Credit Unions Counter Trump's CDFI Cuts
Cheryl Fatnassi considers it a success when a small business owner outgrows the Opportunities Credit Union she heads in rural Vermont.
As a community development credit union, her institution helps business owners start their companies. “A lot of financial institutions don't do start-up loans anymore because they’re not profitable,” Fatnassi, the credit union's president/CEO, said.
But using funds provided through the Community Development Financial Institutions program, Opportunities can make those loans, with the hope that one day, the business owners will need the financial services and resources that only a larger institution can provide.
Headquartered in Winooski, Vt., Opportunities has assets of more than $37 million.
Fantassi's institution is not alone in the way it uses the CDFI program. The National Federation of Community Development Credit Unions estimates that for every $1 of public funds, CDFI credit unions leverage at least $12 of private capital.
However, the Trump Administration has proposed killing the CDFI program as part of its effort to decrease funding for domestic programs in favor of a large boost in defense spending.
“It will be very tragic if, during the next four years, this program goes away,” Fantassi said.
Established in the Riegle Community Development and Regulatory Improvement Act of 1994, the CDFIs are designed to encourage private investment, and the supply of capital, credit and other development services in economically distressed areas.
The CDFI provides money for financial assistance and technical assistance in areas where there is a shortage of affordable financial services.
In a 2014 report, the Congressional Research Service reported that the financial products include “mortgage financing for low-income and first-time homebuyers and not-for-profit developers, flexible underwriting and risk capital for needed community facilities, technical assistance, and commercial loans and investments to small start-up or expanding businesses in low-income areas.”
Last year, the Obama Administration reported that for the FY2015 funding round, the program received 356 qualified applications asking for more than $435 million in funding.
“The CDFI Fund is uniquely positioned as the federal government entity whose primary mission is to build the capacity of CDFIs to provide loans, investments, business counseling, basic banking services, and financial literacy training to underserved and distressed communities,” the Obama Administration said at the time.
That's not the case, the Trump Administration said, in explaining why it favors folding the program.
“The CDFI Fund was created more than 20 years ago to jump-start a now mature industry where private institutions have ready access to the capital needed to extend credit and provide financial services to underserved community,” the Trump Administration said in its budget.
However, the CDFI Coalition, consisting of all types of community development financial institutions, said the cut would hurt those areas that the administration has promised to help.
“While it is true that CDFIs have succeeded in building up businesses, creating jobs in communities dealing with downturned economies and a lack of investment, it is plainly obvious that the job is not done,” coalition spokesman Bob Rapoza said.
The coalition's president agreed.
“The communities that receive financial assistance through the CDFI Fund are precisely the communities the administration seeks to help, including hollowed out inner-city neighborhoods and economically distressed rural communities,” James Klein, president of the CDFI Coalition, said.
The president of the federation representing community development credit unions said that the administration's budget also would affect another administration priority.
“The administration's dramatic reduction of funding to the CDFI Fund will negatively impact its stated goal to invest in America's infrastructure,” Cathie Mahon, CEO of the National Federation of Community Development Credit Unions. “CDFIs are one of the most effective mechanisms to channel capital into under-resourced communities.”
The federation represents more than 280 credit unions that are certified as CDFIs. They serve more than 7.4 million members in 46 states and have combined assets of more than $70 billion.
Fatnassi said her credit union serves a large number of immigrants, adding that her staff speaks 11 languages. Many of the people her financial institution serves would be forced to turn to predatory lenders if they did not have access to the credit union.
The Opportunities credit union has used CDFI funds to invest in electronic banking since the institution serves 220 towns in rural Vermont with only two branches, according to Fatnassi.
“People who live in remote areas can still do business with us,” she said. “More than 82% of our transactions are electronic.”
That's even more important during Vermont's harsh winters. “People can't go too far in too many directions,” she said.
Royal Credit Union has awarded 4,469 CDFI loans totaling more than $25 million, according to Jennifer McHugh, director of public affairs and financial education at the Eau Claire, Wis.-based credit union with assets of more than $2 billion.
The loans have allowed members to purchase a home or a vehicle, which is a huge need in Wisconsin.
“Affordable auto ownership is a necessity in rural areas of Wisconsin where there is no public transportation and commuting to larger towns is essential to securing or maintaining employment,” she said.