Advisory Board: CDFI Certification Process Must Allow for Flexibility

Learn why an advisory board concluded that the new CDFI Certification process must ensure both accountability and flexibility.

David Baumann


Aug 1



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David Baumann

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David Baumann

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Subcommittee regulations aim to ensure institutions have more than one avenue to demonstrate dedication to CDFI ‘brand.’

As CDFI Fund officials make changes to the program’s certification process, they must ensure that CDFIs have the flexibility to demonstrate their mission in a manner that follows the spirit, if not the word, of federal regulations, an advisory board said Monday.

The updated CDFI Certification process should not be so narrow that institutions do not have the opportunity to tell their own stories in order to demonstrate their dedication to the CDFI brand, Michael Swack, the chairman of a certification subcommittee formed by the CDFI Advisory board, said at a meeting.

The key, he added, is providing flexibility, while also ensuring accountability.

The full advisory board adopted the regulations developed by the subcommittee.

Backstory and Context

The CDFI Fund is updating its application and certification processes. As a result, the fund has been in an extended blackout period and has not been accepting applications.

Fund officials have released a proposed application and certification plan, but critics have said the plan is too inflexible and would result in many current CDFIs being unable to qualify for recertification.

“As the Fund works to finalize the Certification Application, specific technical changes are required to ensure that regulated financial institutions, like CDFI credit unions, may continue to be certified as CDFIs and meet their communities’ needs for safe and affordable credit and transaction accounts,” CUNA and NAFCU wrote in a memo to the advisory committee last week.

Subcommittee Findings

Swack said the CDFI Fund has a responsibility to maintain its brand, but at the same time strict rules that do not allow flexibility can have unintended consequences.

For instance, he noted, the proposed certification process calls for a CDFI to make mortgage loans only to people who have demonstrated an ability to repay their loan. Swack said that the fund should instead provide a CDFI with the opportunity to demonstrate why it may have made a loan to someone who has not demonstrated that ability.

He said further that proposed rules may be too strict in requiring a financial institution to provide direct benefits to borrowers, adding that “no one size fits all” in areas such as defining a financing entity and development services.

Additionally, Swack noted that strict conflict of interest rules also might prevent qualified people from serving on boards and committees, which is particularly true at credit unions, where board members also are credit union members.

Swack also said that CDFI Fund officials must ensure that program rules do not conflict with rules governing banks and credit unions.

Protecting the CDFI Brand

Bill Bynum, CEO of Hope Credit Union, agreed that flexibility is important, but that the certification process must be used to “protect the brand.”

He added, “The brand should matter.”


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