$12 billion in Cares Act for CDFIs

CARES Act Provides $12 Billion for CDFIs and MDI Credit Unions

Leaders from both the House of Representatives and Senate confirmed the highest appropriation ever for CDFIs. Congress set aside $12 billion in funding for CDFIs as part of its $900 billion Cares Act. The emergency stimulus funding package is meant to build the capacity of credit unions designated either as CDFIs or Minority Depository Institutions (MDI).

"We've worked hard for this historic funding," said Mike Beall, CU Strategic Planning’s Chief Strategic and Advocacy Officer. Now credit unions must act quickly to take advantage of the opportunity."

Contact CU Strategic Planning immediately to access the $12 billion in funding.

The $12 billion in funding includes:

  • $3 billion in emergency support through the CDFI Fund to provide grants and other financial and technical assistance in the form of $1.25 billion in Immediate Support for the current fiscal year, and $1.75 billion - available until it is expended - for supporting Minority Lending Institutions

  • $9 billion Emergency Capital Investment Program administered by the Department of Treasury to provide low-cost, long-term capital investments to MDIs and CDFI depositories

What does the $9 billion Emergency Capital Investment Program look like?

The last time emergency capital was made available to credit union CDFIs was in 2010. On February 3, 2010 Treasury created the Community Development Capital Initiative (CDCI) to help viable certified CDFIs and the communities they serve cope with effects of the financial crisis brought on by the mortgage industry collapse. “This $9 billion is the CDCI on steroids,” said Jamie Strayer, co-owner of CU Strategic Planning. Eighty-four institutions received CDCI investments totaling approximately $570 million.

Under the CDCI, CDFI credit unions, banks and thrifts received investments of capital with an initial dividend or interest rate of 2%. This same term is carried forth in the new Emergency Capital Investment Program with other features that are far more appealing than the CDCI.

Emergency Capital Investment Program Terms:

  • The rate on the investment instrument (likely secondary capital for credit unions) will not exceed 2% for 10 years.

  • No payments will be due during the first 24 months after investment.

  • If lending to underserved communities increases 200-400% of the amount of the capital investment, the rate is reduced to 1.25%.

  • If lending to underserved communities increases by more than 400% of the amount of the capital investment, the rate is reduced to 0.5%.

This is the lowest cost access to capital ever available to credit unions, and as secondary capital it counts towards net worth allowing credit unions significant growth opportunities. "This is nearly free money," said Strayer. "The margin that can be made with these funds to increase lending to people who need loans creates safety and soundness that should spur every eligible credit union to participate."

The challenge is that CU Strategic Planning will not be able to submit applications for every eligible credit union. Contact CU Strategic Planning immediately to access the $9 billion in Emergency Capital Investment Funding.

What else should you know about the Emergency Capital Investment Program?

  • Applicants must provide an investment and lending plan to the CDFI Fund and NCUA. This is the same as the CDCI, of which CU Strategic Planning was the only firm which wrote applications.

  • Applications for capital investments must begin before 30-days following enactment. This will be a fast-moving application. Again, contact CU Strategic Planning immediately.

  • Treasury holds subordinated debt instruments of credit unions.

  • Eligible financial institutions are CDFIs and MDIs that are federally insured. MDIs do not need to be CDFI certified. Given the NCUA requires credit unions to have the Low Income Designation (LID) to hold secondary capital, at this time we are communicating that a credit union must be either a CDFI certified and LID, or MDI and LID. LID credit unions without a MDI or CDFI certification are not eligible.

  • Debt to be repaid within 10 years, absent capital concerns at the financial institution.

  • Within 30 days of enactment, Treasury must issue rules about executive compensation. The CDCI program was part of TARP. The executive compensation rules were largely not an issue for credit unions because they were designed in response to banks accepting TARP funds and paying stock bonuses to CEOs. Credit unions do not provide stock. CU Strategic Planning is monitoring.

  • Institutions designated as “troubled” by their regulator aren’t eligible.

  • Emergency Capital Investment Program authority ends six months after the national emergency declared because of the pandemic ends

This is an unprecedented achievement for CDFIs and MDIs and is the incredible result of advocacy by credit unions, CU Strategic Planning, the Opportunity Finance Network, CUNA, Inclusiv, the CDFI Coalition, NAFCU, state credit union leagues, community banks and other industry leaders. “We are thankful for the guidance and advocacy of John McKechnie who does an exceptional job of representing credit union needs across both sides of the isle,” said Beall. “This was never going to be a one-party bill.”

These programs will be implemented quickly. Credit unions must be ready to act to take part in this historic availability of CDFI funding. Reach out to CU Strategic Planning immediately to express interest. It is working on a first come first serve basis.

CU Strategic Planning is the only provider of CDFI consulting services to credit unions that developed CDCI applications for credit unions. It will put that experience to work to ensure credit unions are able to access the historic $9 billion available in the Emergency Capital Investment Program. CU Strategic Planning exists to unlock opportunities for credit unions to change lives and their communities.