Focus Federal, an Oklahoma City-based credit union with three branches and $100 million in assets, announced earlier this month that it has become the first credit union in Oklahoma City and the second in the state to receive Community Development Financial Institution (CDFI) status from the U.S. Department of the Treasury.
Focus Federal President Kyle Roush shared his insights with CU Times regarding the designation process and what credit unions need to consider if they're thinking about pursuing CDFI status.
The U.S. Treasury's CDFI program aims to improve access to financial products and services in underserved, economically-distressed communities (distressed can be defined by poverty rates, net out-migration rates or income levels, according to the rules).
Participation in the program typically begins by obtaining CDFI certification. Credit unions, banks, loan funds and venture capital funds are eligible to apply, but they must, among other things, demonstrate that at least 60% of their financial service activities and 50% of their assets are directed toward low-income consumers and underserved populations.
Once they receive CDFI status, entities can apply for up to $2 million in funds they may use for financing capital, loan loss reserves, capital reserves or operations. They can also apply for up to $125,000 in technical assistance awards to buy equipment, hire consultants or contractors, pay salaries and benefits, or train staff or board members. In most cases, credit unions must match the funds to get the money.
Since its creation in 1994, the CDFI fund has awarded more than $1.9 billion to entities with CDFI status through various programs, according to the U. S. Department of the Treasury, and Roush hopes those awardees will soon include his credit union, which has about 11,000 members and offers "Credit Builder" and "Credit Rebuilder" loans, financial education and volunteer income tax assistance to members, and credit counseling to members with poor or no credit.
Focus Federal is taking its new CDFI status out for a spin by pursuing one of those $2 million grants, Roush said. That means enduring another application process, which has been demanding, he said.
"There's just a lot of information that you have to provide," he explained. "You have to put together a five-year plan, a business plan with different goals and targets, and what areas of the market you're going to reach out to. There's just a lot to it."
For credit unions thinking about taking the CDFI leap, Roush said they should plan on the process taking about a year. Focus Federal started its application process last May, he said, and that the U.S. Department of the Treasury accepts CDFI applications year-round. The next step in the funding application process involves preparing another application that is due in November. Roush said he expects to have an answer by June or July 2016.
"Understand that it's a time-consuming process. There are a lot of man hours involved to put it together, but it's worth it," he noted. "It really opens the door for more opportunities."
That lengthy process may be the reason why just two credit unions in the entire state have CDFI status (the other is the $2 million My Choice Credit Union in Tulsa, Okla. according to the U.S. Department of the Treasury). "It was very time-consuming because you've got a credit union to run and operate," Roush noted. "Those are the things that you're doing on top of it. If it were easy, everybody would do it."
Focus Federal serves seven different counties, Roush said, and he's still figuring out exactly how it will deploy $2 million if its request is granted.
According to a November 2014 Memorandum of Understanding with the city of Oklahoma City, First Federal would use at least some of the proceeds to offer loans to low-income consumers to consolidate debt and refinance predatory interest rates, as well as to provide financial services in Spanish.
Roush said Focus Federal also plans to use the proceeds to help grow loans by $10 million in what he called a "Fresh Start" auto loan program, which he said will be an alternative to buy-here-pay-here car lots. He said he also plans to reach out to 1,000 new members in an effort to increase the number of "Fresh Start" checking accounts.
Roush will likely have his work cut out for him if Focus Federal receives funding: CDFI funds deliver between 66% to more than 90% of all loan volume to borrowers living in a CDFI fund-designated investment area, according to CUNA. But again, he'll have to be patient.
"There's a five-year plan we've got to put together," he said. "It's not like we're just going to flip a switch and all of a sudden, we're able to just go out and serve all these folks overnight. It's going to take some time to market and get our name out there in the community."
Roush said his most important motivation is an urge to serve the community more. "Credit unions have credit in their name for a reason," he added. "We should be lenders. We are a 90% to 95% loaned-out credit union, so we are a loan machine. And I think that was one thing that the CDFI really took into account when they looked at us. We said, OK, how can we make a difference? How can we be different going into the market as a community credit union? The CDFI is the rails we're going to ride on."
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