Giving MDIs and CDFIs a much-needed boost

By Kianga Lee and Rhonda Thomas-Whitley

ICBA has a long-standing commitment to Minority Depository Institutions (MDIs) and Community Development Financial Institutions (CDFIs). They play a crucial role in providing credit, capital and financial services to low- to moderate-income and minority communities in economically distressed urban, rural and suburban areas that have historically been underserved by the financial industry.

Now with economic justice becoming an increasingly important part of our nation’s conversation about racial equity, ICBA’s advocacy team continues to work across the aisle to shape legislation that empowers MDIs and CDFIs to better serve their communities.

For more than a decade, the community bank members of ICBA’s Minority Bank Advisory Council have shared their real-world insights, experiences and ideas to enhance ICBA advocacy and solutions benefiting minority banks and the communities they serve. Among the council’s former chairmen are ICBA president and CEO Rebeca Romero Rainey, who led the committee during her days at Centinel Bank, an MDI in Taos, N.M.

Today, the committee and ICBA are pushing for legislative provisions that would give these institutions flexibility to create loan products that meet the needs of their communities and eliminate restrictions that would unnecessarily hamper their ability to meet those needs. In particular, ICBA would like to see changes that spur the creation of de novo MDIs, streamline the CDFI application and recertification process, and provide financial and technical assistance to MDIs and CDFIs.

ICBA’s suggestions for how legislation can strengthen MDIs and CDFIs include:

  • Funding for the CDFI Fund’s Loan Loss Reserve Fund for small-dollar loans
  • Additional appropriations for the CDFI Fund to provide technical assistance to CDFIs
  • Capital investments and low-interest loans for MDIs
  • An “Impact Bank” designation for institutions that are providing the majority of their loans to low-income borrowers, so that assistance can be directed to those institutions that are having the greatest impact in low-income communities
  • Phased-in capital requirements for de novo MDIs to allow them three years to meet full capital requirements
  • A codified and strengthened Treasury mentor-protégé program through analysis of the efficacy and financial benefit of these programs to the participants
  • A streamlined CDFI application and recertification process.

Congress is proving receptive to the message. The Ensuring Diversity in Community Banking Act (H.R. 5322), introduced by House Financial Services chairman Gregory Meeks (D-N.Y.) passed the House with bipartisan support as part of the HEROES Act (H.R. 6800). Designed to mitigate the impact of the COVID-19 pandemic, it includes numerous provisions to strengthen MDIs. Several other bills with ICBA-supported provisions are also circulating on Capitol Hill.

Making the case to Congress

ICBA has taken an active role in shaping these bills. Last October, Jill Sung, Minority Bank Advisory Council chairman and president, and CEO of Abacus Federal Savings Bank in New York City, testified at a House Financial Services Committee hearing about the unusual challenges faced by MDIs like hers and what Congress can do to help them better serve their communities.

In June, James Sills, president and CEO of M&F Bank in Durham, N.C., and vice chairman of ICBA’s Minority Bank Advisory Council, testified before the House Subcommittee on Consumer Protection and Financial Institutions. His testimony highlighted how, despite challenges, MDIs like his—the oldest African American bank in the nation—were able to leverage the Paycheck Protection Program (PPP) to help save thousands of jobs in the communities they serve. In addition to advocating for PPP improvements to benefit borrowers, Sills made the case for ICBA’s ideas on how to strengthen these critical institutions.

Minority banks still play a crucial role in many minority and low- to moderate-income communities and small businesses, often serving as the only safe option for them to do business. Without minority banks, many minorities and low- to moderate-income customers would be susceptible to predatory practices, such as payday loans and car title loans that only keep them in debt.

Yet the number of MDIs and CDFIs continues to fall. Nearly a third of minority banks closed or merged between 2008 and 2018, leaving just 143 of them.

ICBA is committed to strengthening minority banks, which are essential financial institutions that know and understand the culture of the communities they serve and provide customized and culturally sensitive products and services. From making housing affordable and revitalizing community facilities to providing financial literacy and technical assistance to their customers, they are catalysts for economic growth and epitomize the mission and vision of the community banking industry.

ICBA thanks the members of Congress who are working to pass legislation to strengthen MDIs and CDFIs. We look forward to seeing further progress on these issues.