Letter to the CDFI Fund Advisory Board
The following is the written statement of Stacy Augustine, CU Strategic Planning's President and CEO, provided to the CDFI Fund Advisory Board in preparation for the September 30 Community Development Advisory Board meeting (rescheduled and held on November 30).
On behalf of CU Strategic Planning and its clients, I wanted to thank CDFI Fund Director Jodi Harris, CDFI Fund staff and Advisory Board members, for your commitment to increasing economic opportunities, equitable access to capital and financial inclusion, helping move America forward as a more just nation.
CU Strategic Planning was founded in 2008 with the board-approved mission of unlocking opportunities for not-for-profit credit unions, allowing them to change lives and their communities. This is the North Star that guides our strategic priorities and the work of our 26-member staff. CU Strategic Planning is the leading provider of community development services to not-for-profit credit unions serving low to moderate income people, distressed communities, and other marginalized, underserved populations. While we are not a trade association, the breadth of our stakeholders is as significant as peer organizations. CU Strategic Planning also acts as the administrator of Community Development Certified Financial Counseling, and manages the non-profit National Council for Financial Opportunities.
Stakeholders Represented by this Comment Letter
Over the years, CU Strategic Planning has worked with 127 of 356 credit unions currently certified as CDFIs (37% of the overall total).
During FY2020, CU Strategic Planning worked with clients that were successful in obtaining 21% of overall FA funding and nearly 50% of all credit union FA funding.
This funding resulted in the deployment of more than $1.4 billion in loans as a result of the CDFI Fund’s investment.
These funds were deployed throughout 1,500 branch locations across 36 states.
What issues are CDFI credit unions addressing?
Credit unions are the only not-for-profit consumer depositories serving as CDFIs. As a result, they represent front-line protection for at-risk-consumers and serve as the primary CDFIs reversing critical damage from the unconscionable rates and fees of predatory lenders. Below is a small sampling of factual, qualitative impacts from not-for-profit credit union CDFIs receiving organizational grants from the CDFI Fund:
New Orleans Firemen’s Federal Credit Union, New Orleans, LA: The credit union helped a member who needed to transition to permanent disability because of illness. By refinancing the member’s outstanding personal and vehicle loans with the credit union and other lenders, the credit union was able to reduce the member’s monthly payments from $1,024/month to $513 per month, keeping costs within her reduced monthly budget.
Day Air Credit Union, Dayton, OH: By financing a mortgage with no money down, the CDFI saved a young couple the cost of private mortgage insurance, which would have extended their payments on the loan by an estimated 10 years. Rent on a similar house would have cost the members an additional $600/month over what they were paying on the mortgage, which meant that the borrowers were both saving money as part of their monthly budget and building equity.
Financial Partners Credit Union, Los Angeles, CA: After reviewing a long-time member’s credit report, the CDFI discovered the member was paying out over $600 per month in minimum payments on credit card balances over $22K and at 20%+ interest rates. Even making the minimum payments wasn’t sufficient to pay down the balances. The credit union consolidated his debt into one monthly payment saving him almost $200/month on payments. In turn, the member’s credit improved and he soon qualified for a vehicle loan to purchase a much-needed vehicle to retain employment.
El Paso Area Teachers Federal Credit Union, El Paso, TX: When a member lost her job during the pandemic, she struggled to make her vehicle payments while only receiving Social Security income. By refinancing the vehicle from 18% interest to 4.99% interest, and extending the term of the loan out to 60 months, the credit union reduced her monthly payments from $422 to $247, making it possible to retain her vehicle and look for a new job.
Innovations Federal Credit Union, Panama City, FL: A member contacted Innovations wanting to start his own hauling business after his career as a defense contractor was cut short following hurricane storm damage to his employer’s office. Seeing the overwhelming amount of debris in the area caused by thousands of fallen trees and shredded building materials—having his own home partially destroyed—and with local resources stretched thin, the member purchased a truck, trailer and several dumpsters, thus launching his own debris clean-up business. Because there were no other lenders offering start-up business loans in the storm-damaged area, Innovation’s microenterprise loan saved the member an estimated $7,497 over the life of the 60- month loan compared to national online small business lending platforms, and launched a new career.
Industrial Credit Union, Bellingham, WA: An elderly wheelchair-bound member needed financing for home improvements. She had modest income and a home in such poor condition that it couldn’t be used to secure a loan. Neither the member’s current mortgagor (Wells Fargo) nor other lenders were willing to finance the electrical and septic repairs needed to maintain the home’s habitability. Industrial refinanced the member’s mortgage using the home’s raw land as security, giving her access to the funds needed for repairs and saving her $40,560 over the life of the loan.
The Importance of CDFI Fund Investment in Credit Unions
Consumer depositories operate in the most highly regulated environment of all CDFIs. Venture capital and loan fund CDFIs do not have regulatory agencies that conduct regular examinations. These examinations can lead to regulatory orders limiting lending to Target Markets most in need of resources, under the rubric of safety and soundness. Loan loss reserves and capital reserves represent critical tools needed to gain and maintain regulatory support for increased lending to low income Target Markets within regulatory safety and soundness parameters. To help families in crisis recover from the destabilizing impacts of COVID-19, the origination of loans from consumer depositories is more critical than ever before.
Over the past thirteen years, CU Strategic Planning has submitted almost 150 CDFI certifications and 137 award-winning Financial Assistance and Technical Assistance grant applications on behalf of 98 community development-oriented credit unions. Past experience with these mission-driven organizations, their certifications, business plan development, strategies and grant applications allows us to offer the following insights to the CDFI Fund Advisory Board backed both by qualitative insights and quantitative research.
Emerging CDFI Financial Assistance Requirements
The CDFI Fund adopted a policy in 2019 making 2020 the first year that an Emerging CDFI could not submit a Financial Assistance application with a pending certification. Had this policy been in place over the past decade, the CDFI Fund would not have awarded $53,511,265 in Financial Assistance Awards to 58 credit unions that we work with. Nearly 60% of the credit unions that received FA Award funding working with CU Strategic Planning received it in a year that an application was submitted concurrent to the approval of its CDFI certification. The result of this policy is that over $500 million would not have been invested in primarily low-income, persistent poverty, or majority minority regions. This funding provides loan loss reserves and capital reserves that are critically needed in the current economic environment—needed to stabilize households impacted by COVID. With current certifications taking more than six months to approve (and in many cases extending seven to eight months before approval), we urge the CDFI Fund and Advisory Board to change this policy with the next FA grant cycle.
Our stakeholders currently have 24 CDFI certification applications pending approval. The average certification approval has taken six months during 2021 where previously the CDFI Fund had a practice and commitment to reviewing applications within a 60 day period. The impact of this delay has been tremendous, excluding 85 CU Strategic Planning applicants with pending applications from participating in CDFI-administered programs such as Financial Assistance, the Rapid Response Program and the Emergency Capital Investment Program which provides subordinated debt as secondary capital. There is no more significant tool to increase credit union lending with regulatory support than secondary capital.
Certification: Community Development Mission
A certified CDFI must have a primary mission of promoting community development and directing its activities toward improving the social or economic conditions of underserved people or communities. To date, the CDFI Fund has based part of its determination of community development mission by looking at an applicant’s mission statement. However, a mission statement is not always a good representation of an organization’s true mission.
By way of background, because credit unions are governed by democratically elected representatives from the credit union’s membership that are almost entirely contributing their time as volunteers, credit union mission statements sometimes lack the polish and specificity of larger corporation, instead emphasizing service to the credit union’s members and financial stability. Credit union mission statements are often developed by this group of volunteers as part of a planning session. As a result, in our experience, their missions can be somewhat generic. A mission statement is just part of the evidence of whether an organization has a community development mission. We’d encourage the CDFI Fund to consider creating the assumption that any applicant that can show the deployment of over 60% of its total loan volume to an eligible market (or perhaps a slightly higher benchmark) already has a primary mission of promoting community development, in an effort to reduce paperwork and burden. Applicants that fail to meet this standard could then be required to demonstrate a primary mission with additional documentation.
CU Strategic Planning works with applicants seeking certification with a poorly crafted mission statement to adopt updated mission statements that better reflect the credit union’s commitment to community development. Current requirements for certification require this mission to be in place for a year before the certification application is approved. While it’s reasonable to establish standards that ensure that applicants aren’t making mission statement changes in order to qualify for certification—these are applicants that already have a track record of providing service to qualified Target Markets. Streamlining the certification process becomes critically important in the current economic environment as not-for-profit credit unions offer lending products that help consumers recover from the pandemic, including: eviction prevention, debt consolidation, credit building, first depository accounts, second chance checking, and flexible auto refinancing on older motor vehicles designed to eliminate predatory loans with interest rates at and above 29%. These products are essential to help stabilize households coming out of this sustained COVID 19 economic crisis that has kept many from full employment.
Use of Financial Services to Calculate Primary Mission to Target Market
CU Strategic Planning urges the CDFI Fund Advisory Board to work with the CDFI Fund to continue to look for ways to qualify organizations as CDFIs using the delivery of Financial Services to a qualified Target Market.
Financial Services represent crucial lifeline services for low income consumers allowing them to build credit and dramatically reduce check cashing fees. In theory, an applicant that could show that 60% of all overall services provided to a qualified Target Market should qualify as a CDFI—whether those services are provided through Financial Products, Development Services or Financial Services.
Historically, the difficulty in illustrating service to Target Markets without underwriting is a lack of evidence that the service recipient qualifies as part of the Target Market (in other words, without underwriting information, how does the organization providing the service prove that the recipient is low income?). While this makes the calculation of service to the Target Market more challenging, occasionally the most rewarding outcomes come with challenges. Perhaps geographic information or proxy information could be used to provide statistically valid evidence.
We appreciate the CDFI Fund’s willingness to consider these factors, allowing for the certification of organizations that may serve the lowest income consumers.