HOPE Submits Comments on Minority Lending Institution Designation Criteria

February 7th, 2023

November 23, 2022

Minority-serving institutions serve a critical role in combatting capital access gaps and racial wealth inequities for communities of color. The CDFI Fund requested comments on how best to understand and define “minority lending” institutions. As one of the nation’s largest Black- and women-owned financial institutions, HOPE is well-positioned to provide insights on minority lending designation criteria.

HOPE has published recommendations on minority lending designation criteria in three areas:

Defining Majority–Minority Census Tracts
Designation Criteria – Financial Products Directed to Minorities in Majority-Minority Census Tracts
Ensuring Accountability to Minority Populations Represented and Served

Each recommendation answers a question or questions posed by the request for comment. Key recommendations in HOPE’s comment are denoted through questions:

Definitions – Majority-Minority Census Tracts

Are the proposed definitions of “Minority” and “Majority-Minority Census Tracts” appropriate for the purposes of designating an MLI?

The Consolidated Appropriations Act of 2021 (the Act) defines an MLI as a CDFI that (i) directs a majority of its financial products to minority populations or communities; and (ii) either (a) is a Minority Depository Institution (MDI) or (b) demonstrates accountability to Minority populations. The Act defines “minority” as “any Black American, Hispanic American, Asian American, Native American, Native Alaskan, Native Hawaiian, or Pacific Islander.” The Fund proposes to define “Majority-Minority Census Tracts,” for purposes of designating an MLI, as “those census tracts or equivalents in which the sum of the tract’s non-duplicative population of Minority persons is greater than 50 percent of the census tract’s total population, as determined by the U.S. Census Bureau.”

HOPE supports the proposed definitions of “Minority” and “Majority-Minority Census Tracts.”

Designation Criteria – Financial Products Directed to Minorities in Majority-Minority Census Tracts

Is a rolling 36-month period the appropriate length of time to assess an applicant’s track record of serving Minorities or Majority-Minority Census Tracts for the purposes of designating a CDFI an MLI? Should the CDFI Fund instead require applicants to meet this requirement using some other time period, either upon initial designation or to maintain the designation? If yes, what is an appropriate time period?

Critical to the definition of a Minority Lending Institution is a requirement that financial institutions that receive the designation demonstrate a track record of consistent lending to people and communities of color. HOPE supports the use of a three-year look back, at a minimum, of each completed fiscal year. In each of the years evaluated, at least 50% of lending, by number and by dollar, should be to people who meet the CDFI Funds definition of “minority” or in census tracts that meet the proposed definition of “Majority-minority” census tracts.

Accountability

Should a majority (greater than 50 percent) of a CDFI’s governing board members be required to be members of Minority populations to demonstrate accountability to Minority populations? Specifically, the CDFI Fund requests comments on whether it should set a standard higher than the 33 percent level proposed separately for Native CDFI designation and for general Target Market accountability as part of the CDFI Fund certification standards.

HOPE strongly advocates that at least 51% of a CDFI’s governing board be members of a minority population. Given the governance responsibilities of the board of directors, which include the hiring and performance management of the organization’s Chief Executive, this criteria is necessary to meet the accountability requirements of the MLI designation.

HOPE’s position is informed by 25 years of financial service provision among historically underserved communities in the Deep South. Since 1994, HOPE has worked to ensure that all people, regardless of where they live, their gender, race, or place of birth, have the opportunity to support their families and realize the American Dream. Hope has generated over $3.6 billion in financing and related services for the unbanked and underbanked, homeowners, entrepreneurs, nonprofit organizations, health care providers and other community and economic development purposes. Collectively, these activities have benefited more than 2 million individuals throughout the Deep South. Our impact is evidence that increasing financial inclusion is possible for vulnerable populations, and the institutions that serve them need proper investments and accountability to ensure capital flows to communities most in need.

HOPE’s full comment is available here.