In Tough Times, Federation Is Raising the Washington Profile of CDCUs
Leaders from community development credit unions affiliated with the National Federation of CDCUs are pushing the NCUA and the U.S. Treasury to respond with increased understanding and resources to the needs of these financial institutions. The federation has long lobbied on behalf of its members, but the current economic situation facing CDCUs and their members has made it step of its efforts, the National Federation explained.
In meetings with the NCUA and the U.S. Treasury Department's Community Development Financial Institutions Fund, the leaders pressed the NCUA on making the practice of its examinations of CDCU more accurately reflect the agency's stated agenda for the community development credit unions and pressed the Treasury on the percentage of CDFI funds that go to CDCUs.
"The credit union movement, and CDCUs in particular, are under intense stress," said Randy Chambers, chief financial officer of Self Help Credit Union and federation chairman. "It is imperative that CDCUs have increased access to resources and a supportive regulatory environment to survive and grow."
The leaders sought particularly to make sure the NCUA's policy towards low-income credit unions moved more fully and completely through the agency so that all of the NCUA's examiners both knew about it and understood its goals. The NCUA laid out its policy approach and goals toward low-income credit unions in a policy paper in 2005 that it is currently revising, and the CDCU leaders complained that the paper is little known even within the agency.
"We have found that many examiners and supervisors are not even aware of the white paper, much less follow its guidance," said Helen Godfrey-Smith, CEO of Shreveport Federal Credit Union and a member of the federation's Governmental Affairs Committee. "This is a clear example of the disconnect that exists between NCUA board-level policies and actual practice on the ground."
One key issue, the National Federation explained, is that NCUA examiners rarely compared CDCUs to their genuine peers, other CDCUs.
"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," argued Eunice Rodgers, CEO of NRS Community Development Federal Credit Union and former federation chairman.
"Many CDCU members handle all their transactions in person, making a typical CDCU's operations much more labor intensive," she said.
Part of the solution might include having examiners familiarize themselves with the business plans of the CDCUs they are examining in order to better understand their challenges and goals and have a more specific scale against which to measure their progress, the federation suggested.
The federation also pressed the agency to eliminate the rule restricting nonmember deposits to the greater of 20% of assets or $1.5 million without seeking a waiver.
Shirley Spruill, CEO of a $1 million credit union in New Jersey and member of the federation's governmental affairs committee, cited the pressure from her examiner to return deposits at 0% or 1% to supporters, such as Navy Federal FCU and a local bank, in order to raise her net worth ratio and avoid prompt corrective action.
"I refused to do it," Spruill said. "The bank wouldn't understand why we would want to do it, since the deposit helped them comply with the Community Reinvestment Act. "
Federation CEO Cliff Rosenthal added that such an action would engender "reputation risk" for a CDCU, which would be perceived to be an unreliable partner or, worse, an institution at risk of failure.
Deyanira Del Rio, chair of the Lower East Side People's Federal Credit Union and chair of the federation's governmental affairs committee, provided another example of the paperwork burden regulations induced at her CDCU.
"As of March 31 of this year, the assets at Lower East Side People's FCU dropped slightly as a result of the charges related to the corporate meltdown. This left us $7,000 over the approved nonmember deposit limit under Reg Flex, and our CEO had to prepare a waiver request-this for a $22 million credit union. It doesn't make sense."
With the CDFI Fund, the federation responded sharply with the proportion of CDFI funds that have made it to CDCUs, particularly in the last funding round.
"We were stunned by the results of the latest CDFI Fund award round," said Chambers, "when credit unions only received 2% of the total $50 million in funding."
The fund's mandate is to seek both geographic and institutional diversity among its awardees. "The minute share that went to CDCUs-by far the lowest in the fund's history- suggests that something needs fixing," Chambers said. A heavy majority of all funding has always gone to unregulated community development loan funds.
The federation is a founding member of the CDFI Coalition and a strong supporter of the fund but nonetheless, Rosenthal said, there were signs that the fund still does not understand CDCUs. For example, even though the fund says that it has only credit union specialists reading credit union CDFI applications, Rosenthal related that one of the CDCUs whose application was turned down was penalized because it did not explain on its application why it didn't have FDIC insurance.
"We think that financial services are systematically undervalued by the Fund," said Chambers. "There really is no way for a credit union to receive points for the many individuals it serves, the thousands of transactions it executes, the members it saves from paying exorbitant interest to payday lenders or credit cards or debt-trapping overdraft fees or the financial counseling it provides. Incorporating these indicators could change the funding outcome dramatically."
Another alternative suggested by the federation would rank credit unions against credit unions and establish broad guidelines for allocating funding proportionately across the various institutional types-community development credit unions, banks, loan funds, venture funds and micro-enterprise funds.
"We're not suggesting a hard quota but a range of funding for the various sectors so that credit unions might receive between 15% and 25% of the awards in any given year, depending on the quality of applications," suggested Del R?o.
While the meetings were intense, Rosenthal said the federation leaders were "cautiously optimistic" about the eventual outcome.
"I believe we made progress in getting recognition of some of the policies and procedures at both agencies that have been detrimental to CDCUs. We'll be following up and monitoring both NCUA's and the CDFI Fund's actions closely to ensure that the changes we seek are implemented."