OnPath clawback underscores the importance of CDFI compliance
A federal appeals court recently ruled that OnPath Federal Credit Union would have to pay back $12 million in financial awards from the U.S. Treasury’s Community Development Financial Institutions Fund. To be clear, CU Strategic Planning didn’t write OnPath’s certification nor the grants it was required to return. And while we feel the circumstances around the suit represent an isolated incident, it’s critical to spotlight the lessons credit unions can take away from this situation to protect their reputations, remain in compliance and help ensure they won’t need to repay a grant award.
4 steps to compliance
First and foremost, accuracy is paramount. OnPath submitted information the court identified as “materially false” and containing “massive discrepancies.” While the court acknowledges it is very possible the credit union could have been certified using accurate information, the onus to provide accurate information is on the certification applicant. The key takeaway here is the importance of retaining the documentation to support your application. Good recordkeeping is critical for the rare instance the CDFI Fund needs to audit information submitted as part of a CDFI certification application. CDFI credit unions are responsible to their members, so if you experience turnover in your community development positions, consider conducting your own internal audit of your credit union’s documentation.
Second, ensure that you can validate the claims you make. Credit union executive teams need to remain vigilant and carefully oversee the content of their CDFI application. If developing your own application internally, be sure all claims made can be supported—as we do when we are working on behalf of a credit union client.
Understand your CDFI certification. A credit union’s certification application identifies its Target Market. Once an applicant is certified as a CDFI, the applicant is required to submit annual certification reports that demonstrate service to that Target Market. The complexity of a credit union’s Target Market impacts the complexity of its annual reporting. Hiring a CDFI expert, whether in-house or outsourced, can help mitigate a credit union’s risk of non-compliance. CU Strategic Planning works hard to counsel our clients on how to choose a Target Market that simplifies data collection and reporting.
Finally, just as you do with your functional regulator, keep open channels of communication with the CDFI Fund. Understand what the CDFI Fund considers a material event. File reports on time. If you are unable to meet your reporting benchmarks, work with the agency to update your Target Market. As the OnPath decision indicates, it is very possible the credit union could have qualified as a CDFI using accurate information. If the credit union had identified the material issues with its application and worked to amend its certification Target Market, it’s possible the credit union would not have been audited or required to return its past grant awards.
CDFI certification qualifies credit unions for substantial Financial Assistance awards, which can mitigate some of the risk of working to serve underserved and low-income populations. Because credit unions are in the business of risk management, with careful oversight, grant awards represent a powerful tool in a CDFI credit union’s toolkit.
