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As the Treasury Department considers changes to Community Development Financial Institution (CDFI) certification standards and a revised application, NAFCU and other trades that represent CDFI credit unions and banks are asking key lawmakers to meet to discuss the ongoing concerns of financial institutions about the changes at the CDFI Fund.

The CDFI Fund is currently in a six-month blackout period where it is not accepting new applications until April 2023 while it updates the form and process. A revised Certification Application was released for comment in November; NAFCU shared concerns about the changes and offered recommendations in a letter sent earlier this month. A substantive change to the primary section of the Certification Application will now include a bright-line questioning related to an organization’s lending and financing practices to better gauge an applicant’s “adherence to responsible financial practices.”

In a letter to members of the House Financial Services Committee and Senate Banking Committee, the trades outlined their concerns with the way the CDFI proposed application and guidance were issued, noting that they “constitute major policy changes” and should instead be considered through a formal rulemaking process.

“Specifically, we strongly believe that the proposed changes will significantly undermine the efforts of CDFIs to meet the needs of borrowers in low-income and distressed communities” they wrote. “In addition, the scope of the proposed changes is broad enough that we believe implementing those changes through the [Paperwork Reduction Act (PRA)] was procedurally inappropriate and did not allow for sufficient consideration of stakeholder feedback.”

While the intent of the proposed policy overhaul may be targeted at “bad apples,” the groups argued that “[m]ission-focused CDFIs with long track records of impact and quality service to low-income communities will be forced to make a painful choice.”

“Some will forgo CDFI certification and access to the CDFI Fund’s resources but continue to serve their communities, while others will maintain their CDFI certification at the expense of reductions in service and access to capital for CDFI Target Markets. We do not believe these choices should be inevitable, or forced by the CDFI Fund,” they concluded.

NAFCU has previously raised concerns about the lack of communication from the CDFI Fund on the application blackout and proposed changes. The association has a CDFI issue brief available to credit unions and continues to engage with Treasury and CDFI Fund officials on these concerns.