By Ray Birch
BURTON, Mich.—More low-income residents here will be driving to work this year instead of walking or taking the bus thanks to NCUA’s streamlined Community Development Financial Institutions (CDFI) certification process.
Elga CU has gone through the process and says had the application not been abbreviated, the credit union likely would not have a CDFI Fund grant in its pocket right now and would be making fewer car loans in 2018.
CEO Karen Church acknowledged the credit union would have put off the CDFI application for some time had it been required to go through the traditional, lengthier application process. To obtain a grant from the CDFI Fund, a credit union must first obtain the CDFI certification.
But having now obtained that certification, Church said the $596-million Elga Credit Union now plans to significantly increase the number of car loans it makes to the underserved.
“We were liquidity challenged,” said Church. “Now we can get more help to more people sooner with the grant.”
How Funds Are Being Used
Church said one of the most important steps the credit union takes to serve the low-income residents here is granting them a loan for a dependable vehicle to get back and forth to work.
“We can do many more of these loans now, loans with payments that members can afford, not some exorbitant rate they might get somewhere else, if they get a loan at all,” she said. “With the additional capital, we can also make more small business loans.”
With the funds in hand, and capital at 14.03% at the end of March, the next move, said Church, is to let more of the community know Elga is here and can provide them with a means to affordable transportation.
“We would like to get to more of the people who don’t even know we are here,” Church said. “They have no idea how we are helping their fellow residents, and that we can help them with a car loan. We are just starting to get the word out.”
Church said the Elga CU plans to reach out to local employers who are hiring the underserved and ask them to let their staff know the credit union can possibly get them into a car as opposed to taking public transportation to work.
Elga is making about 1,200 auto loans a month, with more than 50% of those loans going to members who are credit challenged, Church explained.
Not a ‘Black and White’ Decision
“These people have either been turned down somewhere else or are paying a ridiculously high rate,” she said. “The people who know us understand that we take a listening approach to their application to truly understand if we can give them a loan. We don’t look at a member’s credit score and make a black-and-white decision. We take a long time with people asking them lot of questions, asking them about their future and their ability to pay us back based on what they see.”
Elga does rely on member’s FICO score to set the rate, and then it looks at term to make the payment affordable.
“While the rate is determined by the FICO, the decision is based on all kinds of factors—their job, residence, time as a member . . .,” Church explained. “We typically go out 10 model years, and if the car is older it becomes an unsecured loan. The repayment terms are not traditional terms, such as 24, 36 or 72 months. We work with members to give them a term that leads to a payment they can afford, considering the residual at the end of the loan.”
More CUs Turn to Streamlined App
Elga isn’t alone. According to NCUA, more credit unions are turning to the streamlined CDFI process, said NCUA. The agency last month said that 201 credit unions have applied to NCUA exploring whether they qualify for the streamlined process. Of those, 78 have been approved, and of those 78, 46 submitted applications to the Treasury for certification to become a CDFI. At present, 40 of those have been approved, NCUA said.
“We are seeing interest in the streamlined program pick up, and we encourage credit unions that might be eligible to explore this avenue,” said spokesperson John Fairbanks.
Church said that Elga found the streamlined application process easy.
“Had we not had the streamlined process we would have probably delayed making the application,” she said. “NCUA was helpful in getting the application completed, and I imagine we saved at least 40 hours of research and application completion work with the shorter process. The streamlined process narrows the application down to just those things the Treasury can’t get from your call report.”
Church would like to see more CDFI credit unions collaborate to share successes, best practices and things to be wary of in applying for a CDFI grant.
“Possibly, roundtables or networking events,” she said. “The Federation of Community Development Credit Unions does a great job of bringing people together, now we just need people to show up. There are a lot more credit unions becoming CDFI certified, so there is a lot to be learned from each other.”
NCUA is offering a webinar May 16 on the streamlined CDFI process. The next intake round for credit unions seeking the streamlined process begins June 4, the agency said.