Material Events: What They Mean for CDFI Credit Unions
And what exactly is a material event, anyway?
Christine Duncan, VP Grant Compliance, CU Strategic Planning
Becoming a CDFI credit union isn’t easy, and there are plenty of details involved in maintaining that certification that can be hard to keep track of. Credit unions have to be able to deal with change – your CEO might retire, you hire a new COO, the plant your credit union serves is shuttered, you undergo a name change or merger. When these changes occur, especially unexpected ones, making sure that the CDFI Fund has been notified may be the last thing on your mind. However, CDFIs must properly report these “material events” in the required timeframe or risk losing their CDFI certification.
What is a Material Event?
The CDFI Fund defines a material event as “any change in an organization’s condition that may affect an entity’s ability to meet the terms and conditions of an Assistance, Award, Allocation, Bond Loan Agreement, Agreement to Guarantee, regulation, or law.”
In plain English, it means anytime your credit union undergoes anything significant enough that might change who is operating the credit union and how it is operating, it must be recorded and reported to the CDFI Fund. If a credit union fails to report these events, they could be considered " noncompliant” and risk losing their CDFI certification.
What Qualifies as a Material Event?
Alongside significant changes, many common occurrences in credit unions can count as material events. Unfortunately, credit unions may not always see things that way or be swept up in the action.
As head of CU Strategic Planning’s compliance department, I’ve seen this happen. Credit unions don’t think to tell us because they are in the middle of it, or it doesn’t seem like that big of a deal, like their CFO turning over, or they merge in a small credit union. But those are exactly the things the CDFI Fund wants to know.
Here are some examples of common material events:
Operational
Anytime a credit union undergoes a significant operations change, that is considered a material event. A typical example of this material event is changes to your leadership, including executive positions and board members. CEOs and other leaders eventually retire or leave the credit union; that’s a material event. The CDFI Fund also needs to know when replacements are hired. Another common occurrence is credit union mergers, which have become all too common lately.
The CDFI Fund will also want to know if your credit union is creating new programs or updating existing ones for your members. Such changes can impact how everything runs day to day, so it’s important to keep track and report on these plans.
Financial
Naturally, the CDFI Fund wants to know about a CDFI’s finances. Much of that is taken care of as part of regular reporting, including the grant compliance reporting we provide for our clients. But any unexpected financial hit like internal fraud or regulatory findings — anything that will impact how your credit union can serve your Target Market — is considered a material event.
Legal
Legal troubles can significantly impact your CDFI eligibility. If an employee or credit union breaks the law, expect your certification status to be at risk. Of course, credit unions can be the victims of crimes, such as scams, cybercrime and fraud, and you will need to let the CDFI Fund know those details as well.
Changes to the Market
Changes to the market your credit union serves also need to be reported, but only if they directly impact your ability to maintain your certification. If such an event happens, modifications to your CDFI agreement may be necessary to address any issues. You will also need to report these changes during your next annual certification.
How Do Credit Unions Report Material Events?
To report a material event, credit unions must complete a Certification of Material Events Form that can be found through the AMIS Service Request portal. This form must be completed within 30 days of the material event, or the timeframe stated in your CDFI Fund Program agreement. Additionally, the form must be signed by your credit union’s Authorized Representative. We can take care of this process for our clients and are happy to do so – as long as we’re informed!
We tell our clients that whoever oversees the credit union’s CDFI certification should check in with their team on a regular basis and report back to us if there are any changes. Ratcheting up those internal controls a bit can prevent things from slipping through the cracks.
Most of the types of material events happen every day at credit unions around the country. While many of these are routine, that doesn’t mean they’re not relevant. The CDFI Fund is tasked with ensuring that all CDFIs able to fulfill their mission and serve their Target Markets, and that includes being informed of material events in a timely fashion. Change is inevitable for a credit union, so make sure that yours keeps up with its material events reporting to be able to continue to serve your members without disruption.