Consumer Credit for Military Families

As many of our readers know, CDFIs are set up to provide access to capital in underserved markets. One market segment that is getting increased attention are military families. Policies have been enacted to address the consumer credit needs of this population. The Military Lending Act was enacted by Congress in 2006 as part of the John Warner National Defense Authorization Act for Fiscal Year 2007. The Military Lending Act provides protections for service members and their families by:

• Expressly capping the rate which a creditor may extend consumer credit to covered members of the armed forces or their dependents at no more than 36 percent including fees
• Creating a series of special consumer protections for covered members and dependents.

The Military Lending Act is implemented by the Department of Defense and, pursuant to a 2013 amendment, is enforceable in the same manner as the Truth in Lending Act by the Federal Deposit Insurance Corporation, member banks of the Federal Reserve System, Office of the Comptroller of the Currency, National Credit Union Administration, Consumer Financial Protection Bureau Federal Trade Commission, and certain other specified agencies. However, there is currently a movement in Congress to delay the enforcement of this amendment before the amended regulations can take effect.

Additionally, a 2014 report by the Consumer Financial Protection Bureau has documented a host of abusive tactics targeting soldiers and their families. According to this report, thousands of service members receive short-term, high-interest loans each year.  According the research, many of these consumer credit products available on the market today fall outside of the scope of the Military Lending Act, as currently implemented.  For example, according to case studies in the report, one military family that took out a $2,600 loan ended up paying back $3,966.84 over the course of a year. Another borrower spent $1,428.28 to pay off a $485 loan in just six months.

At FUND Consulting, we have seen a trend in CDFI product development, with several clients developing and implementing small dollar loan programs to provide an alternative to predatory loans. Based on this report, it is apparent that there is significant need and demand amongst military families for this type of consumer credit product.

Does your CDFI have a small dollar loan product? Does it have special products for those in the military? Have you seen demand from service members?

CDFI Boards and Fundraising, Week 3: What Skills are Sought After on CDFI Boards?

Last week on the blog, we presented data on the size and composition of CDFI boards. This information can provide insight into board recruitment and retention.

The data indicated that while boards across all CDFI types were most likely to contain representatives from banks and community organizations, CDFI banks and credit unions are more than twice as likely to have representatives of religious organizations on their boards and far less likely to have government representatives when compared with CDFI loan funds.  Additionally, CDFI Banks are most likely to have a lawyer on the board, while Credit Unions are most likely to have an accountant as a board member.

Respondents also were asked questions regarding the specific skill sets that were sought after on their boards:

• Across all CDFIs, the top three skills sought in Board members are community awareness / accountability, network and contacts, and financial / budgetary skills.

• Fundraising is cited less frequently as a skill pursued for board recruitment, with 34.5% of all CDFI respondents and approximately 42% of CDFI loan funds indicating fundraising as one of the top three skills they seek in Board members. This is in sharp contrast to the general nonprofit sector, with 83% of organizations engaging board members in fundraising according to a 2012 survey conducted by the NonProfit Research Collaborative.

Why do you think CDFIs are less likely to require board fundraising when compared to the nonprofit sector? Is this seen as an internal function and not a board member? How is your CDFI addressing the issue of fundraising?

Some CDFIs are addressing this issue through formal planning and committee work. In the next blog, we will present data on CDFI board committee structures.

CDFI Boards and Fundraising: Week 1, An Introduction to FUND Consulting Research

Over the course of 2014, FUND Consulting worked on seven strategic plans with CDFI loan funds and banks.  All of the final strategic plans included a goal that was tied to fundraising and / or increasing Board involvement in fundraising efforts.  This led FUND to speculate on the current role that CDFI Boards are playing in terms of raising funds.  To answer this question, FUND Consulting conducted a research project that included a survey of staff at CDFIs nationwide.  Over the next eight weeks, our blog will be dedicated to highlighting the results of our research, and the implications that the data might have on CDFI management.

Most non-profit Boards struggle with fundraising. This topic ranks #1 among board areas needing improvement, and has been so for many years in BoardSource’s regular Nonprofit Governance Index.  However the general perception among CDFI industry professionals is that the situation might be even more challenging with respect to CDFI Boards. 

The purpose of our research project was to assess the current state of the work that CDFI Boards are doing with respect to fundraising. The survey results are based on the responses of 168 CDFIs (and a handful of CDFIs in the Certification process) representing approximately 20% of all CDFIs.

Overall, the responses indicated that the CDFI industry has room for growth in engaging board members to take an active role in fundraising. 

Thirty-seven percent of survey respondents representing loan funds indicated that their Boards raise money for the CDFI. This number is lower for CDFI Bank and Credit Union respondents, with 13% for CDFI Banks and 10%  of CDFI Credit Union board members participating in fundraising. In comparison, in a 2012 report by the Nonprofit Research Collaborative, 83% of nonprofits indicated that their Boards participated directly in fundraising.

Does your board actively participate in fundraising? Why or why not?

Next week, the blog will be dedicated to presenting data on CDFI board composition. We will facilitate a discussion on board recruitment and how to build a board that helps increase resources for a CDFI while maintaining board accountability to the community.

Mission and Operations

Many times when we meet with potential clients, we hear them describe their “mission people” vs. their “operations people”.  I was reminded of this at a lunch meeting this week with a client, who as a mission person described how those in charge of operations did not understand what CDFI designation meant to the organization.

This issue was at the core of a research project completed by FUND Consulting. We recently worked with Opportunity Finance Network (OFN) to develop the newly released Technical Assistance Memo on Deployment Strategies for CDFI Small Business Lenders. OFN contracted with FUND Consulting to expand a survey we distributed to our clients. As part of this engagement, FUND Consulting issued the survey and conducted follow up interviews to the Goldman Sachs 10,000 Small Business Growth Collaborative partners and other OFN members in August, 2013.

The findings from the research indicated that what increases the effectiveness in deployment for these CDFIs is clearly stated deployment goals and integrated strategies. CDFIs that link capitalization, marketing, and deployment into a cohesive and measurable management approach, with the organizational mission as a barometer for decision making, are the most effective at reaching their deployment goals.

While the research was limited to the operational issue of deployment for small business lenders, the FUND team has seen that this integrated strategic business model is an element in its most effective and sustainable CDFI clients. With this fundamental management approach in mind, supporting clients through strategic services is core to our business model.

Does your CDFI employ an integrated approach to management? If not, what are the barriers to adopting this approach?

New Year Resolutions

At this time of year, many of us resolve to make changes to improve our quality of life.  Many resolve to lose weight, others to be more charitable. Some vow to improve their finances.  These same principles can be applied to organizations. Perhaps your organization can develop strategies to cut the fat and operate more efficiently, avoid mission drift, and become financially more sustainable.

FUND Consulting is starting the year by focusing our work with clients on strategic services, designed to address these issues. Our strategic services are focused around market analysis, strategic planning, and capitalization planning.  While all of these services are effective as stand-alone products, we are linking the deliverables to our grant writing efforts.  The outcomes of this process include:

• A clear understanding of needs and strengths well in advance of application preparation
• Grant requests that are closely aligned with the core of the organization
• Streamlined work processes and increased quality

How does your organization tackle its funding requests? How are they linked to your strategic management processes?  What can you vow to do better this year?