Financial Trades Urge Congress Address Bias in CDFI Fund Allocation Process

Seven financial trade associations urged lawmakers to include in the upcoming appropriations bill language that would explicitly reaffirm Congress’ intent that the Community Development Financial Institutions program support the entire diverse CDFI sector.

The CDFI Fund’s current evaluation process combines all CDFI institutions -- which include both regulated bank and credit union CDFIs and unregulated nonprofit loan and venture capital funds -- into a single applicant pool. Bias in the process has resulted in non-regulated CDFIs receiving a disproportionate amount of funds in the 20-year period between 1996 and 2016. In fact, non-regulated loan funds received 81 percent of the funds during that time, while the nation’s regulated CDFIs -- which together represent 50 percent of all CDFI entities and 90 percent of total assets in the CDFI sector -- received less than 20 percent of CDFI funding, the trade associations said.

The letter suggested legislative language that would address this disparity and ensure funds are awarded proportionally.

The groups recommended adding the following language to the end of 12 USC 4706(b):

“and diverse applicants by institution type, which shall include all types of Insured Community Development Financial Institutions as defined by 12 USC 4702(c((13) and non-insured Community Development Financial Institutions in proportion to their representation by number in each application pool.”

The trade groups also recommended accompanying report language:

“Congress directs the CDFI Fund to ensure that its CDFI Program evaluation process results in a diverse group of awardees by institutional type, including Insured Community Development Financial Institutions that are banks, bank holding companies, and credit unions and non-insured CDFIs that are loan funds and venture that is proportional by number to the applicant pool for each funding round.”

“To fulfill Congressional intent, it is important for the CDFI Fund to serve the entire CDFI industry – not just one subsector,” the groups said.

Read the letter.