CU Trades Lambaste CDFI Fund Over Proposed Certification Rules

CUNA and NAFCU both strongly criticize proposed CDFI Certification process, outline recommendations.

Proposed changes to the CDFI Fund would disqualify many credit unions from even being considered for the program, the two national credit union trade groups told fund officials Monday.

“If changes to the CDFI Certification Application result in the prevention of a significant number of credit unions from being CDFI-certified due to basic legal and structural requirements, then they are simply not appropriate criteria and should be rethought,” Elizabeth Sullivan, CUNA’s senior director of advocacy and counsel, told fund officials.

“NAFCU discourages the CDFI Fund from essentially becoming a de facto regulator of CDFIs and urges the CDFI Fund to defer to the applicant’s functional regulator regarding what products should and should not be offered to consumers,” Aminah Moore, the trade group’s senior regulatory affairs counsel, told agency officials.

The CDFI Fund, operated by the Treasury Department, has proposed overhauling the program’s application and certification processes.

Specific Concerns and Recommendations

CUNA

• A proposal to grant the CDFI Fund absolute authority to terminate certification, without allowing a credit union to address issues leading to the termination would violate procedural due process requirements under the Constitution, Sullivan wrote. Fund officials must therefore provide a reasonable response period before termination, she added.
• Parts of the proposed application “would exclude significant swaths of credit unions from qualifying as CDFIs for reasons that are incidental or inexplicable,” Sullivan continued. “Many of these changes are not supported by policy justifications in the application and are in opposition to statutory or regulatory provisions applicable to credit unions.”
• Fund officials should consider alternative treatment for applicants that have eliminated any prohibited products in advance of their applications, regardless of whether they were in place during the preceding 12 months. In addition, all products that have been approved by an institution’s prudential regulator should be pre-approved by the fund.
• The proposed application specifies that CDFI Certification status cannot be transferred to another entity—meaning that any credit unions that merge with another institution would lose their certification.
  
• Certain small-dollar loan products endorsed by other regulators could be prohibited under the new process. The Federal Credit Union Act allows credit unions to charge up to 28% interest rate and a fee up to $20.64 for small-dollar loans. That could, under certain circumstances, violate the CDFI Fund’s proposed 36% maximum APR for those loans.
• If the CDFI Fund attempts to define acceptable features of a mortgage, it could eliminate the ability of CDFI credit unions to provide “more creative offerings.”
• The proposed application states that governing board members with active accounts cannot demonstrate the required target market—a restriction that could require board members to force credit unions to sell the loans of board members to other financial institutions.

NAFCU

• “NAFCU does not support the proposed changes to the certification standards and recommends increased transparency and minimal discretion from the CDFI Fund regarding all certification requirements so that new applicants and already established CDFIs can comply with a predictable process without excessive regulatory burdens,” Moore wrote. NAFCU recommended that CDFIs be given a three-year cure period to come into compliance with the new standards.
• The fund should not eliminate a credit union’s NCUA Low-Income Designation as evidence of a community development strategy.
• Fund officials should provide credit unions with an exemption that would allow them to continue to offer alternative payday loans. “Disqualifying applicants because they offer products that are in most cases the only products that a borrower is eligible for contradicts the mission statement of CDFIs,” Moore said.
• NAFCU discouraged the fund from regulating consumer fees, contending that fund officials do not have the regulatory authority to impose such limits.
• The CDFI Fund should not impose new restrictions on credit union boards because directors are democratically elected.