Hollywood, California
Introduction
Thank you, Cliff, for that kind introduction. It is a pleasure to be here today.
The title of this session is "The Future of the Community Development Financial Institutions Fund," and I will indeed offer my thoughts on some of the recent developments at the CDFI Fund, as well as on the challenges and opportunities that lie before us.
But I would like to begin my remarks today not by looking ahead but by looking back.
As all of you well know, this is the Federation's 37th Annual Conference on Serving the Underserved. Now, to my way of thinking, in a relatively young industry like ours, any organization that has worked for 37 years to create opportunity in low-income communities is remarkable. So, I would like to thank the Federation for its outstanding service, and Cliff Rosenthal in particular for his exceptional leadership.
New challenges for credit unions
If there is one thing that the Federation's history shows us, it is that the work we have chosen is never easy. The environment in which we work shifts frequently and unpredictably, and, when it shifts, it can undermine our progress and force us to re-examine our objectives and to modify our strategies.
I am acutely aware that the current recession represents one of those major shifts in the environment, and that it has created significant new challenges for community development credit unions in particular.
The work has not been easy, but it is rewarding and critically important.
And, despite the difficult environment, there have been some positive trends as well. There have been signs of improvement in delinquencies and profitability. Many credit unions have seen increases in deposits and memberships as more consumers have moved their money from big banks to local credit unions.
So I believe that all of you deserve a great deal of credit for the resilience you have shown in these challenging times.
The Federation also deserves credit for its ongoing efforts to strengthen the industry. I understand that, in April, the Federation received a major grant from The Atlantic Philanthropies to pilot a nationwide program to help low-income seniors gain financial security. The grant will mean that eight community development credit unions will receive funding to provide a variety of services to older adults struggling with debt and limited resources.
I also understand that, later on during this conference, the Federation will be making a major announcement about another initiative that will bring significant new investment capital to community development credit unions, so that is another very positive development.
The CDFI Fund's Perspective
One thing I would like to make perfectly clear to all of you here today is that the CDFI Fund has a deep appreciation of the role of community development credit unions. Indeed, the recession has only made it clearer just how important your role is.
After all, your organizations help on so many different levels in low-income communities. You not only provide loans and technical assistance to enable small businesses to grow, but you also provide responsible financial services to help individuals and families learn about personal finance, take care of their money, become homeowners, and progress along the path to financial security.
In other words, you are helping to build stronger, more prosperous communities from the ground up. And that is why the CDFI Fund is committed to supporting you.
I understand that, recently, some of you have had some concerns about the CDFI Fund's approach to determining target market and accountability for credit unions, and about the time required to review applications for certification. I am very aware of these and I can assure you that Cliff Rosenthal has been a dogged advocate for your interests.
I have discussed these issues in detail with Cliff, but I would also like to take some time now to present the CDFI Fund's perspective on them, so that we can all be on the same page going forward.
I can report that the CDFI Fund has engaged an outside contractor to help us develop a sampling methodology tool to assist you in determining your target market. We have also begun internal discussions on meeting the accountability requirement. However, at this point, we have reached no decisions about a change in certification policy, and we respectfully request your patience as we continue our discussions. We will inform you of any decisions we make as soon as we can.
Regarding the review of certification applications, I acknowledge your concerns and certainly appreciate your desire to be certified. At the same time, I hope you can understand that, like you, the CDFI Fund has been operating in a very challenging environment that has placed unprecedented demands on our resources.
In 2010, our work expanded more than ever before. We made a total of 425 awards - more than in any year in our history and an increase of 22 percent over 2009. Through our flagship initiative, the CDFI Program, we awarded $104.8 million in grants to 179 organizations, the largest single round of awards in the program's history. And by November 2010, the number of certified CDFIs reached 931 - the most in our history.
November 2010 also brought one of those sudden and dramatic shifts that I mentioned earlier - this one a shift in the political environment. The November 2010 elections transformed the House of Representatives, which in turn transformed the negotiations over the federal budget for 2011 and 2012. Throughout late 2010 and early 2011, the CDFI Fund operated under a series of Continuing Resolutions as the budget negotiations continued, and in fact we faced the possibility of having our budget cut by 81.8 percent from the level proposed for FY 2011, which, of course, would have had a devastating impact on low-income communities throughout the nation. And during this same time, the CDFI Fund implemented the Community Development Capital Initiative that saw a flood of new certification applications. In FY 2010 alone, the CDFI Fund certified 86 credit unions. Fifty-four of those were newly certified, and 32 were recertified.
I mention all of this not because I wish to dismiss your concerns about the certification process and your applications. I understand how you feel, and I hope that you can understand our position as well. Quite simply, we have been given many new responsibilities, and we have faced many new challenges as well.
But I can assure you that CDFI Fund has not forgotten this issue. We are now re-focusing our efforts on the certification application backlog and stepping up the review process.
The CDFI Fund's support for credit unions
As important as your being certified is, I believe these issues should not overshadow a critical fact - that the CDFI Fund's support for credit unions has been very strong.
As of May 31st, 202 of the 952 CDFIs certified by the CDFI Fund - or just over 21 percent - were credit unions. Since the CDFI Fund was established in 1994, we have provided nearly $100 million in equity capital to community development credit unions.
Credit unions have also been especially well served by the Community Development Capital Initiative (CDCI).
The Obama Administration launched the CDCI in February 2010 under the Emergency Economic Stabilization Act's Troubled Asset Relief Program (TARP). Its purpose was to invest lower-cost capital in CDFIs, and it was the first time that TARP funds were made available to credit unions.
Overall, the CDCI invested $570 million in 84 CDFIs in 26 states, the District of Columbia, and Guam. Of those 84 CDFIs, 48 - or 57 percent - were credit unions. They received awards totaling $69.9 million, or 12 percent of the $570 million awarded through the CDCI.
I believe that, by any standard, that represents a solid commitment to community development credit unions. And it is a commitment that will not only help to strengthen local credit unions but also the communities they serve.
Moving forward together
In challenging times as well as in good times, the key to moving forward is to recognize that we are in this together.
At the CDFI Fund, we are mindful of the long and productive relationship that we have had with the Federation. After all, the Federation began pushing for the creation of a federal fund to support community development credit unions, loan funds, and banks back in the mid-1980s, and was instrumental in building the coalition that led the fight that finally established the CDFI Fund in 1994.
So our two organizations share a long history of mutual support. And, at the CDFI Fund, we fully intend to continue our strong support for the Federation and for community development credit unions throughout the nation.
Our objective is to serve your needs as well as we possibly can, so we will always welcome your comments, your suggestions, and even your criticism. We want to know what you are thinking.
We also want to encourage you to explore all of the programs that are available to you through the CDFI Fund and to put them to work in your communities.
I am sure you are aware of the Financial and Technical Assistance awards we provide through our CDFI Program, but have you also considered the opportunities that may be created by our Bank Enterprise Award (BEA) Program?
The BEA Program provides cash awards to FDIC-insured institutions that invest in certified CDFIs - including CDFI credit unions - or increase their lending, investment, and service activities within economically distressed communities. It thus offers a way for you to attract new investment by partnering with a bank that is looking to invest in a CDFI.
The CDFI Fund is here to help you, and I urge you to make full use of what we have to offer you.
One community development credit union that is doing just that is Communicating Arts Credit Union, in Detroit.
Communicating Arts was established in 1935 to serve employees in the newspaper, printing, and publishing industries. By 2005, however, as their membership base changed, the credit union's management realized that its real niche was serving people of modest means. At that time, they had never even heard of something called a community development credit union. But, through a chance conversation with a colleague, they learned about the CDFI Fund and a seed was planted.
Communicating Arts Credit Union visited our website and researched what we had to offer and in 2007 became a certified CDFI. They continued their pursuit and next applied to the CDFI Program and I am happy to say they received Financial Assistance awards from the CDFI Fund of $2 million in 2009 and $750,000 in 2010, the highest award amounts made available in each of those funding rounds. The credit union went on to use these funds primarily for small loans that have nevertheless made a big difference in the lives of the borrowers.
For example, one borrower is a gentleman named Aaron who purchased a used GMC Yukon. Aaron took out a loan from the dealer with a monthly payment of $620. Aaron had a steady job and a good income, but after a few months, the burden of that payment began to weigh heavy, and he realized that it wasn't going to go away anytime soon. His loan was for $23,000 at 24.95 percent, which meant he would be making payments for six years.
A friend told Aaron to talk to a credit union, and fortunately, the credit union he talked to was Communicating Arts. They got him out of his old loan and into a new one at 11 percent over six years, which dropped his monthly payment to $426. They also gave him some tips on how to improve his credit score and encouraged him to come back for an even better deal. After a few months, Aaron improved his credit score by 50 points and qualified for a new loan from Communicating Arts with a shorter term, just five years, and an even lower rate, 5 percent. That dropped his payment to $386.
Now, that's what I call making a big difference with a small loan. And it's just one of hundreds of loans that Communicating Arts has been able to make, thanks to its Financial Assistance awards from the CDFI Fund.
And like many of you hear today, Communicating Arts Credit Union is not only utilizing the program offerings from the CDFI Fund, but they are leading the industry through innovation. In 2009 Communicating Arts joined with seven other credit unions in Michigan to launch Save to Win, an innovative program to encourage their members to save. The idea of the program is that for every $25 saved, the saver earns an entry into a drawing for at least 10 cash prizes of up to $1,000 each month and a $100,000 prize in January. Today, the number of credit unions in Michigan participating in the program has now grown to 42.
I am very touched by stories like these about Communicating Arts Credit Union. They show so clearly that the work of community development credit unions isn't just about dollar signs and numbers - it's about changing lives and building communities. And I know that all of you here today are busy writing similar stories in your own communities every day.
So I want to encourage you to work with the CDFI Fund, so we can help you continue writing your stories. And I also want to encourage you to talk with your colleagues at other credit unions about the CDFI Fund. I know that, even today, there are many credit unions, like Communicating Arts a few years ago, that serve low-income communities but are unaware of the resources available to them through the CDFI Fund. So all of you, please reach out to these organizations and help them expand their impact in the communities they serve.
I know that, despite the many challenges before us, there are also many great opportunities. So please join us. Let us go forward together, and let us do great things.
Thank you.