Federation Of CDCUs 'Categorically Rejects' Political Influence Allegation

Register now

NEW YORK – The National Federation of Community Development CUs said it “categorically rejects” a new paper that claims politics influenced where investments from Treasury's Community Development capital Initiative (CDCI) have gone.

The paper, authored by Assistant Professor Linus Wilson of the University of Louisiana at Lafayette College of Business Administration, and titled “Political Influence and TARP Investments in Credit Unions,” suggests that credit unions located in the districts of members of the House Financial Services Committee were three times more likely to receive TARP funds relative to other eligible credit unions. “The predicted probability that a typical credit union will receive TARP monies jumps from 23% to 76% if the credit union lies in the district of a House Financial Services Committee member,” said Wilson.

But the Federation's executive director, Cliff Rosenthal, who noted his organization was the primary technical advisor to the vast majority of the 111 credit unions that applied for secondary capital loans through CDCI, said the paper is in error. “Wilson's entire analysis is based on the erroneous assertion that ‘roughly a quarter of the eligible credit unions, 48 out of 189’ were selected to receive CDCI funds. But both the numerator and the denominator in this fundamental equation are incorrect,” said Rosenthal. “Wilson states that ‘Forty-eight of the eligible credit unions were selected to receive TARP funds.’ In fact, we know that at least 72 credit unions received final approval for CDCI secondary capital loans, and at least 24 of these credit unions declined to accept the investment.”

Other errors in the paper, according to the Federation, include:

* “Wilson defines “eligible” credit unions as follows: “There were 189 credit unions in the CDFI program at the start of September 2010. Only CDFI certified credit unions were eligible for the TARP’s Community Development Capital Initiative (CDCI).” This is incorrect on two fronts: credit unions were eligible for CDCI only if they were both CDFI certified and had an official Low Income Credit Union (LICU) designation from NCUA. The list of 189 credit unions considered “eligible” in Wilson's analysis included credit unions that were not eligible for CDCI because they were not LICUs. Wilson’s analysis also considered a number of “eligible” credit unions that no longer exist, but have not yet been purged from the CDFI Fund certification list. At the launch of the CDCI program, we counted 135 credit unions that were eligible for the program, holding both CDFI certification and LICU designations. This number grew to 153 by the end of September 2010, and while this remains far short of the 189 considered eligible in Wilson’s analysis, it ignores a more significant fact: according to NCUA, only 111 of these fully eligible credit unions actually applied for CDCI loans.”

The Federation went on to say it has other “serious problems” with the paper, including the fact its author “admits that he does not know the identity of credit unions that applied for TARP funds.”

The Federation said it looked at the percentages of credit unions located in districts represented by members of the HFSC, and found the following:
* 7.1% of credit union that applied for CDCI investments were located in HFSC districts
* 6.9% of credit unions approved for CDCI investments were located in HFSC districts
* 7.7% of credit unions rejected for CDCI investments were located in HFSC districts

 

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER