U.S. Treasury Department Updates Certification Application for Community Development Financial Institutions to Promote Responsible Lending to Financially Underserved Communities

The U.S. Department of the Treasury (USDT) has issued a press release to inform of revisions to the Community Development Financial Institutions Fund’s (CDFI Fund’s) certification and application procedures (for a description of the CDFI Fund’s objectives, see the comment box below). Specifically, the procedures have been revised to reflect changes in the financial market ecosystem and to enhance clarity over the application and eligibility requirements. The revisions resulted in a
– Revised CDFI Certification Application
– Revised CDFI Fund Annual Certification and Data Collection Report Form & Instructions.
Furthermore, the USDT has published an Overview of Key Updates to the CDFI Certification Application to provide a brief summary of the key changes which are briefly described below:
List of disqualifying activities: The fund has included a new list of activities and circumstances that are NOT considered „promoting a community development mission“. Such activities and circumstances include the origination of mortgage loans whose interest rates are above those of non-financial institutions offering such loans in the same area, an institution’s CRA rating of „below satisfactory“, or the origination of loans with upfront charges of more than 3% or with interest only payments, to name the most significant ones.
New responsible financing standards in relation to small business lending: The fund has included new disclosure requirements for loans involving small businesses. Specifically, it requires lenders to provide clear information to borrowers about periodic payments, total repayment amounts, aggregate finance charges over the loan period, and the APR to enhance transparency and empower small business borrowers to make informed decisions regarding their loans. The CDFI Fund has also enclosed provisions that „prohibit“ venture capital funds to engage with small businesses so as to gain control over their firms.
Meeting target market objectives: To qualify as a CDFI, an applicant typically needs to direct at least 60% of the quantity and dollar volume of certain financial products to eligible target markets. However, to recognize potential challenges that may be beyond the control of applicant institutions and that might lead to falling short of these benchmarks in a given year, the revised application introduces more flexibility in this context. Specifically, if a certified CDFI fails to meet the target market benchmark in its most recent fiscal year, there’s an option to maintain certification by demonstrating that this benchmark was met over the previous three-year period under specific circumstances.
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To find out more about the revisions, please refer to the above noted press release and the „summary“ of the changes.