NAFCU: Increased Funding Alone Won’t Solve CDFI Fund Problems

Credit union trade group releases issue brief offering several recommendations to update CDFI program.

Additional money will not solve the problems with the CDFI program, NAFCU said in an issue brief, released late last week.

“NAFCU would like to stress that additional funding alone cannot and will not solve the structural issues with the certification and recertification process,” the trade group said, adding, “In order to improve the CDFI Fund and its certification process, Congress should begin with updating…the statute that governs the CDFI Fund and its program, to require Treasury and the CDFI Fund to develop and implement a simpler, more modern approach.”

NAFCU has released a series of issue briefs as officials from its member credit unions travel to Washington, D.C. for the group’s annual Congressional Caucus next week. The briefs were prepared so that the officials can raise issues if they meet with lawmakers, their staffs, or regulators.

Background on the Issue

In recent months, credit union trade groups have identified a series of problems with the CDFI program—ranging from the length of time it takes the Treasury Department to review applications to communication issues with department officials.

The Treasury Department has announced a six-month blackout period for the program so that fund officials can construct a new certification application and process.

NAFCU said that Treasury Department officials have warned that the new application and process will require financial institutions to report more data and change the way they conduct business—a development the trade group said will cause even more problems.

What Does the Issue Brief Call For?

The agency noted it always has advocated for additional funding for the CDFI program, however, the issue brief goes on to make a series of recommendations for changes, including:

–Streamlining the application process.

–Requiring a mandatory cure period before the CDFI Fund decertifies a financial institution. CDFIs should have a reasonable amount of time to address specific issues without fear of a sudden loss of certification, NAFCU said.

“The risks associated with decertification are harmful because any adverse action by the CDFI Fund may be misperceived by the public as a negative rating from a federal agency regarding institutional safety and soundness,” the brief stated.

–Establishing that in case of a national emergency declaration by the president, the eligibility requirements for a CDFI are deemed satisfied if the financial institution continues to provide products or services to support and develop their community.

–Dedicating additional funds to address the application backlog for CDFI certification. “As the number of credit unions applying to become CDFI designated institutions continues to grow, many applicants have seen the application process drag on as they await approval,” NAFCU said, adding that some applicants have had their applications on hold for more than a year with no communication from fund officials.

–Reestablishing the NCUA streamlined application process for CDFI Certification. “The NCUA’s streamlined application process…analyzed a credit union’s lending activities, among other indicators, and, if they qualified, provided the credit union with the necessary information to complete and submit the streamlined certification application to the CDFI Fund,” NAFCU explained.

–Providing targeted training to increase the number of CDFIs that are Federal Housing Administration-approved lenders.