Lizeth GeorgeThis week, the CDFI Fund released their preview of revisions to the new CDFI Certification Application. In the coming weeks, the revised application will be released by the Office of Management and Budget for the final round of public comment. Please note this will be the last opportunity for public input on the revised CDFI Certification Application and reporting requirements before they are implemented in April 2023.
Due to unprecedented levels of resources being directed at CDFIs, the proposed changes to the Certification Application aim to set high standards for mission, responsible products and services provided, accountability, conduct, and performance. The most significant changes are expected to deal with Primary Mission, Target Market, and Accountability. At a high-level, a few revisions are included below:
- Primary Mission. To reinforce and strengthen the CDFI Fund’s ability to verify that organizations seeking Certification are truly mission-focused, the Application now includes bright-line questions related to an organization’s lending and financing practices. In situations where the CDFI Fund is able to make clear-cut distinctions that an Applicant’s Financial Products or practices are harmful to low-income and underserved communities, indicate absence of a community development mission, or harm the CDFI brand, the proposed CDFI Certification Application would be disqualified for failing to meet set standards (for example, any CDFI Certification Applicant that offers loans in excess of a 36% rate and fails to demonstrate that they meet specific safety and consumer protection standards would be disqualified. This level of review applies to other financing practices, beyond just loans that exceed 36%).
- Target Market. Initial revisions made to the Target Market section of the Application were essentially retained, including the elimination of geographic boundaries and mapping requirements for most Target Markets. The Application will now measure an Applicant’s Target Market financing activity over the most recently completed fiscal year only and eliminate the requirement that the Applicant also provide data on its year-to-date activity.
The Application also maintains the requirement, as originally proposed back in 2020, that Applicants meet Financial Product activity thresholds, without exception, in both the number and dollar amount of such activity. Some commenters advocated that the CDFI Fund should retain its policy of being flexible and allow Applicants to meet Target Market standards for Financial Product activity through demonstration of either number or dollar volume of lending. Requiring a high standard of service to a Target Market in both number and dollar volume ensures: 1) a CDFI’s financing activity is consistent with its Primary Mission, and 2) a CDFI maintains a focus on all of its activity and does not reserve its higher-dollar Financial Products for its non-Target Market customers. As originally proposed, the revised Application expands opportunities to receive Target Market credit, as well as allow Certified CDFIs, to meet the thresholds based on a three-year rolling average.
- Accountability. The revisions proposed to the Application back in 2020 increased emphasis on the use of governing boards to demonstrate Accountability to a Target Market. However, in recognition of some of the unique board-related challenges faced by regulated entities, new revisions to the CDFI Certification Application create advisory board options for bank and credit union CDFIs.
For full information, please visit https://www.cdfifund.gov/news/487.
In the coming weeks, the CDFI Fund will be releasing previews of additional revisions that have been proposed to the Application. The Fund will also be sharing guidance to provide a clearer understanding of the pending changes.
