Community Development Financial Institutions

Position

• ICBA and CDFIs appreciate that the final certification application incorporates industry-requested changes to the proposal, such as removing the prohibition on balloon loans and other restrictions on consumer loan products.
• ICBA remains concerned with provisions that would restrict access to credit for certain populations, especially those in rural areas or in need of small-dollar products.
• ICBA supports increasing funding for the CDFI Fund, proceeds of which are used to help CDFI banks continue to innovate and help their communities.
• ICBA supports the creation of a legal and regulatory framework that promotes CDFI status among community banks and provides more opportunities for community banks to benefit from this special designation, such an automated or streamlined application for community banks located in low-income areas.
• Community Reinvestment Act exams of CDFIs should account for information that is already provided to the CDFI Fund through the application and annual certification process. Requiring a CDFI bank to provide similar information to two federal agencies is redundant and unnecessary.
• ICBA supports tax incentives to encourage deposits and investments in CDFIs.
• Grant proceeds from the CDFI Fund should be tax-free for CDFI banks, just as they are for CDFIs in other industries.

Background

CDFIs are specialized financial institutions that provide financial products and services to populations and businesses located in underserved markets. These institutions have community development missions and a reputation for lending responsibly in low-income communities. Community banks comprise over 20 percent of the CDFIs in the nation.

Before designation as a CDFI, banks must apply to the CDFI Fund for certification. Among other requirements, a bank must demonstrate a primary mission of community development, serve one or more target markets, provide development services to borrowers in conjunction with financing activities, and maintain accountability to its target market.

The CDFI Fund has finalized revisions to its application and annual certification. Among other provisions, the changes set an arbitrary interest rate cap that uses complicated MAPR calculations and requires CDFIs that have a customized investment area to achieve 85 percent of a LMI census tract before activity anywhere in a CIA can be counted.