In January 2022, however, U.S. District Court Judge Sarah S. Vance in New Orleans rejected OnPath's arguments because of unexplained and troubling aspects in its CDFI certification application and ordered the credit union to repay the funds. A month later, OnPath appealed the ruling.

Jared Freeman, president/CEO of OnPath, said he is disappointed with the appeals ruling that stems from what he described as an "unfortunate oversight nearly 20 years ago." At that time, Freeman was not an employee of the credit union.

"The judicial system continues to fail at addressing the most substantive issue in the case, whether OnPath was in fact eligible for certification. It is undisputed throughout this process that OnPath FCU has served as a good steward of all community funds entrusted to us. We remain a CDFI-certified institution, as we have been for 10-plus years," he said in a prepared statement. "This investigation never found any misuse of funds or fraud on OnPath's part. During this entire time, OnPath continued to be certified as a CDFI Institution. Even after an audit by the CDFI, it was determined that OnPath was, in fact, eligible to be a CDFI institution during those years in question."

The credit union argued in the appeal that the demand for the $12 million repayment by the U.S. Treasury Department was arbitrary and capricious because the agency failed to objectively test whether OnPath was in fact eligible for certification.

"We concluded that the agency considered the relevant factors and made no clear error in judgement," the Appeals Court wrote in its 10-page ruling. "There was a rational connection between the material falsehoods the agency found in the funding application and the agency's decision to seek repayment from OnPath."

One of those material falsehoods in the credit union's funding application, for example, was OnPath's geographic categorization of its members. The credit union submitted in its application that it had 157,381 member accounts in the non-metro portions of Louisiana, but OIG's analysis of OnPath's records revealed that it only had 5,380 such accounts. The OIG found that this and other discrepancies were owed largely to the fact that OnPath improperly categorized 67 zip codes in the New Orleans-Metairie-Kenner MSA as falling into the non-metro area.

Freeman said as the credit union continues to do what's best for members and staff, all options are being considered in response to the latest ruling.

"OnPath FCU remains committed to helping our members achieve their financial goals and providing resources to underserved communities just as we have done for decades," he said. "Our hope is to continue to participate in this mutually beneficial program with CDFI to create an even greater impact in the communities we serve."

The New York, N.Y.-based Inclusiv, which helps credit unions obtain CDFI designation, said in its prepared statement that the court's decision "may have the unfortunate and unintended consequence of discouraging mission-driven credit unions, especially those without robust data management capabilities, from pursuing CDFI certification and grant funding, which have been vital tools in expanding access to affordable and responsible financial services and credit across the country."

"OnPath FCU has a strong track record of serving under-resourced BIPOC (Black, Indigenous and People of Color) communities and played a critical role as a financial first responder after Hurricane Katrina," Inclusiv said. "Through this work the credit union has proven its commitment to equitable community development and its ability to meet the credit and financial services needs of underserved communities."

READ MORE: The ruling from the U.S. Court of Appeals for the Fifth Circuit for the Eastern District of Louisiana.