E8-2008. Request for Public Comments, Community Development Financial Institutions Program

AGENCY:

Community Development Financial Institutions Fund, Department of the Treasury.

SUMMARY:

This document invites comments from the public on certain issues regarding, for purposes of the Community Development Financial Institutions (CDFI) Program, the CDFI Fund's certification of entities as CDFIs, pursuant to the CDFI Program regulations set forth at 12 CFR 1805.201. All materials submitted will be available for public inspection and copying.

DATES:

Written comments should be received on or before March 5, 2008 to be assured of consideration.

ADDRESSES:

Comments should be sent by mail to: Certification and Training Manager, CDFI Fund, U.S. Department of the Treasury, 601 13th Street, NW., Suite 200 South, Washington, DC 20005; by e-mail to [e-mail]; or by facsimile at [phone]. This is not a toll free number.

FOR FURTHER INFORMATION CONTACT:

Information regarding the CDFI Fund and its programs may be downloaded from the CDFI Fund's Web site at http://www.cdfifund.gov.

SUPPLEMENTARY INFORMATION:

The Community Development Banking and Financial Institutions Act of 1994 (12 U.S.C. 4701 et seq.) authorizes the CDFI Fund to select and provide financial assistance and technical assistance to eligible applicants through the CDFI Program. Pursuant to 12 U.S.C. 4702(5)(a) and in accordance with regulations set forth at 12 CFR 1805.201, the CDFI Fund certifies eligible entities as CDFIs. The capitalized terms found in this notice are defined in the CDFI Program regulations found at 12 CFR part 1805. Through this notice, the CDFI Fund is seeking comments from the public regarding the CDFI Fund's certification of organizations as CDFIs. Commentators are encouraged to consider, at a minimum, the following issues:

(1) Primary Mission Criteria: To be certified as a CDFI, the entity must have a primary mission of community development (12 CFR 1805.201(b)(1)).

(a) Should the primary mission criteria differ by organization type? If so, how?

(b)(i) Should the CDFI Fund consider the types of Financial Products offered by an entity as relevant to the primary mission criteria? Specifically, should the CDFI Fund review, as part of the certification process, evidence of the affordability of an entity's Financial Products to the intended customers?

(ii) How else might the CDFI Fund ensure that CDFI certification is not given to entities that engage in what are commonly called “predatory lending practices” or include so-called “predatory lending terms” in their lending products?

(iii) Should the CDFI Fund require entities to provide Financial Products at a cost that is at least comparable to market rates or at some minimum level of affordability to their Target Markets in order to satisfy the primary mission criteria? If yes, how should market rates or minimum levels of affordability be determined?

(2) Financing Entity Criteria: To be certified as a CDFI, an entity's predominant business activity must be the provision, in arms-length transactions, of Financial Products, Development Services, and/or other similar financing (12 CFR 1805.201(b)(2)).

(a)(i) What minimum level of financing activity (i.e., number of transactions, dollar amount of transactions, years of operation, and/or financing) should the CDFI Fund consider to be acceptable to determine that an entity is a financing entity?

(ii) How might this minimum level differ among organization types?

(b)(i) Is three (3) months worth of financing capital a reasonable measure of an entity's ability to sustain its financing activities? Should the period of time be longer or shorter?

(ii) What other measure(s) should the CDFI Fund use to determine that an entity can sustain its financing activities?

(c) The CDFI Fund's definition of Financial Products includes Loans, Equity Investments, and similar financing activities (as determined by the CDFI Fund) including the purchase of loans originated by certified CDFIs and the provision of loan guarantees. Should the CDFI Fund expand this definition? If so, what other products should be included?

(3) Target Market Criteria: In order to be certified as a CDFI, an entity must serve a Target Market consisting of one or more Investment Areas and/or Targeted Populations (12 CFR 1805.201(b)(3)).

(a) Are the CDFI Fund's Target Market options (Investment Area, Low Income Target Population, and Other Targeted Population) clear? If not, how can the CDFI Fund make the options more clear?

(b) Should a certification applicant be required to demonstrate a track record of serving the requested Target Market? If so, what is an appropriate minimum time-frame to establish such a track record? Please provide reasons to support your response.

(c) Should the CDFI Fund allow different types of organizations to meet the Target Market requirement at different benchmarks (i.e., percentage of activities directed toward the Target Market could deviate from the required 60 percent level for certain types of organizations)? If so, what level of activity would be acceptable for specific organization types?

(c) Should certification applicants be required to have a physical presence in their Target Markets (i.e., a branch, an office, local partners)? If so, what is an acceptable minimum level of presence?

(4) Accountability Criteria: To be certified as a CDFI, an entity must maintain accountability to residents of its Target Market through representation on its governing board or otherwise (12 CFR 1805.201(b)(5)).

(a) (i) How many governing and/or advisory board members representing a Target Market should the CDFI Fund require to determine that an entity is accountable to its Target Market?

(ii) How should the geographic size, population density of the Target Market, and/or board type (governing vs. advisory) factor into the number of representative board members necessary to demonstrate accountability to a Target Market?

(b) Should the CDFI Fund expand or restrict the ways that board members can be deemed to be representative of a Target Market?

(c) (i) Should the CDFI Fund continue to allow certification applicants to demonstrate accountability to Target Markets through “other mechanisms” (i.e. annual meetings, surveys)?

(ii) If so, what additional types of mechanisms should be considered to demonstrate accountability?

(5) Development Services Criteria: To be certified as a CDFI, an entity must provide Development Services in conjunction with its Financial Products, either directly or through an Affiliate, or through contract with another provider (12 CFR 1805.201(b)(4)).

(a) What minimum level of Development Services should be expected of a CDFI (i.e. is one-on-one counseling enough or should training be more formal/standardized?)?

(b) Should the CDFI Fund require an entity to provide Development Services that are linked to each Financial Product that it offers?

(c) Should Development Services include broad efforts to increase financial education and literacy within an entity's Target Market?

(6) Non-Governmental Entity Criteria: To be certified as a CDFI, an entity cannot be an agency or instrumentality of the United States, or any State or political subdivision thereof. An entity that is created by, or that receives substantial assistance from, one or more government entities may be a CDFI provided it is not controlled by such entities and maintains independent decision-making power over its activities (12 CFR 1805.201(b)(6)).

(a) What minimal levels of government support for an entity's operations (e.g., funding and capitalization) or government involvement in an entity's lending or investment decisions (e.g., underwriting criteria or loan approval) should be considered acceptable for certification?

(b) Should governmental “operations support” and government “involvement in lending and investment decisions” be considered separately or should evidence of both be required in order to deem an entity as having failed to satisfy the non-governmental entity criteria?

(7) CDFI Certification Application Process:

(a) Should an electronic, web-based CDFI certification application process be implemented and, if so, should paper applications continue to be accepted?

(b) (i) Should CDFI certification status extend for a fixed period of time before it expires? If so, is three (3) years an appropriate duration?

(ii) Should CDFI certification be continued indefinitely if the certified CDFI does not request an award from the CDFI Fund?

(iii) Is there any policy justification to designate different certification periods for different types of organizations? If so, how long should certification periods be for specific types of organizations?

(c) What should be the primary components of a recertification process?

(8) General: What other changes could the CDFI Fund make to improve the CDFI certification process that has not been addressed in the preceding questions?

Authority: 12 U.S.C. 4703, 4703 note, 4704, 4706, 4707, 4717; 12 CFR part 1805.

Dated: January 28, 2008.

Donna J. Gambrell,

Director, Community Development Financial Institutions Fund.