CDFI Fund Requests Comments on Proposed Changes to CDFI Certification Application and Reporting Tools

Published by Bob Ibanez on Tuesday, May 12, 2020 - 12:00am

Community Development Financial Institutions (CDFI) Fund director Jodie Harris announced May 6 a request for public comment (RPC) on proposed changes to the CDFI Certification Application as well as a RPC on proposed changes to the Annual Certification and Data Collection Report (ACR) and a new Certification Transaction Level Report (CTLR). The revised application reflects changes to CDFI certification policy that resulted from the review of 28 letters and more than 200 pages of comments in response to a request for information in January 2017 seeking comments from the public regarding current CDFI certification policies and procedures.

It’s important to note that nothing the CDFI Fund is proposing does away with or adds to the seven criteria for becoming a CDFI established by the Riegle Community Development and Regulatory Improvement Act more than 25 years ago. However, the way in which the CDFI Fund implements some of these criteria into the CDFI Certification Application have been refined, and, in some cases, revamped.

In a nutshell, no substantive policy changes are being implemented in the Legal Entity, Development Services, or Non-Governmental Entity sections of the CDFI Certification Application. However, policy changes are impacting the Primary Mission, Financing Entity, Target Market and Accountability sections of the CDFI Certification application.

In the case of the Primary Mission section, the way the CDFI Fund has measured an organization’s primary mission has been to look at board approved organizational documents, mission statement and a brief narrative statement. Now, the CDFI Fund is proposing a more rigorous approach to examining alignment between an organization’s mission, its strategy and its products. Also, parent entities of all CDFI applicants and affiliates that provide financial products and/or financial services will now be required to demonstrate a community development primary mission, thereby extending an existing rule that previously only applied to depository institutions.

In the case of the Financing Entity section, the CDFI Fund is requiring a minimum of 12 months of financial product or financial services activity prior to the submission of a CDFI Certification Application. The CDFI Fund is also proposing to allow entities that are spun off from other entities that have an eligible financial product or financial services track record to apply for CDFI Certification less than 12 months after starting their own financial product or financial services activity, if the transactions are transferred to, and will continue under, the new entity.

In the case of the Target Market section, CDFIs are currently required to draw a map around their target markets and when the CDFI Fund measures organizations’ adherence to the target market test, only that activity that falls inside that defined geographic area is counted. The CDFI Fund is proposing to eliminate geographic boundaries and mapping requirements for most target markets. They are also operationalizing the use of financial services to meet the target market requirements. Now a regulated financial institution applicant can meet the target market test if at least 60 percent of its financial services depository accounts and 50 percent of its financial products are directed to a target market(s).

In the case of the Accountability section, the CDFI Fund is proposing to remove the geographic connection from the source of board member accountability to conform to the removal of the geographic boundaries for most target markets as well as set clear governing and advisory board member percentages standards.

In making these revisions, the CDFI Fund had the following five policy objectives:

  1. Continue to foster a diversity of CDFI types, activities and geographies;
  2. Support the growth and reach of CDFIs, especially as it relates to their ability to innovate and use new technologies;  
  3. Protect the CDFI brand;
  4. Minimize burden on CDFIs while improving data quality and collection methods; and
  5. Promote efficiency for CDFI Fund staff in rendering CDFI Certification determinations.

Revisions to the ACR and introduction of the CTLR are being made to align with and conform to revisions proposed to the CDFI Certification Application. Proposed revisions to the ACR are anticipated to automate key elements of existing reporting and improve data quality. Introduction of the CTLR will provide the CDFI Fund critical data that is not currently collected on new CDFI Certification Applicants and on Certified CDFIs that are not financial assistance recipients.

Specifically, it would collect a complete year of loan and investment origination data for new CDFI Certification Applicants, as well as for Certified CDFIs that are not current Financial Assistance award recipients (those recipients already submit the more extensive Transaction Level Report as part of their award commitments) to determine which loans and investments are deployed in a CDFI’s target market(s).

The combined information collected from these three applications and forms—the CDFI Certification Application, ACR and CTLR—would allow the CDFI Fund for the first time to paint a complete picture of the impact and activity of the certified CDFI community.

Comments on the CDFI Certification Application are due by August 5 and should go to the attention of Tanya McInnis, program manager for the Office of Certification, Compliance Monitoring and Evaluation. Comments on the ACR and CTLR are also due by August 5 and should go to the attention of Greg Bischak, program manager, Financial Strategies & Research. The public comment period will be held open for 90 days, instead of the standard 60 days, to give organizations more flexibility to respond to this request while balancing the many other pressing needs facing everyone today.