OFN’s First Look at the CDFI Certification Updates

OFN’s First Look at the CDFI Certification Updates

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The CDFI Fund has released the updated and much-anticipated CDFI certification application

Community development financial institutions (CDFIs) have been eagerly anticipating updates to the application process for the industry’s most critical credential: CDFI certification. Unchanged for three decades, the revised application from the CDFI fund was released last week.  

OFN has been a strong advocate for changes that ensure the industry maintains a high standard of integrity and trust within the financial services sector and, more importantly, in the communities where we operate. Read OFN President and CEO Harold Pettigrew’s initial statement.  

As the leading national network of CDFIs, OFN has been most interested in seeing stronger community development mission requirements and a keen focus on responsible lending, both of which are in the revisions.  

Here is our first look at what’s in the new application.  

  • Increasing certainty and clarity for applicants. The CDFI Fund will provide a list of practices that it considers inconsistent with community development, giving applicants greater clarity about how the CDFI Fund will consider their products and services. Applicants that engage in these practices will have their application denied. The list of prohibited practices is in this summary document provided by the CDFI Fund.   
  • Allowing for flexibility. OFN strongly advocated for more flexibility in the application to allow CDFIs to explain how certain financial products that appear problematic or predatory serve a community development purpose. The revised application accommodates flexibility with explanation/justification.   
    For example, a draft version of the application would have immediately disqualified applicants that make small business loans with APRs over 36% without certain consumer protections in place (using the standard Truth in Lending Act methodology). In the final application, these loans no longer result in automatic disqualification. Instead, applicants that offer these loans will have the opportunity to explain how they are consistent with a community development mission. 
  • Calculating the financing entity test and preserving development services. Applicants for CDFI certification must demonstrate that the provision of financial products and/or services is their predominant business activity (as measured by assets and staff time). The proposed update precluded counting staff time spent on development services (technical assistance) towards the predominance test, which could have resulted in CDFIs limiting development services to meet the financing entity test, reducing access to technical assistance for borrowers that need it most.  

OFN urged the CDFI Fund to reconsider, and the final revised application addresses that concern. While staff time dedicated to development services cannot be used to demonstrate predominant business activity, the CDFI Fund will not include staff time dedicated to development services in the denominator of the calculation of predominance.  

  • Expanding the list of “Other Targeted Populations.” The new application lists new “Other Targeted Populations,” including persons with disabilities and Filipino and Vietnamese populations. The inclusion of these populations in the application will allow CDFIs to deepen their lending to these communities.  
  • Removing geographic boundaries on pre-qualified “Investment Areas” – The CDFI Fund incorporated an important flexible provision related to geographic boundaries on “Target Markets.” The new application designates a pre-qualified “Investment Area” consisting of individual census tracts that meet certain economic distress criteria. CDFI activity within these qualified “Investment Areas” will be counted as being within the entity’s “Target Market.” This policy change gives CDFIs more flexibility to make investments based on market conditions and need and will reduce the time spent on a lengthy approval process to update “Target Markets.” 

OFN is committed to guiding and supporting its more than 400 certified members as they navigate the new requirements and apply for certification under the new application. Stay tuned for informational webinars and other learning sessions on the new certification in 2024. 

For any questions on the updates to CDFI certification, contact Dafina Williams.   

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