'Reinforcements' Arrive As More Credit Unions Become CDFI-Certified

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HOLLYWOOD, Calif.-The road for community development credit unions will never be an easy one, but after three decades in the movement Cliff Rosenthal is gratified to welcome the "reinforcements" that have arrived recently.

The president and CEO of the National Federation of CDCUs told Credit Union Journal the group benefitted from a "tremendous influx" of new members served by community development CUs in 2010: to 1.6 million from 1 million. In addition, he said a number of "substantial-sized" credit unions have joined the CDFI world as the Federation's membership reached an all-time high of 235 CUs.

The Federation discovered many of these newly CDFI-certified credit unions already were working with low-income communities, he noted, just not in a "systematic way."

"Obviously these last two years have been difficult ones, but we hope at the very least the rate of growing distress is slowing. 2010 was less bad for our credit unions than 2009," he said. "The new members and new credit unions are nice. I am very encouraged by the reinforcements and the new capacity and energy they bring. After 30 years, this is a great moment for me."

Two funding sources-the Community Development Capital Initiative (CDCI) and the CDFI Fund have made "a world of difference," Rosenthal said. Even so, he lamented the loss of approximately 100 credit unions per year, many of them smaller CUs.

Still, while "it is always going to be a struggle," he said everyone involved in the Federation believes retaining independent identities of credit unions is important. He said no one believes the answer is "giving up a charter to be part of a larger institution."

For one thing, Rosenthal explained, there is no guarantee the loan standards of the larger CU would fit in with the mission of the merged-out CDCU. "Our credit unions loan to people whose credit scores are lower than most CUs are comfortable with. They make loans that most regulators are not comfortable with. But if we don't do it, who will? The used car lot at 36%, that's who."

It takes a special group to run a CDCU, Rosenthal said, especially in the face of pressure from regulators who discourage loans to credit scores less than 680.

"Only the strong survive, and I'm not just talking about being strong financially," he said. "Years of pushing back tires people out; years of examiners telling them they are doing the wrong thing."

During the recession, Rosenthal said he heard despair among CDCU managers that he had never heard before as the result of regulatory pressure. "Being told you are taking on too much risk takes an emotional toll."

The biggest change from 30 years ago is expectations are higher, even among low-income consumers, he said.

"Back then, when discrimination and redlining was even more prevalent, people were just so happy to get any type of loan. Today, we need to offer convenience and a range of products and services. It is hard to keep up."

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