HOPE Submits Comments on CDFI Fund Certification Process

February 7th, 2023

December 5, 2022

Community Development Financial Institutions (CDFIs) are crucial to providing capital to low-income and underserved neighborhoods. Each year, CDFIs, like HOPE, deploy millions of dollars in financing and services to small business owners, first-time homebuyers, and commercial realtors to build critical infrastructure projects in communities that lack investment from mainstream financial institutions. The CDFI Fund requested comments on the CDFI certification process – how financial institutions gain and maintain access to CDFI funding opportunities through the CDFI Fund. Hope has published comments in response to the CDFI Fund Certification Application.

The recommendations are grounded in a perspective that balances the accountability of CDFIs to the communities they serve and ensures that barriers are not set in place that would unduly harm depository institutions from meeting their goals.

Key recommendations include:

Applicant Basic Information

Board and Executive Staff Demographic Information

HOPE strongly endorses the inclusion of Board and Executive Staff Demographic Information for every CDFI certified by the CDFI Fund. Currently, the CDFI Fund does not collect/publish data on the leadership of all certified CDFIs. In the absence of this information, it is not possible to conduct a comprehensive disparity analysis on award decisions based on the racial makeup of CDFI leadership. Such an analysis is critically needed as, historically, awards to white-led CDFIs have outpaced awards to CDFIs led by people of color.[1]

Primary Mission

Overdraft / NSF Fees

HOPE strongly supports the inclusion of responsible financial practices into the determination for CDFI certification. In all instances where the delivery of certain products and services would result in the deeming of an entity as ineligible for CDFI certification, the CDFI Fund must be clear and transparent on the types of products and services that would trigger such a determination. Currently, such guidance is clear for the evaluation of responsible mortgage lending. In the proposed application, guidance is not clear for overdraft and nonsufficient fund (NSF) fees. If the CDFI Fund proceeds with collecting information on the overdraft and NSF practices of CDFIs that offer these products, it must establish clear standards for evaluating whether or not a CDFI’s practices are responsible or not. Publication of such standards could have a transformative effect on the field. In the absence of this information, however, the CDFI Fund could de-certify a significant number of CDFIs, including a significant number of Minority Depository Institutions, without providing time to make adjustments.

Financing Entity

Certain Regulated Financial Institutions

In the proposed application, there is a list of Certain Regulated Financial Institutions “Presumed to meet the CDFI Certification Financing Entity requirements.” While the list includes FDIC-insured depositories, it currently excludes depositories with National Credit Union Administration (NCUA) insurance. The omission of depositories with NCUA insurance for this test is unacceptable and follows a pattern and practice in state legislatures where legislation has been passed to exclude credit unions from participation in the provision of financial services. For example, in Mississippi, credit unions are unable to accept deposits from local units of government. This law has placed an undue burden on multiple majority Black towns that could deposit local funds in Hope Credit Union – the only depository in the town – but cannot because of state law. The CDFI Fund should not sanction this type of divisive lawmaking leading to inequitable outcomes by engaging in a similar practice through its rulemaking. The CDFI Fund application should include the National Credit Union Administration insurance as a presumed financing entity. While the list includes other FDIC-insured depositories, it excludes credit unions. This places an undue burden on majority-black towns that could deposit local funds into these types of minority depository institutions.

Target Market

Target Market Assessment Methodology – Consumer Loans

There is currently a lack of congruence between some of the pre-approved methodologies for Target Market Assessments and the Equal Credit Opportunity Act. If this issue is not remedied, nearly all credit union CDFIs that use an “Other Targeted Population (OTP)” will be deemed ineligible for certification because lenders are generally prohibited from asking questions or collecting information about race on non-mortgage credit applications, which includes consumer loans.2 If consumer loans are excluded from the OTP Target Market calculation, credit union CDFIs will not be able to meet the 60% thresholds for deploying loans by number as consumer loans typically comprise the vast majority of loans, closed by number, for nearly, if not all, credit unions. Such actions would have drastic consequences for the CDFI field by limiting access to CDFI certification for Minority Depository Institutions which are highly likely to use an OTP Target Market. To respond to this issue, the CDFI Fund must add additional pre-approved methodologies to account for consumer loans. One approach to consider includes counting of all consumer loans closed in a majority-minority census tract as meeting the OTP threshold.

Hope’s full comment is available here.

[1] Kiyadh Burt, “Analyzing the CDFI Asset Gap: Analyzing the CDFI Asset Gap: Examining Racial Disparities in CDFI Fund Awardees from 2003 to 2017,” Hope Policy Institute, Nov. 5, 2020. http://hopepolicy.org/manage/wp-content/uploads/CDFI-Fund-Time-Series-Analysis-brief-edited.pdf