[Federal Register Volume 70, Number 238 (Tuesday, December 13, 2005)]
[Rules and Regulations]
[Pages 73887-73898]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-23751]
Federal Register / Vol. 70, No. 238 / Tuesday, December 13, 2005 /
Rules and Regulations
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DEPARTMENT OF THE TREASURY
Community Development Financial Institutions Fund
12 CFR Part 1805
RIN 1505-AA92
Community Development Financial Institutions Program
AGENCY: Community Development Financial Institutions Fund, Department
of the Treasury.
ACTION: Revised interim rule with request for comment.
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SUMMARY: The Department of the Treasury is issuing a revised interim
rule implementing the Community Development Financial Institutions
Program (CDFI Program) administered by the Community Development
Financial Institutions Fund (Fund). The mission of the CDFI Fund is to
increase the capacity of financial institutions to provide capital,
credit and financial services in underserved markets. Its long-term
vision is an America in which all people have access to affordable
credit, capital and financial services. The purpose of the CDFI Program
is to promote economic revitalization and community development through
investment in and assistance to Community Development Financial
Institutions (CDFIs). Under the CDFI Program, the Fund provides
financial assistance in the form of grants, loans, equity investments
and deposits to CDFIs selected through a merit-based application
process. The Fund provides financial assistance to CDFIs to enhance
their ability to make loans and investments, and to provide related
services for the benefit of designated investment areas, targeted
populations, or both. In addition, through the CDFI Program, the Fund
provides technical assistance grants to CDFIs and entities that propose
to become CDFIs, for the purpose of increasing their capacity to serve
their target markets.
This revised interim rule includes one revision that the Fund
believes will inure to the benefit of CDFIs, CDFI Program applicants,
and CDFI Program awardees. This revised interim rule includes a revised
Sec. 1805.504, Retained Earnings, which clarifies the use of retained
earnings as matching funds for a financial assistance award.
DATES: Revised interim rule effective December 13, 2005; comments must
be received in the offices of the Fund on or before February 13, 2006.
ADDRESSES: You may submit comments concerning this interim rule by any
of the following methods: (i) Via the Federal e-Rulemaking Portal at
http://www.regulations.gov (please follow the instructions for
submitting comments); (ii) via e-mail to the Fund at [email protected] (please use an ASCII file format and provide
your full name and mailing address); (iii) via mail or hand delivery to
the Office of Legal Counsel, Community Development Financial
Institutions Fund, Department of the Treasury, 601 13th Street, NW.,
Suite 200 South, Washington, DC 20005; or (iv) via fax to 202/622-8244.
All submissions received must include the agency name and Regulatory
Information Number (RIN) for this rulemaking. All comments received
will be posted without change to the Fund's Web site at http://www.cdfifund.gov, including any personal information provided. Other
information regarding the Fund and its programs may be obtained through
the Fund's Web site at http://www.cdfifund.gov.
FOR FURTHER INFORMATION CONTACT: Jeffrey C. Berg, Legal Counsel,
Community Development Financial Institutions Fund, at (202) 622-8662.
(This is not a toll free number.)
SUPPLEMENTARY INFORMATION:
I. Background
The Fund was established as a wholly owned government corporation
by the Community Development Banking and Financial Institutions Act of
1994, as amended (12 U.S.C. 4701 et seq.) (the Act). Subsequent
legislation placed the Fund within the Department of the Treasury and
gave the Secretary of the Treasury all powers and rights of the
Administrator of the Fund as set forth in the Act.
The mission of the Fund is to increase the capacity of financial
institutions to provide capital, credit and financial services in
underserved markets. Its long-term vision is an America in which all
people have access to affordable credit, capital and financial
services. The Fund's programs are designed to facilitate the flow of
lending and investment capital to distressed communities and to
individuals who have been unable to take full advantage of the
financial services industry. Access to credit, investment capital, and
financial services are essential ingredients for creating and retaining
jobs, developing affordable housing, revitalizing neighborhoods,
unleashing the economic potential of small businesses, and empowering
people.
The Fund was established to promote economic revitalization and
community development through, among other things, investment in and
assistance to CDFIs, which specialize in serving underserved markets
and the people who live there. CDFIs--while highly effective--are
typically small in scale and often have difficulty raising the capital
needed to meet the demands for their products and services. Through the
CDFI Program, the Fund provides CDFIs with financial assistance in the
form of grants, loans, equity investments, and deposits in order to
enhance their ability to make loans and investments, and provide
services for the benefit of designated investment areas, targeted
populations or both. Additionally, many CDFIs are in formation or in
the early stages of development in many markets underserved by
traditional financial institutions, including rural and Native American
communities. The CDFI Program assists such entities--as well as
established CDFIs--by providing grants through which they may acquire
technical assistance to build their capacity to serve their target
markets. Applicants participate in the CDFI Program through a merit-
based qualitative application and selection process in which the Fund
makes funding decisions based on pre-established evaluation criteria.
An entity generally receives financial assistance monies from the Fund
only after being certified as a CDFI and entering into an assistance
agreement with the Fund. These assistance agreements include
performance goals, matching funds requirements and reporting
requirements.
On May 11, 2004, the Fund published in the Federal Register a
revised interim rule (69 FR 26260) implementing the CDFI Program (the
current rule). The deadline for the submission of comments on the
current rule was July 12, 2004.
II. Comments on the May 11, 2004 Interim Rule
By the close of the July 12, 2004 comment period, the Fund received
no comments on the current rule.
III. Summary of Changes
Section 1805.504 Retained Earnings
Section 1805.504 of the current rule contains the requirements for
use of retained earnings as matching funds for a financial assistance
award. This interim rule revises Sec. 1805.504 by making consistent
the requirements for a for-profit entity and a nonprofit entity (not
including Insured Credit Unions or State-Insured Credit Unions). This
revision is made for the purpose of ensuring that for-profit and
nonprofit entities are treated the same. In
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addition, this section is revised to clarify what the Fund means by
retained earnings: specifically, an entity's operating income minus
operating expenses less any dividend payments.
IV. Rulemaking Analysis
Executive Order (E.O.) 12866
It has been determined that this regulation is not a significant
regulatory action as defined in Executive Order 12866. Therefore, a
Regulatory Assessment is not required.
Regulatory Flexibility Act
Because no notice of proposed rule making is required for this
revised interim rule, the provisions of the Regulatory Flexibility Act
(5 U.S.C. 601 et seq.) do not apply.
Paperwork Reduction Act
The collections of information contained in this interim rule have
been previously reviewed and approved by the Office of Management and
Budget (OMB) in accordance with the Paperwork Reduction Act of 1995 and
assigned OMB Control Numbers 1559-0006, 1559-0021, and 1559-0022. An
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a valid
control number assigned by OMB. This document restates the collections
of information without substantive change.
Comments concerning suggestions for reducing the burden of
collections of information should be directed to the Deputy Director
for Policy and Programs, Community Development Financial Institutions
Fund, 601 13th Street, NW., Suite 200 South, Washington, DC 20005 and
to the Office of Management and Budget, Attention: Desk Officer for the
Department of the Treasury, Office of Information and Regulatory
Affairs, Washington, DC 20503.
National Environmental Policy Act
Pursuant to Treasury Directive 75-02 (Department of the Treasury
Environmental Quality Program), the Department has determined that
these interim regulations are categorically excluded from the National
Environmental Policy Act and do not require an environmental review.
Administrative Procedure Act
Because the revisions to this interim rule relate to loans and
grants, notice and public procedure and a delayed effective date are
not required pursuant to the Administrative Procedure Act found at 5
U.S.C. 553(a)(2).
Comment
Public comment is solicited on all aspects of this interim
regulation. The Fund will consider all comments made on the substance
of this interim regulation, but does not intend to hold hearings.
Catalog of Federal Domestic Assistance Number: Community
Development Financial Institutions Program--21.020.
List of Subjects in 12 CFR Part 1805
Community development, Grant programs--housing and community
development, Loan programs--housing and community development,
Reporting and recordkeeping requirements, Small businesses.
0
For the reasons set forth in the preamble, 12 CFR part 1805 is revised
to read as follows:
PART 1805--COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS PROGRAM
Subpart A--General Provisions
Sec.
1805.100 Purpose.
1805.101 Summary.
1805.102 Relationship to other Fund programs.
1805.103 Awardee not instrumentality.
1805.104 Definitions.
1805.105 Waiver authority.
1805.106 OMB control number.
Subpart B--Eligibility
1805.200 Applicant eligibility.
1805.201 Certification as a Community Development Financial
Institution.
Subpart C--Use of Funds/Eligible Activities
1805.300 Purposes of financial assistance.
1805.301 Eligible activities.
1805.302 Restrictions on use of assistance.
1805.303 Technical assistance.
Subpart D--Investment Instruments
1805.400 Investment instruments--general.
1805.401 Forms of investment instruments.
1805.402 Assistance limits.
1805.403 Authority to sell.
Subpart E--Matching Funds Requirements
1805.500 Matching funds--general.
1805.501 Comparability of form and value.
1805.502 Severe constraints waiver.
1805.503 Time frame for raising match.
1805.504 Retained earnings.
Subpart F--Applications for Assistance
1805.600 Notice of Funds Availability.
Subpart G--Evaluation and Selection of Applications
1805.700 Evaluation and selection--general.
1805.701 Evaluation of applications.
Subpart H--Terms and Conditions of Assistance
1805.800 Safety and soundness.
1805.801 Notice of Award.
1805.802 Assistance Agreement; sanctions.
1805.803 Disbursement of funds.
1805.804 Data collection and reporting.
1805.805 Information.
1805.806 Compliance with government requirements.
1805.807 Conflict of interest requirements.
1805.808 Lobbying restrictions.
1805.809 Criminal provisions.
1805.810 Fund deemed not to control.
1805.811 Limitation on liability.
1805.812 Fraud, waste and abuse.
Authority: 12 U.S.C. 4703, 4703 note, 4710, 4717; and 31 U.S.C.
321.
Subpart A--General Provisions
Sec. 1805.100 Purpose.
The purpose of the Community Development Financial Institutions
Program is to promote economic revitalization and community development
through investment in and assistance to Community Development Financial
Institutions.
Sec. 1805.101 Summary.
Under the Community Development Financial Institutions Program, the
Fund will provide financial and technical assistance to Applicants
selected by the Fund in order to enhance their ability to make loans
and investments and provide services. An Awardee must serve an
Investment Area(s), Targeted Population(s), or both. The Fund will
select Awardees to receive financial and technical assistance through a
merit-based qualitative application process. Each Awardee will enter
into an Assistance Agreement which will require it to achieve
performance goals negotiated between the Fund and the Awardee and abide
by other terms and conditions pertinent to any assistance received
under this part.
Sec. 1805.102 Relationship to other Fund programs.
(a) Bank Enterprise Award Program. (1) No Community Development
Financial Institution may receive a Bank Enterprise Award under the
Bank Enterprise Award (BEA) Program (part 1806 of this chapter) if it
has:
(i) An application pending for assistance under the Community
Development Financial Institutions Program;
(ii) Directly received assistance in the form of a disbursement
under the Community Development Financial Institutions Program within
the preceding 12-month period prior to the date the Fund selected the
CDFI to receive a Bank Enterprise Award (meaning, the date of the
Fund's BEA Program notice of award); or
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(iii) Ever directly received assistance under the Community
Development Financial Institutions Program for the same activities for
which it is seeking a Bank Enterprise Award.
(2) An equity investment (as defined in part 1806 of this chapter)
in, or a loan to, a Community Development Financial Institution, or
deposits in an Insured Community Development Financial Institution,
made by a BEA Program Awardee may be used to meet the matching funds
requirements described in subpart E of this part. Receipt of such
equity investment, loan, or deposit does not disqualify a Community
Development Financial Institution from receiving assistance under this
part.
(b) Liquidity enhancement program. No entity that receives
assistance through the liquidity enhancement program authorized under
section 113 (12 U.S.C. 4712) of the Act may receive assistance under
the Community Development Financial Institutions Program.
Sec. 1805.103 Awardee not instrumentality.
No Awardee (or its Community Partner) shall be deemed to be an
agency, department, or instrumentality of the United States.
Sec. 1805.104 Definitions.
For the purpose of this part:
(a) Act means the Community Development Banking and Financial
Institutions Act of 1994, as amended (12 U.S.C. 4701 et seq.);
(b) Affiliate means any company or entity that Controls, is
Controlled by, or is under common Control with another company;
(c) Applicant means any entity submitting an application for CDFI
Program assistance or funding under this part;
(d) Appropriate Federal Banking Agency has the same meaning as in
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)), and
includes, with respect to Insured Credit Unions, the National Credit
Union Administration;
(e) Appropriate State Agency means an agency or instrumentality of
a State that regulates and/or insures the member accounts of a State-
Insured Credit Union;
(f) Assistance Agreement means a formal agreement between the Fund
and an Awardee which specifies the terms and conditions of assistance
under this part;
(g) Awardee means an Applicant selected by the Fund to receive
assistance pursuant to this part;
(h) Community Development Financial Institution (or CDFI) means an
entity currently meeting the eligibility requirements described in
Sec. 1805.200;
(i) Community Development Financial Institution Intermediary (or
CDFI Intermediary) means an entity that meets the CDFI Program
eligibility requirements described in Sec. 1805.200 and whose primary
business activity is the provision of Financial Products to CDFIs and/
or emerging CDFIs;
(j) Community Development Financial Institutions Program (or CDFI
Program) means the program authorized by sections 105-108 of the Act
(12 U.S.C. 4704-4707) and implemented under this part;
(k) Community Facility means a facility where health care,
childcare, educational, cultural, or social services are provided;
(l) Community-Governed means an entity in which the residents of an
Investment Area(s) or members of a Targeted Population(s) represent
greater than 50 percent of the governing body;
(m) Community-Owned means an entity in which the residents of an
Investment Area(s) or members of a Targeted Population(s) have an
ownership interest of greater than 50 percent;
(n) Community Partner means a person (other than an individual)
that provides loans, Equity Investments, or Development Services and
enters into a Community Partnership with an Applicant. A Community
Partner may include a Depository Institution Holding Company, an
Insured Depository Institution, an Insured Credit Union, a State-
Insured Credit Union, a not-for-profit or for-profit organization, a
State or local government entity, a quasi-government entity, or an
investment company authorized pursuant to the Small Business Investment
Act of 1958 (15 U.S.C. 661 et seq.);
(o) Community Partnership means an agreement between an Applicant
and a Community Partner to collaboratively provide Financial Products
or Development Services to an Investment Area(s) or a Targeted
Population(s);
(p) Comprehensive Business Plan means a document covering not less
than the next five years which meets the requirements described in an
applicable Notice of Funds Availability (NOTICE OF FUNDS AVAILABILITY);
(q) Control means: (1) Ownership, control, or power to vote 25
percent or more of the outstanding shares of any class of Voting
Securities of any company, directly or indirectly or acting through one
or more other persons; (2) Control in any manner over the election of a
majority of the directors, trustees, or general partners (or
individuals exercising similar functions) of any company; or (3) The
power to exercise, directly or indirectly, a controlling influence over
the management, credit or investment decisions, or policies of any
company.
(r) Depository Institution Holding Company means a bank holding
company or a savings and loan holding company as defined in section 3
of the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(1));
(s) Development Services means activities that promote community
development and are integral to the Applicant's provision of Financial
Products and Financial Services. Such services shall prepare or assist
current or potential borrowers or investees to utilize the Financial
Products or Financial Services of the Applicant. Such services include,
for example: financial or credit counseling to individuals for the
purpose of facilitating home ownership, promoting self-employment, or
enhancing consumer financial management skills; or technical assistance
to borrowers or investees for the purpose of enhancing business
planning, marketing, management, and financial management skills;
(t) Equity Investment means an investment made by an Applicant
that, in the judgment of the Fund, supports or enhances activities that
serve an Investment Area(s) or a Targeted Population(s). Such
investments must be made through an arms-length transaction with a
third party that does not have a relationship with the Applicant as an
Affiliate. Equity Investments may comprise a stock purchase, a purchase
of a partnership interest, a purchase of a limited liability company
membership interest, a loan made on such terms that it has sufficient
characteristics of equity (and is considered as such by the Fund), a
purchase of secondary capital, or any other investment deemed to be an
Equity Investment by the Fund;
(u) Financial Products means: Loans, Equity Investments and similar
financing activities (as determined by the Fund) including the purchase
of loans originated by certified CDFIs and the provision of loan
guarantees; in the case of CDFI Intermediaries, grants to CDFIs and/or
emerging CDFIs and deposits in Insured Credit Union CDFIs, emerging
Insured Credit Union CDFIs, and/or State-Insured Credit Union CDFIs.
(v) Financial Services means checking, savings accounts, check
cashing, money orders, certified checks, automated teller machines,
deposit taking, safe deposit box services, and other similar services;
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(w) Fund means the Community Development Financial Institutions
Fund established under section 104(a) (12 U.S.C. 4703(a)) of the Act;
(x) Indian Reservation means any geographic area that meets the
requirements of section 4(10) of the Indian Child Welfare Act of 1978
(25 U.S.C. 1903(10)), and shall include land held by incorporated
Native groups, regional corporations, and village corporations, as
defined in and pursuant to the Alaska Native Claims Settlement Act (43
U.S.C. 1602), public domain Indian allotments, and former Indian
reservations in the State of Oklahoma;
(y) Indian Tribe means any Indian Tribe, band, pueblo, nation, or
other organized group or community, including any Alaska Native village
or regional or village corporation, as defined in or established
pursuant to the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et
seq.), which is recognized as eligible for special programs and
services provided by the United States to Indians because of their
status as Indians;
(z) Insider means any director, officer, employee, principal
shareholder (owning, individually or in combination with family
members, five percent or more of any class of stock), or agent (or any
family member or business partner of any of the above) of any
Applicant, Affiliate or Community Partner;
(aa) Insured CDFI means a CDFI that is an Insured Depository
Institution or an Insured Credit Union;
(bb) Insured Credit Union means any credit union, the member
accounts of which are insured by the National Credit Union Share
Insurance Fund;
(cc) Insured Depository Institution means any bank or thrift, the
deposits of which are insured by the Federal Deposit Insurance
Corporation;
(dd) Investment Area means a geographic area meeting the
requirements of Sec. 1805.201(b)(3);
(ee) Low-Income means an income, adjusted for family size, of not
more than:
(1) For Metropolitan Areas, 80 percent of the area median family
income; and
(2) For non-Metropolitan Areas, the greater of:
(i) 80 percent of the area median family income; or
(ii) 80 percent of the statewide non-Metropolitan Area median
family income;
(ff) Metropolitan Area means an area designated as such by the
Office of Management and Budget pursuant to 44 U.S.C. 3504(e) and 31
U.S.C. 1104(d) and Executive Order 10253 (3 CFR, 1949-1953 Comp., p.
758), as amended;
(gg) Non-Regulated CDFI means any entity meeting the eligibility
requirements described in Sec. 1805.200 which is not a Depository
Institution Holding Company, Insured Depository Institution, Insured
Credit Union, or State-Insured Credit Union;
(hh) State means any State of the United States, the District of
Columbia or any territory of the United States, Puerto Rico, Guam,
American Samoa, the Virgin Islands, and the Northern Mariana Islands;
(ii) State-Insured Credit Union means any credit union that is
regulated by, and/or the member accounts of which are insured by, a
State agency or instrumentality;
(jj) Subsidiary means any company which is owned or Controlled
directly or indirectly by another company and includes any service
corporation owned in whole or part by an Insured Depository Institution
or any Subsidiary of such a service corporation, except as provided in
Sec. 1805.200(b)(4);
(kk) Targeted Population means individuals or an identifiable group
of individuals meeting the requirements of Sec. 1805.201(b)(3); and
(ll) Target Market means an Investment Area(s) and/or a Targeted
Population(s).
(mm)(1) Voting Securities means shares of common or preferred
stock, general or limited partnership shares or interests, or similar
interests if the shares or interest, by statute, charter, or in any
manner, entitle the holder:
(i) To vote for or select directors, trustees, or partners (or
persons exercising similar functions of the issuing company); or
(ii) To vote on or to direct the conduct of the operations or other
significant policies of the issuing company.
(2) Nonvoting shares. Preferred shares, limited partnership shares
or interests, or similar interests are not Voting Securities if:
(i) Any voting rights associated with the shares or interest are
limited solely to the type customarily provided by statute with regard
to matters that would significantly and adversely affect the rights or
preference of the security or other interest, such as the issuance of
additional amounts or classes of senior securities, the modification of
the terms of the security or interest, the dissolution of the issuing
company, or the payment of dividends by the issuing company when
preferred dividends are in arrears;
(ii) The shares or interest represent an essentially passive
investment or financing device and do not otherwise provide the holder
with control over the issuing company; and
(iii) The shares or interest do not entitle the holder, by statute,
charter, or in any manner, to select or to vote for the selection of
directors, trustees, or partners (or persons exercising similar
functions) of the issuing company.
Sec. 1805.105 Waiver authority.
The Fund may waive any requirement of this part that is not
required by law upon a determination of good cause. Each such waiver
shall be in writing and supported by a statement of the facts and the
grounds forming the basis of the waiver. For a waiver in an individual
case, the Fund must determine that application of the requirement to be
waived would adversely affect the achievement of the purposes of the
Act. For waivers of general applicability, the Fund will publish
notification of granted waivers in the Federal Register.
Sec. 1805.106 OMB control number.
The collection of information requirements in this part have been
approved by the Office of Management and Budget and assigned OMB
control numbers 1559-0006, 1559-0021 and 1559-0022.
Subpart B--Eligibility
Sec. 1805.200 Applicant eligibility.
(a) General requirements. (1) An entity that meets the requirements
described in Sec. 1805.201(b) and paragraph (b) of this section will
be considered a CDFI and, subject to paragraph (a)(4) of this section,
will be eligible to apply for assistance under this part.
(2) An entity that proposes to become a CDFI is eligible to apply
for assistance under this part if the Fund:
(i) Receives a complete application for certification from the
entity within the time period set forth in an applicable Notice of
Funds Availability; and
(ii) Determines that such entity's application materials provide a
realistic course of action to ensure that it will meet the requirements
described in Sec. 1805.201(b) and paragraph (b) of this section within
the period set forth in an applicable Notice of Funds Availability.
(3) The Fund will not, however, disburse any financial assistance
to such an entity before it meets the requirements described in this
section. Moreover, notwithstanding paragraphs (a)(1) and (a)(2)(ii) of
this section, the Fund reserves the right to require an entity to have
been certified as described in Sec. 1805.201(a) prior to its
submission of an application for assistance, as set forth in an
applicable Notice of Funds Availability.
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(4) The Fund shall require an entity to meet any additional
eligibility requirements that the Fund deems appropriate.
(5) The Fund, in its sole discretion, shall determine whether an
Applicant fulfills the requirements set forth in this section and Sec.
1805.201(b).
(b) Provisions applicable to Depository Institution Holding
Companies and Insured Depository Institutions. (1) A Depository
Institution Holding Company may qualify as a CDFI only if it and its
Affiliates collectively satisfy the requirements described in this
section.
(2) No Affiliate of a Depository Institution Holding Company may
qualify as a CDFI unless the holding company and all of its Affiliates
collectively meet the requirements described in this section.
(3) No Subsidiary of an Insured Depository Institution may qualify
as a CDFI if the Insured Depository Institution and its Subsidiaries do
not collectively meet the requirements described in this section.
(4) For the purposes of paragraphs (b)(1), (2) and (3) of this
section, an Applicant will be considered to be a Subsidiary of any
Insured Depository Institution or Depository Institution Holding
Company that controls 25 percent or more of any class of the
Applicant's voting shares, or otherwise controls, in any manner, the
election of a majority of directors of the Applicant.
Sec. 1805.201 Certification as a Community Development Financial
Institution.
(a) General. An entity may apply to the Fund for certification that
it meets the CDFI eligibility requirements regardless of whether it is
seeking financial or technical assistance from the Fund. Entities
seeking such certification shall provide the information set forth in
the application for certification. Certification by the Fund will
verify that the entity meets the CDFI eligibility requirements.
However, such certification shall not constitute an opinion by the Fund
as to the financial viability of the CDFI or that the CDFI will be
selected to receive an award from the Fund. The Fund, in its sole
discretion, shall have the right to decertify a certified entity after
a determination that the eligibility requirements of paragraph (b) of
this section, Sec. 1805.200(b) or (a)(4) (if applicable) are no longer
met.
(b) Eligibility verification. An Applicant shall demonstrate
whether it meets the eligibility requirements described in this
paragraph (b) of this section and Sec. 1805.200 by providing the
information described in the application for certification
demonstrating that the Applicant meets the eligibility requirements
described in paragraphs (b)(1) through (b)(6) of this section. The
Fund, in its sole discretion, shall determine whether an Applicant has
satisfied the requirements of this paragraph (b) and Sec. 1805.200.
(1) Primary mission. A CDFI shall have a primary mission of
promoting community development. In determining whether an Applicant
has such a primary mission, the Fund will consider whether the
activities of the Applicant are purposefully directed toward improving
the social and/or economic conditions of underserved people (which may
include Low-Income persons and persons who lack adequate access to
capital and/or Financial Services) and/or residents of economically
distressed communities (which may include Investment Areas).
(2) Financing entity. A CDFI shall be an entity whose predominant
business activity is the provision, in arms-length transactions, of
Financial Products, Development Services, and/or other similar
financing. An Applicant may demonstrate that it is such an entity if it
is a(n):
(i) Depository Institution Holding Company;
(ii) Insured Depository Institution, Insured Credit Union, or
State-Insured Credit Union; or
(iii) Organization that is deemed by the Fund to have such a
predominant business activity as a result of analysis of its financial
statements, organizing documents, and any other information required to
be submitted as part of its application. In conducting such analysis,
the Fund may take into consideration an Applicant's total assets and
its use of personnel.
(3) Target Market. (i) General. An Applicant may be found to serve
a Target Market by virtue of serving one or more Investment Areas and/
or Targeted Populations. An Investment Area shall meet specific
geographic and other criteria described in paragraph (b)(3)(ii) of this
section, and a Targeted Population shall meet the criteria described in
paragraph (b)(3)(iii) in this section.
(ii) Investment Area. (A) General. A geographic area will be
considered eligible for designation as an Investment Area if it:
(1) Is entirely located within the geographic boundaries of the
United States (which shall encompass any State of the United States,
the District of Columbia or any territory of the United States, Puerto
Rico, Guam, American Samoa, the Virgin Islands, and the Northern
Mariana Islands); and either
(2) Meets at least one of the objective criteria of economic
distress as set forth in paragraph (b)(3)(ii)(D) of this section and
has significant unmet needs for loans, Equity Investments, or Financial
Services as described in paragraph (b)(3)(ii)(E) of this section; or
(3) Encompasses (i.e. wholly consists of) or is wholly located
within an Empowerment Zone or Enterprise Community designated under
section 1391 of the Internal Revenue Code of 1986 (26 U.S.C. 1391).
(B) Geographic units. Subject to the remainder of this paragraph
(B), an Investment Area shall consist of a geographic unit(s) that is a
county (or equivalent area), minor civil division that is a unit of
local government, incorporated place, census tract, block numbering
area, block group, or American Indian or Alaska Native area (as such
units are defined or reported by the U.S. Bureau of the Census).
However, geographic units in Metropolitan Areas that are used to
comprise an Investment Area shall be limited to census tracts, block
groups and American Indian or Alaskan Native areas. An Applicant may
designate one or more Investment Areas as part of a single application.
(C) Designation. An Applicant may designate an Investment Area by
selecting:
(1) A geographic unit(s) which individually meets one of the
criteria in paragraph (b)(3)(ii)(D) of this section; or
(2) A group of contiguous geographic units which together meet one
of the criteria in paragraph (b)(3)(ii)(D) of this section, provided
that the combined population residing within individual geographic
units not meeting any such criteria does not exceed 15 percent of the
total population of the entire Investment Area.
(D) Distress criteria. An Investment Area (or the units that
comprise an area) must meet at least one of the following objective
criteria of economic distress (as reported in the most recently
completed decennial census published by the U.S. Bureau of the Census):
(1) The percentage of the population living in poverty is at least
20 percent;
(2) In the case of an Investment Area located:
(i) Within a Metropolitan Area, the median family income shall be
at or below 80 percent of the Metropolitan Area median family income or
the national Metropolitan Area median family income, whichever is
greater; or
(ii) Outside of a Metropolitan Area, the median family income shall
be at or below 80 percent of the statewide non-Metropolitan Area median
family income or the national non-
[[Page 73892]]
Metropolitan Area median family income, whichever is greater;
(3) The unemployment rate is at least 1.5 times the national
average;
(4) In counties located outside of a Metropolitan Area, the county
population loss during the period between the most recent decennial
census and the previous decennial census is at least 10 percent; or
(5) In counties located outside of a Metropolitan Area, the county
net migration loss during the five-year period preceding the most
recent decennial census is at least five percent.
(E) Unmet needs. An Investment Area will be deemed to have
significant unmet needs for loans or Equity Investments if a narrative
analysis provided by the Applicant adequately demonstrate a pattern of
unmet needs for Financial Products or Financial Services within such
area(s).
(F) Serving Investment Areas. An Applicant may serve an Investment
Area directly or through borrowers or investees that serve the
Investment Area or provide significant benefits to its residents.
(iii) Targeted Population. (A) General. Targeted Population shall
mean individuals, or an identifiable group of individuals, who are Low-
Income persons or lack adequate access to Financial Products or
Financial Services in the Applicant's service area. The members of a
Targeted Population shall reside within the boundaries of the United
States (which shall encompass any State of the United States, the
District of Columbia or any territory of the United States, Puerto
Rico, Guam, American Samoa, the Virgin Islands, and the Northern
Mariana Islands).
(B) Serving A Targeted Population. An Applicant may serve the
members of a Targeted Population directly or indirectly or through
borrowers or investees that directly serve or provide significant
benefits to such members.
(4) Development Services. A CDFI directly, through an Affiliate, or
through a contract with another provider, shall provide Development
Services in conjunction with its Financial Products.
(5) Accountability. A CDFI must maintain accountability to
residents of its Investment Area(s) or Targeted Population(s) through
representation on its governing board or otherwise.
(6) Non-government. A CDFI shall not 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.
Subpart C--Use of Funds/Eligible Activities
Sec. 1805.300 Purposes of financial assistance.
The Fund may provide financial assistance through investment
instruments described under subpart D of this part. Such financial
assistance is intended to strengthen the capital position and enhance
the ability of an Awardee to provide Financial Products and Financial
Services.
Sec. 1805.301 Eligible activities.
Financial assistance provided under this part may be used by an
Awardee to serve Investment Area(s) or Targeted Population(s) by
developing or supporting, through lending, investing, enhancing
liquidity, or other means of finance:
(a) Commercial facilities that promote revitalization, community
stability or job creation or retention;
(b) Businesses that:
(1) Provide jobs for Low-Income persons;
(2) Are owned by Low-Income persons; or
(3) Enhance the availability of products and services to Low-Income
persons;
(c) Community Facilities;
(d) The provision of Financial Services;
(e) Housing that is principally affordable to Low-Income persons,
except that assistance used to facilitate home ownership shall only be
used for services and lending products that serve Low-Income persons
and that:
(1) Are not provided by other lenders in the area; or
(2) Complement the services and lending products provided by other
lenders that serve the Investment Area(s) or Targeted Population(s);
(f) The provision of consumer loans (a loan to one or more
individuals for household, family, or other personal expenditures); or
(g) Other businesses or activities as requested by the Applicant
and deemed appropriate by the Fund.
Sec. 1805.302 Restrictions on use of assistance.
(a) An Awardee shall use assistance provided by the Fund and its
corresponding matching funds only for the eligible activities approved
by the Fund and described in the Assistance Agreement.
(b) An Awardee may not distribute assistance to an Affiliate
without the Fund's consent.
(c) Assistance provided upon approval of an application involving a
Community Partnership shall only be distributed to the Awardee and
shall not be used to fund any activities carried out by a Community
Partner or an Affiliate of a Community Partner.
Sec. 1805.303 Technical assistance.
(a) The Fund may provide technical assistance to build the capacity
of a CDFI or an entity that proposes to become a CDFI. Such technical
assistance may include training for management and other personnel;
development of programs, products and services; improving financial
management and internal operations; enhancing a CDFI's community
impact; or other activities deemed appropriate by the Fund. The Fund,
in its sole discretion, may provide technical assistance in amounts, or
under terms and conditions that are different from those requested by
an Applicant. The Fund may not provide any technical assistance to an
Applicant for the purpose of assisting in the preparation of an
application. The Fund may provide technical assistance to a CDFI
directly, through grants, or by contracting with organizations that
possess the appropriate expertise.
(b) The Fund may provide technical assistance regardless of whether
the recipient also receives financial assistance under this part.
Technical assistance provided pursuant to this part is subject to the
assistance limits described in Sec. 1805.402.
(c) An Applicant seeking technical assistance must meet the
eligibility requirements described in Sec. 1805.200 and submit an
application as described in Sec. 1805.600.
(d) Applicants for technical assistance pursuant to this part will
be evaluated pursuant to the merit-based qualitative review criteria in
subpart G of this part, except as otherwise may be provided in the
applicable Notice of Funds Availability. In addition, the requirements
for matching funds are not applicable to technical assistance requests.
Subpart D--Investment Instruments
Sec. 1805.400 Investment instruments--general.
The Fund will provide financial assistance to an Awardee through
one or more of the investment instruments described in Sec. 1805.401,
and under such terms and conditions as described in this subpart D. The
Fund, in its sole discretion, may provide financial assistance in
amounts, through investment instruments, or under rates,
[[Page 73893]]
terms and conditions that are different from those requested by an
Applicant.
Sec. 1805.401 Forms of investment instruments.
(a) Equity. The Fund may make nonvoting equity investments in an
Awardee, including, without limitation, the purchase of nonvoting
stock. Such stock shall be transferable and, in the discretion of the
Fund, may provide for convertibility to voting stock upon transfer. The
Fund shall not own more than 50 percent of the equity of an Awardee and
shall not control its operations.
(b) Grants. The Fund may award grants.
(c) Loans. The Fund may make loans, if permitted by applicable law.
(d) Deposits and credit union shares. The Fund may make deposits
(which shall include credit union shares) in Insured CDFIs and State-
Insured Credit Unions. Deposits in an Insured CDFI or a State-Insured
Credit Union shall not be subject to any requirement for collateral or
security.
Sec. 1805.402 Assistance limits.
(a) Except as provided in paragraph (b) of this section, the Fund
may not provide, pursuant to this part, more than $5 million, in the
aggregate, in financial and technical assistance to an Awardee and its
Affiliates during any three-year period.
(b) If an Awardee proposes to establish a new Affiliate to serve an
Investment Area(s) or Targeted Population(s) outside of any State, and
outside of any Metropolitan Area, currently served by the Awardee or
its Affiliates, the Awardee may receive additional assistance pursuant
to this part up to a maximum of $3.75 million during the same three-
year period. Such additional assistance:
(1) Shall be used only to finance activities in the new or expanded
Investment Area(s) or Targeted Population(s); and
(2) Must be distributed to a new Affiliate that meets the
eligibility requirements described in Sec. 1805.200 and is selected
for assistance pursuant to subpart G of this part.
(c) An Awardee may receive the assistance described in paragraph
(b) of this section only if no other application to serve substantially
the same Investment Area(s) or Targeted Population(s) that meets the
requirements of Sec. 1805.701(a) was submitted to the Fund prior to
the receipt of the application of said Awardee and within the current
funding round.
Sec. 1805.403 Authority to sell.
The Fund may, at any time, sell its equity investments and loans,
provided the Fund shall retain the authority to enforce the provisions
of the Assistance Agreement until the performance goals specified
therein have been met.
Subpart E--Matching Funds Requirements
Sec. 1805.500 Matching funds--general.
All financial assistance awarded under this part shall be matched
with funds from sources other than the Federal government. Except as
provided in Sec. 1805.502, such matching funds shall be provided on
the basis of not less than one dollar for each dollar provided by the
Fund. Funds that have been used to satisfy a legal requirement for
obtaining funds under either the CDFI Program or another Federal grant
or award program may not be used to satisfy the matching requirements
described in this section. Community Development Block Grant Program
and other funds provided pursuant to the Housing and Community
Development Act of 1974, as amended (42 U.S.C. 5301 et seq.), shall be
considered Federal government funds and shall not be used to meet the
matching requirements. Matching funds shall be used as provided in the
Assistance Agreement. Funds that are used prior to the execution of the
Assistance Agreement may nevertheless qualify as matching funds
provided the Fund determines in its reasonable discretion that such use
promoted the purpose of the Comprehensive Business Plan that the Fund
is supporting through its assistance.
Sec. 1805.501 Comparability of form and value.
(a) Matching funds shall be at least comparable in form (e.g.,
equity investments, deposits, credit union shares, loans and grants)
and value to financial assistance provided by the Fund (except as
provided in Sec. 1805.502). The Fund shall have the discretion to
determine whether matching funds pledged are comparable in form and
value to the financial assistance requested.
(b) In the case of an Awardee that raises matching funds from more
than one source, through different investment instruments, or under
varying terms and conditions, the Fund may provide financial assistance
in a manner that represents the combined characteristics of such
instruments.
(c) An Awardee may meet all or part of its matching requirements by
committing available earnings retained from its operations.
Sec. 1805.502 Severe constraints waiver.
(a) In the case of an Applicant with severe constraints on
available sources of matching funds, the Fund, in its sole discretion,
may permit such Applicant to comply with the matching requirements by:
(1) Reducing such requirements by up to 50 percent; or
(2) Permitting an Applicant to provide matching funds in a form to
be determined at the discretion of the Fund, if such an Applicant:
(i) Has total assets of less than $100,000;
(ii) Serves an area that is not a Metropolitan Area; and
(iii) Is not requesting more than $25,000 in assistance.
(b) Not more than 25 percent of the total funds available for
obligation under this part in any fiscal year may be matched as
described in paragraph (a) of this section. Additionally, not more than
25 percent of the total funds disbursed under this part in any fiscal
year may be matched as described in paragraph (a) of this section.
(c) An Applicant may request a ``severe constraints waiver'' as
part of its application for assistance. An Applicant shall provide a
narrative justification for its request, indicating:
(1) The cause and extent of the constraints on raising matching
funds;
(2) Efforts to date, results, and projections for raising matching
funds;
(3) A description of the matching funds expected to be raised; and
(4) Any additional information requested by the Fund.
(d) The Fund will grant a ``severe constraints waiver'' only in
exceptional circumstances when it has been demonstrated, to the
satisfaction of the Fund, that an Investment Area(s) or Targeted
Population(s) would not be adequately served without the waiver.
Sec. 1805.503 Time frame for raising match.
Applicants shall satisfy matching funds requirements within the
period set forth in the applicable Notice of Funds Availability.
Sec. 1805.504 Retained earnings.
(a) An Applicant may use its retained earnings to match a request
for a financial assistance grant from the Fund. An Applicant that
proposes to meet all or a portion of its matching funds requirements by
committing available earnings retained from its operations shall be
subject to the restrictions described in this section. Retained
earnings shall be calculated as
[[Page 73894]]
directed by the Fund in the applicable Notice of Funds Availability,
the financial assistance application and/or related guidance materials.
Retained earnings accumulated after the end of the Applicant's most
recent fiscal year ending prior to the appropriate application deadline
may not be used as matching funds.
(b) In the case of an Applicant that is not an Insured Credit Union
or a State-Insured Credit Union, retained earnings that may be used for
matching funds purposes shall consist of:
(1) The increase in retained earnings (meaning, for purposes of
Sec. 1805.504(b), operating income minus operating expenses less any
dividend payments) that has occurred over the Applicant's most recent
fiscal year (e.g., retained earnings at the end of fiscal year 2003
less retained earnings at the end of fiscal year 2002); or
(2) The annual average of such increases that has occurred over the
Applicant's three most recent fiscal years.
(c)(1) In the case of an Applicant that is an Insured Credit Union
or a State-Insured Credit Union, retained earnings that may be used for
matching funds purposes shall consist of:
(i) The increase in retained earnings that has occurred over the
Applicant's most recent fiscal year;
(ii) The annual average of such increases that has occurred over
the Applicant's three most recent fiscal years; or
(iii) The entire retained earnings that have been accumulated since
the inception of the Applicant, provided that the Assistance Agreement
shall require that:
(A) The Awardee shall increase its member shares, non-member
shares, outstanding loans and/or other measurable activity as defined
in and by an amount that is set forth in an applicable Notice of Funds
Availability; and
(B) Such increase must be achieved by a date certain set forth in
the applicable Notice of Funds Availability;
(C) The Applicant's Comprehensive Business Plan shall discuss its
strategy for achieving the increases described in (c)(1)(iii)(A) of
this section and the activities associated therewith;
(D) The level from which the achievement of said increases will be
measured will be as of July 31 of the calendar year in which the
applicable application deadline falls (or such other date as set forth
in the applicable Notice of Funds Availability); and
(E) Financial assistance shall be disbursed by the Fund only as the
amount of increases described in paragraph (c)(1)(iii)(A) of this
section is achieved.
(2) The Fund will allow an Applicant to utilize the option
described in paragraph (c)(1)(iii) of this section for matching funds
only if it determines, in its sole discretion, that the Applicant will
have a high probability of success in achieving said increases to the
specified amounts.
Subpart F--Applications for Assistance
Sec. 1805.600 Notice of Funds Availability.
Each Applicant shall submit an application for financial or
technical assistance under this part in accordance with the applicable
Notice of Funds Availability published in the Federal Register. The
Notice of Funds Availability will advise potential Applicants on how to
obtain an application packet and will establish deadlines and other
requirements. The Notice of Funds Availability may specify any
limitations, special rules, procedures, and restrictions for a
particular funding round. After receipt of an application, the Fund may
request clarifying or technical information on the materials submitted
as part of such application.
Subpart G--Evaluation and Selection of Applications
Sec. 1805.700 Evaluation and selection--general.
Applicants will be evaluated and selected, at the sole discretion
of the Fund, to receive assistance based on a review process, that
could include an interview(s) and/or site visit(s), that is intended
to:
(a) Ensure that Applicants are evaluated on a merit basis and in a
fair and consistent manner;
(b) Take into consideration the unique characteristics of
Applicants that vary by institution type, total asset size, stage of
organizational development, markets served, products and services
provided, and location;
(c) Ensure that each Awardee can successfully meet the goals of its
Comprehensive Business Plan and achieve community development impact;
(d) Ensure that Awardees represent a geographically diverse group
of Applicants serving Metropolitan Areas, non-Metropolitan Areas, and
Indian Reservations from different regions of the United States; and
(e) Take into consideration other factors as described in the
applicable Notice of Funds Availability.
Sec. 1805.701 Evaluation of applications.
(a) Eligibility and completeness. An Applicant will not be eligible
to receive assistance pursuant to this part if it fails to meet the
eligibility requirements described in Sec. 1805.200 or if it has not
submitted complete application materials. For the purposes of this
paragraph (a), the Fund reserves the right to request additional
information from the Applicant, if the Fund deems it appropriate.
(b) Substantive review. In evaluating and selecting applications to
receive assistance, the Fund will evaluate the Applicant's likelihood
of success in meeting the goals of the Comprehensive Business Plan and
achieving community development impact, by considering factors such as:
(1) Community development track record (e.g., in the case of an
Applicant with a prior history of serving a Target Market, the extent
of success in serving such Target Market);
(2) Operational capacity and risk mitigation strategies;
(3) Financial track record and strength;
(4) Capacity, skills and experience of the management team;
(5) Understanding of its market context, including its analysis of
current and prospective customers, the extent of economic distress
within the designated Investment Area(s) or the extent of need within
the designated Targeted Population(s), as those factors are measured by
objective criteria, the extent of need for Equity Investments, loans,
Development Services, and Financial Services within the designated
Target Market, and the extent of demand within the Target Market for
the Applicant's products and services;
(6) Program design and implementation plan, including an assessment
of its products and services, marketing and outreach efforts, delivery
strategy, and coordination with other institutions and/or a Community
Partner, or participation in a secondary market for purposes of
increasing the Applicant's resources. In the case of an Applicant
submitting an application with a Community Partner, the Fund will
evaluate the extent to which the Community Partner will participate in
carrying out the activities of the Community Partnership; the extent to
which the Community Partner will enhance the likelihood of success of
the Comprehensive Business Plan; and the extent to which service to the
designated Target Market will be better performed by a Community
Partnership than by the Applicant alone;
[[Page 73895]]
(7) Projections for financial performance, capitalization and
raising needed external resources, including the amount of firm
commitments and matching funds in hand to meet or exceed the matching
funds requirements and, if applicable, the likely success of the plan
for raising the balance of the matching funds in a timely manner, the
extent to which the matching funds are, or will be, derived from
private sources, and whether an Applicant is, or will become, an
Insured CDFI or a State-Insured Credit Union;
(8) Projections for community development impact, including the
extent to which an Applicant will concentrate its activities on serving
its Target Market(s), the extent of support from the designated Target
Market, the extent to which an Applicant is, or will be, Community-
Owned or Community-Governed, and the extent to which the activities
proposed in the Comprehensive Business Plan will expand economic
opportunities or promote community development within the designated
Target Market;
(9) The extent of need for the Fund's assistance, as demonstrated
by the extent of economic distress in the Applicant's Target Market and
the extent to which the Applicant needs the Fund's assistance to carry
out its Comprehensive Business Plan;
(10) In the case of an Applicant that has previously received
assistance under the CDFI Program, the Fund also will consider the
Applicant's level of success in meeting its performance goals,
financial soundness covenants (if applicable), and other requirements
contained in the previously negotiated and executed Assistance
Agreement(s) with the Fund, the undisbursed balance of assistance, and
whether the Applicant will, with additional assistance from the Fund,
expand its operations into a new Target Market, offer more products or
services, and/or increase the volume of its activities; and
(11) The Fund may consider any other factors, as it deems
appropriate, in reviewing an application as set forth in an applicable
Notice of Funds Availability.
(c) Consultation with Appropriate Federal Banking Agencies. The
Fund will consult with, and consider the views of, the Appropriate
Federal Banking Agency prior to providing assistance to:
(1) An Insured CDFI;
(2) A CDFI that is examined by or subject to the reporting
requirements of an Appropriate Federal Banking Agency; or
(3) A CDFI that has as its Community Partner an institution that is
examined by, or subject to, the reporting requirements of an
Appropriate Federal Banking Agency.
(d) Consultation with Appropriate State Agencies. Prior to
providing assistance to a State-Insured Credit Union, the Fund may
consult with, and consider the views of, the Appropriate State Agency.
(e) Awardee selection. The Fund will select Awardees based on the
criteria described in paragraph (b) of this section and any other
criteria set forth in this part or the applicable Notice of Funds
Availability.
Subpart H--Terms and Conditions of Assistance
Sec. 1805.800 Safety and soundness.
(a) Regulated institutions. Nothing in this part, or in an
Assistance Agreement, shall affect any authority of an Appropriate
Federal Banking Agency or Appropriate State Agency to supervise and
regulate any institution or company.
(b) Non-Regulated CDFIs. The Fund will, to the maximum extent
practicable, ensure that Awardees that are Non-Regulated CDFIs are
financially and managerially sound and maintain appropriate internal
controls.
Sec. 1805.801 Notice of Award.
(a) The Fund will generally signify its selection of an Applicant
as an Awardee by delivering a signed notice of award to the Applicant.
The notice of award will contain the general terms and conditions
underlying the Fund's provision of assistance to an Awardee including,
but not limited to, the requirement that an Awardee and the Fund enter
into an Assistance Agreement.
(b) To become an Awardee under paragraph (a) of this section, an
Applicant shall execute the notice of award and return it to the Fund.
(c) By executing a notice of award, an Awardee agrees that, if
prior to entering into an Assistance Agreement with the Fund,
information comes to the attention of the Fund that either adversely
affects the Awardee's eligibility for funding, or adversely affects the
Fund's evaluation of the Awardee's application, or indicates fraud or
mismanagement on the part of the Awardee, the Fund may, in its
discretion and without advance notice to the Awardee, terminate the
notice of award or take such other actions as it deems appropriate.
Moreover, by executing a notice of award, an Awardee also agrees that,
if prior to entering into an Assistance Agreement with the Fund, the
Fund determines that the Awardee is not in compliance with the terms of
any previous Assistance Agreement entered into with the Fund, the Fund
may, in its discretion and without advance notice to the Awardee,
either terminate the notice of award or take such other actions as it
deems appropriate. An Awardee shall notify the Fund of information that
an Awardee may reasonably believe may affect its eligibility or ability
to achieve the objectives of its Comprehensive Business Plan as
submitted to the Fund (such as changes in management).
(d) The Fund will notify an Awardee of either the Fund's
termination of a notice of award or such other action(s) taken by the
Fund under paragraph (c) of this section.
Sec. 1805.802 Assistance Agreement; sanctions.
(a) Prior to providing any assistance, the Fund and an Awardee
shall execute an Assistance Agreement that requires an Awardee to
comply with performance goals and abide by other terms and conditions
of assistance. Such performance goals may be modified at any time by
mutual consent of the Fund and an Awardee or as provided in paragraph
(c) of this section. If a Community Partner or an Affiliate is part of
an application that is selected for assistance, such partner must be a
party to the Assistance Agreement, if deemed appropriate by the Fund.
(b) An Awardee shall comply with performance goals that have been
negotiated with the Fund and which are based upon the Comprehensive
Business Plan submitted as part of the Awardee's application. Such
performance goals may include measures that require an Awardee to:
(1) Be financially sound;
(2) Be managerially sound;
(3) Maintain appropriate internal controls; and/or
(4) Achieve specific lending, investment, and development service
objectives. Performance goals for Insured CDFIs shall be determined in
consultation with the Appropriate Federal Banking Agency, as
applicable. Such goals shall be incorporated in, and enforced under,
the Awardee's Assistance Agreement. Performance goals for State-Insured
Credit Unions may be determined in consultation with the Appropriate
State Agency, if deemed appropriate by the Fund.
(c) The Assistance Agreement shall provide that, in the event of
fraud, mismanagement, noncompliance with the Act and the Fund's
regulations, or noncompliance with the terms and conditions of the
Assistance Agreement on the part of the Awardee (or the
[[Page 73896]]
Community Partner, if applicable), the Fund, in its discretion, may:
(1) Require changes in the performance goals set forth in the
Assistance Agreement;
(2) Require changes in the Awardee's Comprehensive Business Plan;
(3) Revoke approval of the Awardee's application;
(4) Reduce or terminate the Awardee's assistance;
(5) Require repayment of any assistance that has been distributed
to the Awardee;
(6) Bar the Awardee (and the Community Partner, if applicable) from
reapplying for any assistance from the Fund; or
(7) Take such other actions as the Fund deems appropriate.
(d) In the case of an Insured CDFI, the Assistance Agreement shall
provide that the provisions of the Act, this part, and the Assistance
Agreement shall be enforceable under 12 U.S.C. 1818 of the Federal
Deposit Insurance Act by the Appropriate Federal Banking Agency, as
applicable, and that any violation of such provisions shall be treated
as a violation of the Federal Deposit Insurance Act. Nothing in this
paragraph (d) precludes the Fund from directly enforcing the Assistance
Agreement as provided for under the terms of the Act.
(e) The Fund shall notify the Appropriate Federal Banking Agency
before imposing any sanctions on an Insured CDFI or other institution
that is examined by or subject to the reporting requirements of that
agency. The Fund shall not impose a sanction described in paragraph (c)
of this section if the Appropriate Federal Banking Agency, in writing,
not later than 30 calendar days after receiving notice from the Fund:
(1) Objects to the proposed sanction;
(2) Determines that the sanction would:
(i) Have a material adverse effect on the safety and soundness of
the institution; or
(ii) Impede or interfere with an enforcement action against that
institution by that agency;
(3) Proposes a comparable alternative action; and
(4) Specifically explains:
(i) The basis for the determination under paragraph (e)(2) of this
section and, if appropriate, provides documentation to support the
determination; and
(ii) How the alternative action suggested pursuant to paragraph
(e)(3) of this section would be as effective as the sanction proposed
by the Fund in securing compliance and deterring future noncompliance.
(f) In reviewing the performance of an Awardee in which its
Investment Area(s) includes an Indian Reservation or Targeted
Population(s) includes an Indian Tribe, the Fund shall consult with,
and seek input from, the appropriate tribal government.
(g) Prior to imposing any sanctions pursuant to this section or an
Assistance Agreement, the Fund shall, to the maximum extent
practicable, provide the Awardee (or the Community Partner, if
applicable) with written notice of the proposed sanction and an
opportunity to comment. Nothing in this section, however, shall provide
an Awardee or Community Partner with the right to any formal or
informal hearing or comparable proceeding not otherwise required by
law.
Sec. 1805.803 Disbursement of funds.
Assistance provided pursuant to this part may be provided in a lump
sum or over a period of time, as determined appropriate by the Fund.
The Fund shall not provide any assistance (other than technical
assistance) under this part until an Awardee has satisfied any
conditions set forth in its Assistance Agreement and has secured in-
hand and/or firm commitments for the matching funds required for such
assistance pursuant to the applicable Notice of Funds Availability. At
a minimum, a firm commitment must consist of a written agreement
between an Awardee and the source of the matching funds that is
conditioned only upon the availability of the Fund's assistance and
such other conditions as the Fund, in its sole discretion, may deem
appropriate. Such agreement must provide for disbursal of the matching
funds to an Awardee prior to, or simultaneously with, receipt by an
Awardee of the Federal funds.
Sec. 1805.804 Data collection and reporting.
(a) Data--General. An Awardee (and a Community Partner, if
appropriate) shall maintain such records as may be prescribed by the
Fund that are necessary to:
(1) Disclose the manner in which Fund assistance is used;
(2) Demonstrate compliance with the requirements of this part and
an Assistance Agreement; and
(3) Evaluate the impact of the CDFI Program.
(b) Customer profiles. An Awardee (and a Community Partner, if
appropriate) shall compile such data on the gender, race, ethnicity,
national origin, or other information on individuals that utilize its
products and services as the Fund shall prescribe in an Assistance
Agreement. Such data will be used to determine whether residents of
Investment Area(s) or members of Targeted Population(s) are adequately
served and to evaluate the impact of the CDFI Program.
(c) Access to records. An Awardee (and a Community Partner, if
appropriate) must submit such financial and activity reports, records,
statements, and documents at such times, in such forms, and accompanied
by such reporting data, as required by the Fund or the U.S. Department
of Treasury to ensure compliance with the requirements of this part and
to evaluate the impact of the CDFI Program. The United States
Government, including the U.S. Department of Treasury, the Comptroller
General, and their duly authorized representatives, shall have full and
free access to the Awardee's offices and facilities and all books,
documents, records, and financial statements relating to use of Federal
funds and may copy such documents as they deem appropriate. The Fund,
if it deems appropriate, may prescribe access to record requirements
for entities that are borrowers of, or that receive investments from,
an Awardee.
(d) Retention of records. An Awardee shall comply with all record
retention requirements as set forth in OMB Circular A-110 (as
applicable).
(e) Data collection and reporting. Each Awardee shall submit to the
Fund, at least annually and within 180 days after the end of the
Awardee's fiscal year, such information and documentation that will
permit the Fund to review the Awardee's progress (and the progress of
its Affiliates, Subsidiaries, and/or Community Partners, if
appropriate) in implementing its Comprehensive Business Plan and
satisfying the terms and conditions of its Assistance Agreement. The
information and documentation shall include, but not be limited to, an
Annual Report, which shall comprise the following components:
(1) Financial Report:
(i) All non-profit organizations (excluding Insured CDFIs and
State-Insured Credit Unions) must submit to the Fund financial
statements that have been reviewed by an independent certified public
accountant in accordance with Statements on Standards for Accounting
and Review Services, issued by the American Institute of Certified
Public Accountants, no later than 180 days after the end of the
Awardee's fiscal year (audited financial statements can be provided by
the due date in lieu of reviewed statements, if available). Non-profit
organizations (excluding Insured
[[Page 73897]]
CDFIs and State-Insured Credit Unions) that are required to have their
financial statements audited pursuant to OMB Circular A-133 Audits of
States, Local Governments and Non-Profit Organizations, must also
submit their A-133 audited financial statements to the Fund no later
than 270 days after the end of the Awardee's fiscal year. Non-profit
organizations (excluding Insured CDFIs and State-Insured Credit Unions)
that are not required to have financial statements audited pursuant to
OMB Circular A-133, Audits of States, Local Governments and Non-Profit
Organizations, must submit to the Fund a statement signed by the
Awardee's Authorized Representative or certified public accountant,
asserting that the Awardee is not required to have a single audit
pursuant OMB Circular A-133.
(ii) For-profit organizations (excluding Insured CDFIs and State-
Insured Credit Unions) must submit to the Fund financial statements
audited in conformity with generally accepted auditing standards as
promulgated by the American Institute of Certified Public Accountants,
no later than 180 days after the end of the Awardee's fiscal year.
(iii) Insured CDFIs are not required to submit financial statements
to the Fund. The Fund will obtain the necessary information from
publicly available sources. State-Insured Credit Unions must submit to
the Fund copies of the financial statements that they submit to the
Appropriate State Agency.
(iv) If multiple organizations sign the Assistance Agreement: The
Awardee may submit combined financial statements and footnotes for the
Awardee and other entities that signed the Assistance Agreement as long
as the financial statements of each signatory are shown separately (for
example, in combining financial statements).
(v) If the Assistance is in the form of a loan or a deposit: The
Awardee must provide the Fund with financial statements annually
throughout the term of the loan or deposit.
(vi) If the Assistance is in the form of an equity investment
(common or preferred stock, secondary capital, certificate of deposit,
partnership interest, or debentures): The Awardee must provide the Fund
with financial statements annually for each year in which the Fund
holds the equity investment.
(2) Performance Goals Report/Annual Survey: Performance Goals
include performance goals and measures that are specific to the
Awardee's application for funding.
(i) Performance Goals Report: The Awardee will submit to the Fund
information through the Annual Survey that will inform the Fund of its
compliance toward meeting the Performance Goals set forth in the
Performance Goals Report.
(ii) Annual Survey: The Fund will use the Annual Survey to collect
data by which to assess the Awardee's compliance toward meeting its
Performance Goals and the impact of the CDFI Program and the CDFI
industry. The Annual Survey is comprised of two components, the
Institution-Level Report and the Transaction-Level Report.
(A) Institution-Level Report. The Institution-Level Report
includes, but is not limited to, organizational, financial, portfolio
and community development impact information and any other information
that the Fund deems appropriate.
(B) Transaction-Level Report. The Transaction-Level Report
includes, but is not limited to, specific data elements on each of the
Awardee's loans and investments including, but not limited to, borrower
location, loan/investment type, loan/investment amount, and terms. The
Awardee must submit the Transaction-Level Report to the Fund at least
annually but no more frequently than quarterly. If the Fund requires
the Awardee to submit the Transaction-Level Report on a semi-annual or
quarterly basis, the Fund will notify the Awardee of the due date for
the submission of said report at least 60 days prior to the due date.
Only Awardees that receive financial assistance awards are required to
submit Transaction-Level Reports.
(3) Financial Status Report: The Financial Status Report is
applicable only to Awardees that receive technical assistance awards
and must be signed by the Awardee's authorized representative, and
submitted to the Fund with the Annual Report. This form is only
applicable to the technical assistance portion of the award.
(4) Uses of Financial Assistance and Matching Funds Report: This
report describes the Awardee's use of its financial assistance award
and its matching funds during its preceding fiscal year.
(5) Explanation of Noncompliance: Any Awardee that fails to meet a
performance goal in its Performance Goals Report must submit to the
Fund a narrative explanation.
(6) Awardees are responsible for the timely and complete submission
of the Annual Report, even if all or a portion of the documents
actually are completed by another entity or signatory to the Assistance
Agreement. If such other entities or signatories are required to
provide Annual Surveys or Financial Reports, or other documentation
that the Fund may require, the Awardee is responsible for ensuring that
the information is submitted timely and complete. The Fund reserves the
right to contact such additional signatories to the Assistance
Agreement and require that additional information and documentation be
provided.
(7) The Fund's review of the progress of an Insured CDFI, a
Depository Institution Holding Company or a State-Insured Credit Union
in implementing its Comprehensive Business Plan and satisfying the
terms and conditions of its Assistance Agreement may also include
information from the Appropriate Federal Banking Agency or Appropriate
State Agency, as the case may be.
(8) The Fund shall make reports described in this section available
for public inspection after deleting any materials necessary to protect
privacy or proprietary interests.
(f) Exchange of information with Appropriate Federal Banking
Agencies and Appropriate State Agencies. (1) Except as provided in
paragraph (f)(4) of this section, prior to directly requesting
information from or imposing reporting or record keeping requirements
on an Insured CDFI or other institution that is examined by or subject
to the reporting requirements of an Appropriate Federal Banking Agency,
the Fund shall consult with the Appropriate Federal Banking Agency to
determine if the information requested is available from or may be
obtained by such agency in the form, format, and detail required by the
Fund.
(2) If the information, reports, or records requested by the Fund
pursuant to paragraph (f)(1) of this section are not provided by the
Appropriate Federal Banking Agency within 15 calendar days after the
date on which the material is requested, the Fund may request the
information from or impose the record keeping or reporting requirements
directly on such institutions with notice to the Appropriate Federal
Banking Agency.
(3) The Fund shall use any information provided by an Appropriate
Federal Banking Agency or Appropriate State Agency under this section
to the extent practicable to eliminate duplicative requests for
information and reports from, and record keeping by, an Insured CDFI,
State-Insured Credit Union or other institution that is examined by or
subject to the reporting requirements of an Appropriate Federal Banking
Agency or Appropriate State Agency.
(4) Notwithstanding paragraphs (f)(1) and (2) of this section, the
Fund may require an Insured CDFI, State-Insured
[[Page 73898]]
Credit Union, or other institution that is examined by or subject to
the reporting requirements of an Appropriate Federal Banking Agency or
Appropriate State Agency to provide information with respect to the
institution's implementation of its Comprehensive Business Plan or
compliance with the terms of its Assistance Agreement, after providing
notice to the Appropriate Federal Banking Agency or Appropriate State
Agency, as the case may be.
(5) Nothing in this part shall be construed to permit the Fund to
require an Insured CDFI, State-Insured Credit Union, or other
institution that is examined by or subject to the reporting
requirements of an Appropriate Federal Banking Agency or Appropriate
State Agency to obtain, maintain, or furnish an examination report of
any Appropriate Federal Banking Agency or Appropriate State Agency, or
records contained in or related to such report.
(6) The Fund and the Appropriate Federal Banking Agency shall
promptly notify each other of material concerns about an Awardee that
is an Insured CDFI or that is examined by or subject to the reporting
requirements of an Appropriate Federal Banking Agency, and share
appropriate information relating to such concerns.
(7) Neither the Fund nor the Appropriate Federal Banking Agency (or
Appropriate State Agency, as the case may be) shall disclose
confidential information obtained pursuant to this section from any
party without the written consent of that party.
(8) The Fund, the Appropriate Federal Banking Agency (or
Appropriate State Agency, as the case may be), and any other party
providing information under this paragraph (f) shall not be deemed to
have waived any privilege applicable to the any information or data, or
any portion thereof, by providing such information or data to the other
party or by permitting such data or information, or any copies or
portions thereof, to be used by the other party.
(g) Availability of referenced publications. The publications
referenced in this section are available as follows:
(1) OMB Circulars may be obtained from the Office of
Administration, Publications Office, 725 17th Street, NW., Room 2200,
New Executive Office Building, Washington, DC 20503 or on the Internet
(http://www.whitehouse.gov/OMB/grants/index.html); and
(2) General Accounting Office materials may be obtained from GAO
Distribution, 700 4th Street, NW., Suite 1100, Washington, DC 20548.
Sec. 1805.805 Information.
The Fund and each Appropriate Federal Banking Agency shall
cooperate and respond to requests from each other and from other
Appropriate Federal Banking Agencies in a manner that ensures the
safety and soundness of Insured CDFIs or other institution that is
examined by or subject to the reporting requirements of an Appropriate
Federal Banking Agency.
Sec. 1805.806 Compliance with government requirements.
In carrying out its responsibilities pursuant to an Assistance
Agreement, the Awardee shall comply with all applicable Federal, State,
and local laws, regulations, and ordinances, OMB Circulars, and
Executive Orders.
Sec. 1805.807 Conflict of interest requirements.
(a) Provision of credit to Insiders. (1) An Awardee that is a Non-
Regulated CDFI may not use any monies provided to it by the Fund to
make any credit (including loans and Equity Investments) available to
an Insider unless it meets the following restrictions:
(i) The credit must be provided pursuant to standard underwriting
procedures, terms and conditions;
(ii) The Insider receiving the credit, and any family member or
business partner thereof, shall not participate in any way in the
decision making regarding such credit;
(iii) The board of directors or other governing body of the Awardee
shall approve the extension of the credit; and
(iv) The credit must be provided in accordance with a policy
regarding credit to Insiders that has been approved in advance by the
Fund.
(2) An Awardee that is an Insured CDFI, a Depository Institution
Holding Company or a State-Insured Credit Union shall comply with the
restrictions on Insider activities and any comparable restrictions
established by its Appropriate Federal Banking Agency or Appropriate
State Agency, as applicable.
(b) Awardee standards of conduct. An Awardee that is a Non-
Regulated CDFI shall maintain a code or standards of conduct acceptable
to the Fund that shall govern the performance of its Insiders engaged
in the awarding and administration of any credit (including loans and
Equity Investments) and contracts using monies from the Fund. No
Insider of an Awardee shall solicit or accept gratuities, favors or
anything of monetary value from any actual or potential borrowers,
owners or contractors for such credit or contracts. Such policies shall
provide for disciplinary actions to be applied for violation of the
standards by the Awardee's Insiders.
Sec. 1805.808 Lobbying restrictions.
No assistance made available under this part may be expended by an
Awardee to pay any person to influence or attempt to influence any
agency, elected official, officer or employee of a State or local
government in connection with the making, award, extension,
continuation, renewal, amendment, or modification of any State or local
government contract, grant, loan or cooperative agreement as such terms
are defined in 31 U.S.C. 1352.
Sec. 1805.809 Criminal provisions.
The criminal provisions of 18 U.S.C. 657 regarding embezzlement or
misappropriation of funds is applicable to all Awardees and Insiders.
Sec. 1805.810 Fund deemed not to control.
The Fund shall not be deemed to control an Awardee by reason of any
assistance provided under the Act for the purpose of any applicable
law.
Sec. 1805.811 Limitation on liability.
The liability of the Fund and the United States Government arising
out of any assistance to a CDFI in accordance with this part shall be
limited to the amount of the investment in the CDFI. The Fund shall be
exempt from any assessments and other liabilities that may be imposed
on controlling or principal shareholders by any Federal law or the law
of any State. Nothing in this section shall affect the application of
any Federal tax law.
Sec. 1805.812 Fraud, waste and abuse.
Any person who becomes aware of the existence or apparent existence
of fraud, waste or abuse of assistance provided under this part should
report such incidences to the Office of Inspector General of the U.S.
Department of the Treasury.
Dated: December 1, 2005.
Arthur A. Garcia,
Director, Community Development Financial Institutions Fund.
[FR Doc. 05-23751 Filed 12-12-05; 8:45 am]
BILLING CODE 4810-70-P