In April, 2023 the Community Development Financial Institutions Fund awarded $1.73 billion in grants to 603 CDFIs across the country through the Equitable Recovery Program (ERP). This included 51 awards that CU Strategic Planning submitted for its client credit unions.
This is the first year of a five-year reporting period, and it’s important to remember that these awards have their own requirements that must be met – and there are potentially serious ramifications for not meeting those requirements.
Different from the traditional Financial Assistance (FA) Grants, the funds cannot just be used in service to all members for capital, loan loss reserves, or taken into income. Our CU Results consulting division has been working with credit unions on five-year plans for using these funds in ways such as:
Grants for down payment assistance and technical school degrees.
New staff focused on the ERP-Eligible Geographies (EEGs) and providing financial education and support primarily to minority populations and those in the EEG.
Capital, if the direct expense is to expand access to financial products and services to the EEG; for example, installing a branch in a banking desert. Capital can also be used to boost net worth with the proof that the capital is used in an EEG by matching lending in the EEG, dollar for dollar.
Direct loans in the EEG to a minority borrower within the low-income category.
These credit unions have a long list of things to do with the funds over the next five years and are focused on building a long-term narrative to support future FA grants and the upcoming opportunity of the Greenhouse Gas Reduction Fund grants. They are building infrastructure and partnerships. They are revamping their operations to incorporate CDFI initiatives into their regular processes to better serve all their members.
ERP Award Reporting Requirements
One of the challenges with the ERP grants is that the reporting requirements are very specific and require the funds to only be used in the way the grant was structured. Any failure to follow those guidelines may result in the CDFI being put into Cure status, or ultimately with the CDFI Fund requesting the return of funds. If that were to occur, it would be a considered a major deficiency and jeopardizes the certification and future grant eligibility.
The first reporting benchmark for ERP recipients will be the SF 425 report due in October, with more detailed reporting following soon after that will require recipients to break down exactly how the funds are being used. If your credit union has been deploying and tracking award funds properly, this will pose no issue. If not, now is the time to make changes.
Keep in mind, as well, that any violation of Fair Lending or other lending regulations can jeopardize certification of a CDFI. We are seeing the NCUA come down hard on a number of credit unions for Fair Lending violations and issuing warnings, findings and in some cases DORs.
The ERP grants are intended to elevate CDFIs and provide them with enhanced infrastructures that will support their initiatives into the future and are a remarkable opportunity to support communities.
Our experts can help you develop plans to leverage your ERP funds to improve the lives of your members and communities. Find out more about CU Results or contact us to set up a meeting. Take our short 3-question survey about your CDFI's use of ERP funds to see where you stand.