Treasury Department opens comment period on a revised CDFI Certification application that has been questioned by credit unions.
“The revised certification policies and application attempts both to provide the flexibility necessary for CDFIs to grow and to serve the hardest to reach distressed communities, and to maintain the integrity of what it means to be a certified CDFI from a mission perspective,” fund officials wrote, in the Federal Register announcement of the comment period.
The CDFI first proposed a revised application in May 2020 and following that comment period, fund officials decided to make additional changes.
They released a preview of that application last month.
“The significance of CDFI Certification has increased over the years, as the CDFI Certification status has come to serve as a qualifier for other federal government and private sector resources and benefits,” officials said, in opening the comment period.
In October, the CDFI program entered a “blackout” period, during which no new certification applications will be accepted. The blackout period will end in April 2023.
Fund officials said that CDFIs currently in a certification cure period related to a 2021 or 2022 ACR Report Year submission must follow the specific deadlines and deliverables associated with that cure requirement during the blackout period.
The Revised Application
Under the proposed application process, credit unions no longer would be able to use a Low-Income Designation as acceptable documentary evidence of a primary mission of community development.
The American Bankers Association had criticized the fund’s May 2020 proposal, saying that a credit union’s Low-Income Designation should not be used as evidence of a primary mission, adding that the designation had been watered down by the NCUA.
“A credit union’s status as an LICU [Low-Income Credit Union] should not be demonstrative of any component of the CDFI designation and should be decoupled from the CDFI certification process,” the ABA said at the time. “Instead, credit unions and banks should be evaluated under the same standards.”
In an attempt to ensure that organizations seeking certification are truly mission-focused, officials said the new application would include “bright-line questions” related to an institution’s lending and financing practices.
The application proposal would measure an applicant’s target financing over the most recently completed fiscal year and eliminate the requirement that the applicant also provide data on its year-to-date activity, according to CDFI Fund officials.
Reaction to the Proposal
When the Treasury Department first proposed the changes in May 2020, credit unions and their trade groups said they were concerned the application changes could create barriers for community-based institutions. They recommended that the CDFI Fund use NCUA data routinely collected during a credit union’s examination as part of the certification process.
For instance, the Vermont State Employees Credit Union said that initial proposal “creates a parallel, quasi-regulatory process that ignores the clear parameters already established by our actual regulators.”
In its comment, CUNA said the proposed application would have included ten questions requiring a credit union to demonstrate that its board is democratically elected.
“As all credit unions are required by law to be democratically controlled cooperatives, the addition of multiple questions on this subject is redundant and unnecessary,” the group wrote.
NAFCU officials said at the time that the definitions of “financial products” and “financial services” did not align with the distinctions formed by federal regulators.
The American Financial Services Association, which represents payday lenders, opposed that proposal.
However, in the application now being proposed, the CDFI Fund uses the 36% interest rate and says that any financial institution that exceeds that rate and does not enforce consumer protections would not be certified.