Banking trades align with credit union groups in criticism of new CDFI Certification process.
Banking trade groups this week panned proposed changes to the CDFI program—joining credit union associations in saying the rule would severely harm existing CDFIs.
Michael Emancipator, vice president and regulatory counsel at the Independent Community Bankers of America, said the changes proposed to the CDFI program would “irreversibly harm existing CDFI banks and prevent other banks from seeking the certification.”
CUNA and NAFCU leveled a similar criticism of the rule.
The Treasury Department and its CDFI Fund have proposed updates to the rules governing the CDFI program, contending that the current rules do not capture sufficient information about CDFIs.
Concerns Expressed by Banking Groups
However, Emancipator said that CDFI Fund officials have only provided a “perfunctory purpose for changing the information collection, possibly in violation of administrative laws that the fund is required to follow.” He urged the Office of Management and Budget to reject the proposal.
Emancipator added the most concerning revision was a dramatic expansion of information collected for determining the primary mission of a CDFI applicant, saying, “ICBA believes that these changes are unduly burdensome and risky to the safety and soundness of CDFIs that are prohibited from enacting risk mitigating measures, such as risk-based pricing or alternative product structure.”
He said the CDFI Fund should simply use the data already collected by a bank’s regulator.
Because CDFIs serve many un- or under-banked people, the risk profile of those customers may dictate pricing for a financial service that is not the same as the fees charged to other customers, he added. For instance, the proposal would require that certified CDFIs charge an interest rate no higher than 36% on short-term, small-dollar loans, which would keep some banks from offering those products.
The American Bankers Association agreed that the proposed rule would make it more difficult for banks to gain CDFI Certification.
“If finalized as currently proposed, the new standards could disadvantage current CDFIs relative to new applicants, make it difficult for CDFIs to offer products and services responsive to community needs, and negatively impact the ability of rural CDFIs to meet certification standards,” Sabrina Bergen, the trade group’s senior vice president of strategic engagement, wrote in a letter to the CDFI Fund.
Bergen said that certified CDFIs would have only 12 months to submit a recertification application but would be required to meet new Target Market benchmarks over an average of the past three years.
“As a result, CDFI banks that have been operating in compliance with existing certification standards may be penalized, and risk losing their certification without any opportunity to adjust their operations to meet the new requirements,” she wrote.
Bergen also criticized a proposal that certification applicants refrain from offering products and charging fees that fund officials have determined are inconsistent with community development mission principles, saying that the ability to offer flexible financing options is necessary in serving low-to-moderate income people.