WASHINGTON Community development credit unions are lobbying the Treasury Department to change the rules of its new Community Development Financial Institutions Bond Guarantee program to allow credit unions to use the funding as secondary capital, just as the number of eligible CDCUs has more than doubled over the past year.
The new program, christened this week, will allow eligible CDFIs to issue bonds guaranteed by the Treasury that may be used for a variety of uses but not as secondary capital, one of the biggest needs for CDCUs, according to Pablo DeFillipi, director of membership at National Federation of Community Development CCUs.
The Federation, which has participated in many of the CDFI’s programs, is not currently part of the guaranteed bond initiative, mainly because of the prohibition on using the proceeds for secondary capital. “We’re currently talking to them about this and maybe in the next round we can get something done,” he told Credit Union Journal.
Treasury this week said it is issuing $325 million in bonds that will help finance four eligible CDFIs: the Clearinghouse CDFI, Enterprise Community Loan Fund, Inc., The Community Development Trust, LP and Local Initiatives Support Corporation. None of the proceeds are expected to go to credit unions, according to DeFillipi.
The CDCU leader, whose group represents about 150 credit unions, noted the introduction of a new source of CDFI funding comes as NCUA has certified an additional 1,200 credit unions as “low-income,” making them eligible to participate in the Treasury program, and to raise secondary capital. But, said DeFillipi, the available sources of secondary capital are scarce.
Under the Federal CU Act, low-income credit unions are the only credit unions that may raise secondary capital and to count it as net worth, for the sake of NCUA’s minimal capital rules.
NCUA’s actions, which also allows those credit unions to skirt congressional limits on member business loans, comes as lobbying on Capitol Hill to allow all credit unions to raise secondary capital has been stalled and has diminishing prospects. The designation of more than 2,000 credit unions as low-income effectively exempts them from the 12.25% of assets cap on MBLs and the prohibition on secondary capital.
