Little-used federal program could help low-income Idaho credit unions expand

Most of Idaho’s credit unions are eligible for a program to give them access to secondary capital for expansion, but only a few are trying to take advantage of it.

Administered by the National Credit Union Association, the program allows credit unions designated “low income” based on the demographics of the regions they serve to apply for secondary capital. This means they could raise money from outside sources, providing more money to lend in their communities.

“If you have a low-income credit union [LICU], you’re going to be serving a population that probably doesn’t have a lot of savings, so it’s hard to meet the credit needs of that group,” explained Keith Leggett, a retired senior vice president and senior economist from the American Bankers Association, who now runs the blog Keith Leggett’s Credit Union Watch in Sunset Beach, North Carolina.

Normally, a credit union can only built capital through retained earnings, so LICUs can have trouble generating them, he said.

Idaho has 26 credit unions, 22 of which have been designated low-income, said Pablo DeFilippi, senior vice president of membership and network engagement for Inclusiv, formerly the National Federation of Community Development Credit Unions, a New York-based nonprofit that works with community development credit unions to boost prosperity in low-income neighborhoods.

“We’re confident they’re all aware of it, but we’ve not been approached other than a very limited way,” said Mary Hughes, acting director of the Idaho Department of Finance. “It’s a business decision, and it’s a process to go through to get it.”

Though it’s a federal program, state-chartered credit unions are still eligible she said.

For that matter, not many credit unions nationwide have applied for secondary capital, because they either don’t need it or don’t want it, Leggett said.

“Some feel it moves them away from their mission to accept money from investors,” he said. “Some think that’s a slippery slope toward credit unions getting taxed,” because it undermines credit unions’ justification for remaining exempt from some taxes.

Altogether, fewer than a hundred LICUs nationwide have secondary capital, said Cathi Kim, Inclusiv’s director.

One Idaho-based LICU that successfully applied for secondary capital is Meridian-based CapEd Credit Union, which received $7.5 million from the program earlier this year.

“We had grown to a point where our capacity wouldn’t allow us to continue to lend as much as we wanted to,” said CEO Todd Erickson. “We looked at secondary capital as a way to continue that.”

CapEd couldn’t reveal the source of the funding it received other than that it was from two other credit unions outside of the geographic area, said Richard Arnold, chief financial officer.

Without that funding, CapEd would probably grow between 5% and 8% annually, Arnold said, compared to an average of 10% for the 10 years before the money has to be paid back. So far, the credit union has used about half of the $7.5 million.

On the other hand, Freedom Northwest Credit Union (FNWCU) – which had the highest percentage of asset growth in Idaho in Q417 – said it applied for the program last year. It was turned down for reasons representatives said they didn’t understand, especially since the credit union was certified for a different federal low-income program a year ago.

“The same federal government that awarded FNWCU $700,000 because what we are doing is so worthwhile has made it extremely burdensome to raise private capital to support the same lending program and financial institution,” said Eric Lindsay, vice president and chief financial officer.

With the program, the credit union could have generated $1 million more of net income, said CEO Scott Garrett.

“We’re financially fine,” he said. “We’ll just grow slower.”