Much Confusion Reigns as Credit Unions Evaluate the CDCI TARP Funding Offer
The deadline for having at least started the process for accessing money under the U.S. Treasury's Community Development Capital Initiative program is rapidly approaching, but it appears that a relatively few credit unions have filed their first paperwork.
As of a March 19 conference call and Web event on the program sponsored by the National Federation of Community Development Credit Unions, only 26 CDCUs had filed the paperwork to start the process. A more up to date number was not available as of press time.
The CDCI program is an U.S. Treasury Department initiative that will lend community development financial institutions, including credit unions, money at very low interest rates. The CDCUs can use this money, which comes from the Troubled Asset Relief Program, to supplement their capital funds. Credit unions that have been certified as CDFIs by the Treasury Department's CDFI Fund and have been recognized as low-income credit unions by the NCUA are eligible to participate.
There are a number of reasons many credit unions have not been applying, according to the National Federation.
First, in the beginning, a number of CDCUs didn't understand the nature of the opportunity that the loans offered, according to National Federation CEO Clifford Rosenthal. Many CDCUs didn't understand secondary capital or what it could for their organization, Rosenthal explained. But even after the federation explained the program and the difference the money could make in helping CDCUs, the program has been troubled by a number of problems that have arisen as part of a new program that is being administered from a couple of different agencies, Rosenthal said.
Part of the NCUA's role in the program's administration is to evaluate applying CDCUs and determine which ones are "viable." It forwards those to the Treasury for approval. CDCUs that are not found to be "viable" can still participate but will need to find a private industry organization or foundation willing to lend it half of the money the NCUA said it would need to be viable. The Treasury will make up the other half with another low interest loan.
A number of problems have arisen from this process.
First, in early March the NCUA sent letters out to credit unions that are both certified CDFIs and recognized as low-income. These credit unions were eligible for the program from the first, as compared to other CDCUs that might need to become certified CDFI's or get recognized as low-income to participate.
The letters were meant to let them know whether they would likely be considered "viable" for program purposes, Rosenthal said, but a number of letters erroneously told credit unions they would need to find match funding when they actually did not and that sowed some confusion.
In addition, while the NCUA has indicated in broad term what it uses to determine which CUs are deemed viable, but agency officials on program conference calls have not been able to give many specifics, so the actual process has not been entirely transparent, Rosenthal observed.
There have been problems from Treasury as well. The CDFI Fund's Web site went down for over a week, Rosenthal said, just when many CDCUs were wending their way through the process of becoming certified CDFIs. Further, Treasury has not been well prepared for some of the questions that CDCUs have posed about the program. For example, it's still not clear as whether participating credit unions will be able to obtain CDCI money for fewer than the full 13 years it is available. This is particularly important for CDCUs that have to come up with a matching loan to be considered viable. Few organizations or foundations would be as interested in sinking funds into a loan to a CDCU for as long as 13 years.
Rosenthal stressed that the federation did not blame either the NCUA or the Treasury for the problems. "We don't think there has been any ill will on the part of any of these agencies," Rosenthal said. "This is a new program that involves two agencies and the Treasury is really not familiar with credit unions at all," he added.