ABA Backs Treasury Efforts to Update CDFI Certification

The American Bankers Association said yesterday that it supports the Treasury Department’s efforts to update the Community Development Financial Institutions certification process, noting that “we agree that CDFI certification should not be used to subsidize entities whose products, services, or policies do not align with the CDFI Fund’s mission to expand economic opportunity for underserved people and communities.”

ABA added that certification applicants should demonstrate their products are affordable and based on a borrower’s ability to repay and that “terms and conditions are clear and understandable.” The association cautioned against the use of a loan price cap based on the Military Lending Act’s military annual percentage rate and similar calculations as an automatic disqualifier for the certification, noting that “if an application reveals that annualized interest rates and fees applicable to a credit product may exceed a defined metric that should initiate a holistic evaluation of the product and the applicant’s experience with it to determine its merit in assisting underserved populations.”

ABA also urged Treasury to evaluate bank and credit union applicants for CDFI certification on the same terms, not relying upon the National Credit Union Administration’s low income credit union designation. Recent changes to the LICU designation “raise serious questions about whether these credit unions always can be assumed to serve a community development function, or for that matter, can even be assumed to focus their business on service to low-income consumers and underserved communities,” ABA said.