Community Development Financial Institutions

Position

• ICBA remains concerned with changes to CDFI certification that would restrict access to credit for certain populations, especially those in rural areas or in need of small-dollar products.
• ICBA supports increasing funding for the CDFI Fund, proceeds of which are used to help CDFI banks continue to innovate and help their communities.
• ICBA supports ECIP disposition Guidelines that would permit community banks and their affiliates to buy-back Treasury’s preferred shares at a de minimis amount, thereby providing mission-based lenders more resources to further help their communities.
• ICBA supports the creation of a legal and regulatory framework that promotes CDFI status among community banks and provides more opportunities for community banks to benefit from this special designation, such as an automated or streamlined application for community banks located in low-income areas.
• Community Reinvestment Act exams of CDFIs should account for information that is already provided to the CDFI Fund through the application and annual certification process. Requiring a CDFI bank to provide similar information to two federal agencies is redundant and unnecessary.
• ICBA supports tax incentives to encourage deposits and investments in CDFIs. (See Tax Policy resolution above.)
• Grant proceeds from the CDFI Fund should be tax-free for CDFI banks, just as they are for CDFIs in other industries.

Background

CDFIs are specialized financial institutions that provide financial products and services to populations and businesses located in underserved markets. These institutions have community development missions and a reputation for lending responsibly in low-income communities. Community banks comprise over 20 percent of the CDFIs in the nation.

Before designation as a CDFI, banks must apply to the CDFI Fund for certification. Among other requirements, a bank must demonstrate a primary mission of community development, serve one or more target markets, provide development services to borrowers in conjunction with financing activities, and maintain accountability to its target market.

The CDFI Fund has recently finalized revisions to its application and annual certification. Among other provisions, the changes set an arbitrary interest rate cap that uses complicated MAPR calculations and requires CDFIs that have a customized investment area to achieve 85 percent of a LMI census tract before activity anywhere in a CIA can be counted.

The Emergency Capital Investment Program (ECIP) made approximately $8.57 billion in investments in CDFI banks and credit unions to enable recipients to provide loans, grants, and forbearance to small businesses, minority-owned businesses, and consumers, especially in low-income and underserved communities. Treasury may transfer or sell ECIP investments for no or de minimis consideration to a “mission aligned nonprofit affiliate” of an applicant that is an insured CDFI.