Have you heard of CDFIs? If not, why you should care, and how NCUA made it easier for your credit union.

Written by Michael Emancipator, Senior Regulatory Affairs Counsel

Happy Friday! It has been quite a busy week for the NAFCU team. Half of our attorneys are wrapping up a week-full of excitement in the ‘Big Easy” at our Compliance Seminar and BSA Conference, while the other half have been busy going through the  details of yesterday’s final and newly proposed FOM rules (expect regulatory alert summaries and blog posts on both rules early next week). But for today, I thought we could use a palette cleanser from deep-dives into rules, and instead talk about strategic opportunities. In particular, I want to talk about an opportunity that many credit unions aren’t familiar with, but should be interested in learning more about: the Community Development Financial Institution (CDFI) designation.

Many of you might already be familiar with (and many already hold) a Low-Income Credit Union (LICU) designation, which confers certain benefits, such as the ability to accept non-member deposits and an exemption from the 12.25% MBL cap. Similarly, a CDFI designation can provide certain opportunities, such as grant funding and awards, and exclusion from certain rules, such as the onerous QM/ATR rule. It is a common misconception that the designation might subject the credit union to additional regulatory scrutiny. However, NCUA has made it clear that the designation does not expose the credit union to any additional scrutiny, reporting or examination visits.

In order to be “recognized” as a CDFI, your credit union has to provide information to the CDFI Fund (an agency within Treasury) which demonstrates that it meets each one of the following requirements:

• Is a legal entity at the time of application;
• Has a primary mission of promoting community development;
• Is a financing entity;
• Primarily serves one or more target markets;
• Provides development services in conjunction with its financing activities;
• Maintains accountability to its defined target market; and
• Is a non-government entity.

Although the standard process to demonstrate the above features is relatively straight-forward, NCUA and the CDFI Fund recently made it even easier for credit unions. Earlier this year, a streamlined CDFI application for credit unions was released. To facilitate the process, NCUA sent letters to credit unions that it believes meets the requirements outlined above, but has not yet received the certification. To make the application easy, NCUA simply asks you to submit your loan origination file in the AIRES format and follow the steps in the letter. Their software will take care of the rest.

Currently, there are approximately 270 CDFI credit unions right now, which represent nearly half the assets held by all CDFIs. If our industry is able to double the number of CDFI credit unions, then we will have a stronger voice in how CDFI funding gets allocated. We will also have better opportunities to exclude CDFIs from future rulemakings, and thereby helping more credit unions avoid excessive regulatory burden.

So if you’re an LICU, or recently received a letter from NCUA discussing your eligibility, there’s a good chance that you’re a CDFI, but just haven’t been “recognized” yet. If you received a letter from NCUA, but are still on the fence about becoming certified, then I recommend you reach out to some of your peers that have taken the step. A list of all CDFI credit unions is linked here. Hopefully they can share their positive experiences with you.

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Upcoming NAFCU Webcast

Death of a Member – How Even the Best Members Can Haunt Your Credit Union

Live Webcast Tuesday, November 1, 2016  |  2:00-3:30 p.m. ET

• Learn the rights of joint owners and pay-on-death beneficiaries
• Understand how to handle competing claims from executors, guardians, heirs, and other interested parties
• Discover how to handle trust accounts and powers of attorney after death
• Explore security interests and set-off rights in accounts and collateral of deceased members

Comments

[Chelsea Rosty]

We are currently LID, but have not received the letter. I am working on getting us certified the "hard way", but it is a really difficult process. Is there any way to get some help with this?