCUA underperforms because of the structure and permissible uses of funding.
Throughout 2009, the Federation continued to work with NCUA to update its examinations practices for low-income credit unions and CDCUs.
That new guidance, finally released in January 2010 as a Letter to Examiners, provides added weight to the directive, and provides concrete, affirmative direction to examiners working with credit unions serving low-income populations.
The January 2010 CDCU/LICU Examiner Guidance Letter (10-CU-01) is available on NCUA's website at: http://www.ncua.gov/Resources/LettersCreditUnion2010.aspx.
NCUA Holds Corporate Stabilization Webinar Explaining Credit Union Accounting Procedures
On June 24, 2009, the National Credit Union Administration (NCUA) held an informational webinar to help credit unions understand what their accounting options and procedures would be under the Corporate Credit Union Stabilization proposal.
The primary webinar presenters included Melinda Love from NCUA's Office of Examination and Insurance, Scott Hunt from the Office of Corporate Credit Unions, and Karen Kelbly, NCUA’s chief accountant. NCUA Chairman Michael Fryzel welcomed webinar attendees. Presentations lasted about an hour, with a question-and-answer period for another hour.
A summary of the webinar, compiled from notes taken by Brian Gately, Federation Director of Technical Assistance, is available by clicking here.
NCUA's PowerPoint presentation from the webinar can be accessed by clicking here.
NCUA's Credit Union System Investment Program
In December 2008, NCUA issued guidelines to help the credit union system through the Credit Union System Investment Program (CU SIP). CU SIP is a monthly recurring program aimed at helping the credit union system help its members weather the national economic crisis. The CLF, Central Liquidity Facility, normally cannot help credit unions except for shorter term liquidity needs, per law. However, the law does provide for some exceptions, and this crisis is one of them.
What NCUA is intending is to help the corporate credit unions and stressed homeowners, but by law, the CLF cannot lend to corporates directly, only natural person credit unions. Because of this, NCUA is using natural person credit unions as a vehicle to help the corporates with liquidity and to help stressed homeowners with their loans, while at the same time providing natural person credit unions with some incentives.
For a full explanation, please visit www.ncua.gov, click on the CLF radio button on the left hand side, and you’ll have direct access to information about this program.
To learn more about these programs, please read our entire Q&A by clicking here
