Strengthening Certification Requirements Will Ensure CDFI Brand Remains Strong
In November, the Community Development Financial Institutions (CDFI) Fund released data that reveal the diversity of institution types (i.e. banks, credit unions, loan funds and venture funds), products and services offered by CDFI Fund awardees, and resulting impacts in low-income communities.
The data is derived from institutional and transactional level reports submitted to the CDFI Fund by CDFI and Native American CDFI Assistance (NACA) Program Financial Assistance and Technical Assistance awardees. The CDFI Fund releases this data on an annual basis along with a synopsis of key findings. It is noteworthy that the data was only collected from 287 CDFI and NACA awardees and not the universe of certified CDFIs that now exceeds 1,000.
Recognizing that the number of certified CDFIs has grown to a critical mass, the CDFI Fund is in the process of revisiting CDFI certification. While the CDFI certification application that was out for public comment earlier this year was similar to the one already in use, the CDFI Fund was quick to point out that it did not include any changes regarding CDFI certification application criteria that may result from the request for information the CDFI Fund published in 2017.
The CDFI Fund’s Five-Year Strategic Plan (FY 2017 - FY 2022) also provides evidence of the importance placed on CDFI designation by the CDFI Fund. Strategic objective 1.4 specifically speaks to holding all certified CDFIs (and community development entities under the New Markets Tax Credit Program) accountable to a primary mission of promoting community development –one of the seven criteria that an applicant must meet in order to be certified.
The benefits of attaining CDFI certification extend beyond access to the monetary and tax credit programs administered by the CDFI Fund. Designation as a certified CDFI has enabled some CDFIs to become members of the Federal Home Loan Bank (FHLB) system and consequently access to a new source of capital for lending in low-income communities, including the FHLBs’ affordable housing and community investment programs.
The OCC, FDIC, and Federal Reserve Board also recognize the importance of CDFI designation. The guidance on the interpretation and application of the Community Reinvestment Act (CRA) regulations explicitly recognizes loans to and equity investments in CDFIs as community development activities. An OCC Community Development Investments article in March 2017 also indicates that banks that provide technical assistance for CDFIs—including developing loan application and underwriting standards, lending employees, or serving on boards and committees—are eligible for CRA consideration for these activities as a community development service.
Perhaps a lesser known benefit of CDFI certification for banks dealing with compliance of a mortgage-related regulation issued by the Consumer Financial Protection Bureau (CFPB) known as the ability-to-repay rule (ATR rule) is that the CFPB's regulations completely exempt mortgage loans made by certified CDFIs from the ATR rule (other than restrictions on prepayment penalties).
Credit unions are also keenly aware that CDFI certification is valuable and their regulator, the National Credit Union Administration has entered into an agreement with the CDFI Fund to streamline the application process for qualifying low-income credit unions to become certified as CDFIs.
CDFI designation also represents a recognizable industry standard for socially responsible investors. With a growing track record of success since the CDFI Fund’s inception in 1995, designation as a CDFI has resulted in CDFIs receiving significant support and funding from both private (e.g. banks) and public (e.g. philanthropic) sources.
The value of CDFI designation is clear and will continue to be sought after by both for- and nonprofit organizations working in low-income communities. With the ability to not only access CDFI Fund programs but also leverage the designation with other entities, it’s worth the time and effort of applying for CDFI certification.
While the CDFI Fund has not yet announced when it will publish its new CDFI certification application, one should not be surprised if there are modifications to the existing criteria, and possibly additional criteria as well, intended to ensure the CDFI brand remains strong into the foreseeable future.