[Federal Register Volume 62, Number 65 (Friday, April 4, 1997)]
[Rules and Regulations]
[Pages 16444-16459]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8783]



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Part VI





Department of the Treasury





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Community Development Financial Institutions Fund



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12 CFR Part 1805



Community Development Financial Institutions Program; Final Rule and 
Notices of Funds Availability (NOFA) Inviting Applications for the 
Community Development Financial Institutions (CDFI) Program--
Intermediary and Core Components

  Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules 
and Regulations  

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DEPARTMENT OF THE TREASURY

Community Development Financial Institutions Fund

12 CFR Part 1805

RIN 1505-AA71


Community Development Financial Institutions Program

AGENCY: Community Development Financial Institutions Fund, Department 
of the Treasury.

ACTION: Revised interim rule with request for comment.

-----------------------------------------------------------------------

SUMMARY: The Department of the Treasury is issuing a revised interim 
rule implementing the Community Development Financial Institutions 
Program (CDFI Program). The revised interim rule is intended to enable 
the CDFI Fund to administer the CDFI Program in a more efficient 
manner. The CDFI Fund's programs are designed to facilitate the flow of 
lending and investment capital into distressed communities and to 
individuals who have been unable to take full advantage of the 
financial services industry.

DATES: Revised interim rule effective April 4, 1997; comments must be 
received on or before July 31, 1997.

ADDRESSES: All comments concerning this revised interim rule should be 
addressed to the Director, Community Development Financial Institutions 
Fund, Department of the Treasury, 1500 Pennsylvania Avenue NW., 
Washington, DC 20220. Comments may be inspected at the above address 
weekdays between 9:30 a.m. and 4:30 p.m.

FOR FURTHER INFORMATION CONTACT: Kirsten S. Moy, Director, Community 
Development Financial Institutions Fund, at (202) 622-8662. (This is 
not a toll free number.)

SUPPLEMENTARY INFORMATION:

I. General

Executive Order (E.O.) 12866

    It has been determined that this regulation is not a significant 
regulatory action as defined in E.O. 12866. Because no substantive 
changes were made to this regulation subsequent to submission to the 
Office of Management and Budget (OMB), the provisions of section 
6(a)(3)(E) of the E.O. do not apply.

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. Moreover, the Department of the 
Treasury finds that any economic or other consequence of this revised 
interim rule are a direct result of the implementation of statutory 
provisions.

Paperwork Reduction Act

    The Department of the Treasury is issuing these revised interim 
regulations without prior notice and public procedure pursuant to the 
Administrative Procedure Act (5 U.S.C. 553). For this reason, the 
collection of information contained in these revised interim 
regulations have been reviewed under the requirements of the Paperwork 
Reduction Act (44 U.S.C. 3507(j)) and, pending receipt and evaluation 
of public comments, approved by the OMB under control number 1505-0154. 
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. Comments concerning the collection of 
information should be directed to the Office of Management and Budget, 
Attention: Desk Officer for the Department of the Treasury, Community 
Development Financial Institutions Fund, Office of Information and 
Regulatory Affairs, Washington, DC 20503, with copies to the Community 
Development Financial Institutions Fund, Department of the Treasury, 
1500 Pennsylvania Avenue NW., Washington, DC 20220. Any such comments 
should be submitted not later than July 31, 1997. Comments are 
specifically requested concerning:
    (1) Whether the proposed collection(s) of information is necessary 
for the proper performance of the functions of the Community 
Development Financial Institutions Fund, including whether the 
information will have practical utility;
    (2) The accuracy of the estimated burden associated with the 
proposed collection(s) of information (see below);
    (3) How to enhance the quality, utility, and clarity of the 
information to be collected;
    (4) How to minimize the burden of complying with the proposed 
collection(s) of information, including the application of automated 
collection techniques or other forms of information technology; and
    (5) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    Provisions requiring the collection of information can be found in 
Secs. 1805.701 and 1805.903 of these revised interim regulations. The 
information requested in such provisions will be used to evaluate 
applications, monitor the performance of entities receiving assistance, 
and ensure compliance with statutory and program requirements. The 
collection(s) of information is required to obtain a benefit. The 
anticipated respondents and recordkeepers are financial institutions 
that may apply for and receive assistance.
    Estimated total annual reporting and/or recordkeeping burden: 
30,000.
    Estimated average annual burden hours per respondent and/or 
recordkeeper: 100.
    Estimated number of respondents and/or record keepers: 300.
    Estimated annual frequency of responses: 1-4.

National Environmental Policy Act

    Pursuant to Treasury Directive 75-02 (Department of the Treasury 
Environmental Quality Program), the Department has determined that 
these revised interim regulations are categorically excluded from the 
National Environmental Policy Act and do not require an environmental 
review.

Administrative Procedure Act

    Pursuant to the provisions of 5 U.S.C. 553(a)(2), these revised 
interim regulations are exempt from the proposed rule-making 
requirements of 5 U.S.C. 553(b) and are being issued as revised interim 
regulations without opportunity for notice and public comment prior to 
their effective date. Furthermore, the Department for good cause finds 
that notice and public comment prior to effect are impracticable and 
contrary to the public interest. Congress appropriated funds for the 
CDFI Fund in FY 1996 and required such funds to be obligated by 
September 30, 1997. If the Department does not issue these regulations 
for effect, it will not be feasible to implement this program, as 
amended prior to September 30, 1997 in a manner that better achieves 
the results intended by Congress.

Catalog of Federal Financial Assistance Number

    Community Development Financial Institutions Program--21.020.

II. Background

    The CDFI Fund was established as a wholly owned government 
corporation by the Community Development Banking and Financial 
Institutions Act of 1994 (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

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the Administrator of the Fund as set forth in the authorizing statute.
    Consistent with the placement and administration of the Fund within 
the Department's organizational structure, the Department of the 
Treasury's Inspector General will serve as the Inspector General for 
the Fund. Any individual who becomes aware of the existence or apparent 
existence of fraud, waste, or abuse of assistance provided by the Fund 
is encouraged to report it to the Department of the Treasury's Office 
of Inspector General in writing or on the Inspector General's Hotline 
(toll free 1-800-359-3898). All telephone calls will be handled 
confidentially. Written complaints should be addressed to the U.S. 
Department of the Treasury, Office of Inspector General, Room 2412, 
1500 Pennsylvania Avenue NW., Washington, DC 20220.
    All records and materials pertaining to the selection and awarding 
of assistance by the Fund shall be fully subject to the Freedom of 
Information Act. Interested parties should contact the U.S. Department 
of the Treasury, Office of the Assistant Secretary for Management, 
Disclosure Services at (202) 622-1500.
    The CDFI Fund's programs are designed to facilitate the flow of 
lending and investment capital into distressed communities and to 
individuals who have been unable to take full advantage of the 
financial services industry. The initiative is an important step in 
rebuilding poverty-stricken and transitional communities and creating 
economic opportunity for people often left behind by the economic 
mainstream.
    Access to credit and investment capital is an essential ingredient 
for creating and retaining jobs, developing affordable housing, 
revitalizing neighborhoods, unleashing the economic potential of small 
business, and empowering people. Over the past three decades, 
community-based financial institutions have proven that strategic 
lending and investment activities tailored to the unique 
characteristics of underserved markets are highly effective in 
improving the economic well being of communities and the people who 
live there.
    The CDFI Fund was established to facilitate the creation of new, 
and expansion of existing, financial institutions that are specialized 
in serving these markets. These institutions--while highly effective--
are typically small in scale, too few in number, and often have 
difficulty raising the equity capital needed to meet the demands for 
their products and services. The investments by the CDFI Program are 
intended to provide much-needed capital that will enable existing 
institutions to expand and facilitate the start-up of new institutions.
    This issue of the Federal Register also contains two separate 
Notices of Funds Availability (NOFAs) for the program, one for the core 
component of the CDFI Program and another for a new intermediary 
component. The core component provides direct assistance to CDFIs that 
serve their target markets through loans, investments and other 
activities, rather than primarily through the financing of other CDFIs. 
The core component continues the basic approach followed by the Fund in 
the first round of the CDFI Program. For the foreseeable future, the 
core component will receive the great bulk of the Fund's resources 
devoted to the CDFI Program.
    The new intermediary component provides financial assistance to 
CDFIs that provide financing primarily to other CDFIs and/or to support 
the formation of CDFIs. The Fund recognizes that there are in existence 
certain intermediary CDFIs, and others may be created over time, that 
focus their financing activities primarily on financing other CDFIs. 
Such institutions may have knowledge and capacity to develop and 
implement a specialized niche or niches in their financing of CDFIs 
and/or CDFIs in formation. The Fund believes that providing financial 
assistance to such intermediaries can be an effective way to expand its 
support of the CDFI industry. To illustrate the concept of an 
intermediary CDFI with a few examples, an intermediary may have a 
specialized niche or niches focusing on financing a specific type or 
types of CDFIs, providing small amounts of capital per CDFI, financing 
CDFIs with specialized risk levels, or financing institutions seeking 
to become CDFIs. By providing financial assistance to specialized 
intermediaries, the Fund believes it can leverage the expertise of such 
intermediaries and strengthen the Fund's capacity to support the 
development and enhancement of the CDFI industry.
    The revised interim rule published in this issue of the Federal 
Register incorporates only technical and other clarifying changes to 
the previous interim rule, including changes designed to provide 
flexibility and ease the burden of application and reporting 
requirements. The Fund received 20 written submissions of formal 
comments in response to the interim rule for the CDFI Program published 
in the Federal Register on October 19, 1995. The comments covered a 
variety of subjects including eligibility, target market designation, 
matching requirements, application contents, and the review process. 
The Fund has determined that before developing a final rule for this 
program, it would be useful to give interested parties an additional 
opportunity to comment on the interim rule, informed by their 
experience under the Program's first round and the process of 
developing applications pursuant to the NOFAs published separately in 
this issue of the Federal Register. It is the Fund's intent to issue a 
final rule that incorporates or addresses both the formal comments 
previously submitted and new comments received in response to the 
publication of this revised interim rule.
    The following is a summary of the major provisions of the revised 
interim regulations, including references to the most significant 
changes from the earlier interim rule.

III. Community Development Financial Institutions Program

Subpart A--General Provisions

    Under the Community Development Financial Institutions Program (12 
CFR part 1805), the Fund provides financial and technical assistance to 
selected applicants in order to enhance their ability to make loans and 
investments and provide services for the benefit of designated 
investment area(s), targeted population(s), or both. The Fund selects 
awardees through a competitive application process. After selection, 
each awardee will enter into an assistance agreement with the Fund 
which includes the establishment of performance goals and other terms 
and conditions.
    Subpart A contains general provisions including the purpose of the 
program (Sec. 1805.100), a summary (Sec. 1805.101), its relationship to 
other Fund programs (Sec. 1805.102) and definitions (Sec. 1805.104). 
Section 1805.104(aa) amends the definition of Low Income to accommodate 
appropriate adjustments since the 1990 census.

Subpart B--Eligibility

    Section 1805.200 establishes criteria for qualification as a CDFI. 
The criteria reflect the requirements stated in the authorizing 
statute. To be eligible to apply for assistance, an entity must either 
be, or propose to become, a CDFI. The revised interim regulations 
describe the information needed by the Fund to assess whether, among 
other things:
    (1) The applicant has a primary mission of community development;
    (2) The applicant's predominant business activity is the provision 
of loans or investments; and

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    (3) The applicant serves an investment area(s) or targeted 
population(s).
    The Fund recognizes that there will be significant diversity among 
applicants with respect to asset size, organizational type, stage of 
organizational development, products and services offered, and 
geographic location. Section 1805.200 provides that although an entity 
that proposes to become a CDFI may apply for assistance, if selected to 
receive financial assistance from the Fund such entity will not receive 
such financial assistance until it qualifies as a CDFI. An entity may 
receive technical assistance from the Fund before it becomes a CDFI, if 
such technical assistance is designed to assist it to become a CDFI.
    The revised interim rule provides that an entity that proposes to 
become a CDFI is eligible to apply for assistance if the Fund 
determines that such entity's application materials provide a realistic 
course of action to ensure that it can qualify as a CDFI within two 
years of entering into an assistance agreement with the Fund (or such 
lesser period as may be set forth in an applicable NOFA). The Fund 
recognizes that in certain cases, for example, start-ups that must 
undertake substantial fund raising and/or organizations that require 
regulatory approvals, an entity selected to receive assistance may not 
qualify as a CDFI until some time after its selection. However, the 
Fund believes that in most cases substantially less than two years will 
be required.
    Section 1805.201 allows an entity to apply to the Fund for 
certification as a CDFI regardless of whether it is applying for 
assistance. The Fund believes that such a certification process will 
recognize the importance of the activities that institutions are 
engaged in, enhance their credibility with investors, and facilitate 
participation by CDFIs in other government programs.

Subpart C--Target Markets

    As stated in Sec. 1805.300, an applicant must designate one or more 
investment areas or targeted populations as the target market(s) it 
intends to serve. Section 1805.301 gives each applicant significant 
flexibility in designating an investment area provided that certain 
conditions are met. Investment areas must meet objective criteria of 
distress. Consistent with its statutory mandate, the Fund has developed 
objective criteria that are appropriate for identifying distress in 
metropolitan, non-metropolitan, and Native American communities. 
Investment areas may be comprised of a variety of different geographic 
units in order to reflect the neighborhoods, areas, or markets that 
applicants serve or propose to serve. Section 1805.301 requires that an 
investment area in a metropolitan area consist of census tracts, block 
groups, or a combination thereof.
    Section 1805.302 incorporates the statutory requirements for 
defining a targeted population.

Subpart D--Use of Funds/Eligible Activities

    Section 1805.401 lists the eligible activities for which financial 
assistance must be used and permits the Fund to approve other 
activities. Section 1805.402 requires that an applicant use the Fund's 
assistance and any corresponding matching funds for purposes approved 
by the Fund as reflected in an assistance agreement. The revised 
interim regulations place restrictions on such applicant's distribution 
of monies to affiliates or its community partners. Section 1805.403 
describes technical assistance which may be sought as part of the 
application. Technical assistance requests pursuant to this part will 
be evaluated pursuant to the same competitive review criteria as 
financial assistance requests.

Subpart E--Investment Instruments

    Section 1805.500 states that the Fund's primary objective in 
awarding financial assistance is to enhance the stability, performance, 
and capacity of an awardee. The Fund retains discretion to provide its 
assistance in a manner and amount different from an applicant's 
request.
    Section 1805.501 describes the types of investment instruments 
through which the Fund may provide financial assistance. Section 
1805.502 restates the Act's aggregate assistance limit of $5 million 
for each applicant in any three-year period--which may be increased by 
up to $3.75 million under special circumstances which have been 
clarified in the revised interim rule.

Subpart F--Matching Funds Requirements

    Pursuant to Sec. 1805.600, each applicant must obtain matching 
funds from sources other than the Federal government that are at least 
equal to the amount of financial assistance provided by the Fund. 
Community Development Block Grant funds may not be used for the match. 
As required by the Act and Sec. 1805.601, the matching funds must be 
comparable in form and value to the Fund's financial assistance. This 
provision is intended to encourage match providers to offer their 
resources under the most favorable terms and conditions possible and 
enable a CDFI to obtain the Fund's assistance in a like manner.
    Section 1805.603 permits applicants to satisfy matching 
requirements with funds obtained for up to one year prior to 
publication of a NOFA or such earlier date as may be specified in a 
NOFA for a particular funding round. The revised interim rule clarifies 
that 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. (The revised interim rule further provides that 
funds spent for operating expenses prior to the calendar year in which 
the deadline falls for receipt of applications in an applicable NOFA 
shall not be eligible to be considered as matching funds.) To the 
extent consistent with the Act and these revised interim regulations, 
the Fund believes that applicants should be able to use matching funds 
when they are available.
    Each NOFA may establish other conditions or restrictions on the 
time period for raising matching funds.

Subpart G--Applications For Assistance

    Section 1805.701 specifies the information that must be provided as 
part of an application. This information describes how an applicant can 
demonstrate whether it meets the eligibility requirements of subpart B. 
The section also describes information that an applicant must provide 
to be evaluated and selected under subpart H. The most significant 
component of the application is a five-year comprehensive business 
plan. The plan will provide the basis for evaluating both the 
applicant's current capacity and its potential for the future. The plan 
must include, among other things, elements related to financial 
performance, management policies and capacity, market analysis, 
coordination efforts, community impact, funding resources, and timing. 
The application must contain a detailed description of the matching 
funds to be raised by the applicant for use in conjunction with the 
Fund's assistance. In order to facilitate coherence and avoid 
duplication, the revised interim rule permits an applicant to present 
its application materials in an order and format that it believes is 
the most appropriate. The revised interim rule also eliminates the Low 
Income Targeted Population Worksheet.

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Subpart H--Evaluation and Selection of Applicants

    Section 1805.800 outlines the evaluation and selection process. 
Section 1805.801 indicates the Fund's intent to seek to fund a 
geographically diverse group of applicants as required by the Act. The 
revised interim rule amends the evaluation and selection process 
discussed in subpart H. Without eliminating any of the evaluation 
factors, the revised interim rule restructures the process of 
evaluating applications described in Sec. 1805.802 to expedite the 
process and improve its efficiency.
    The revised interim rule states that the Fund will not provide 
assistance to an applicant that does not meet the eligibility 
requirements or that has not submitted complete application materials. 
In addition, the revised interim rule consolidates what had been the 
Tier 2 (financial and organizational capacity) and Tier 3 (other 
qualitative criteria) reviews into one set of substantive review 
criteria. The selection criteria set forth with respect to the CDFI 
Program in the interim rule published in the Federal Register on 
October 19, 1995, are retained, including financial strength and 
organizational capacity, extent of external resources, and community 
impact. The revised interim rule clarifies that the criteria to be 
considered include the quality of the applicant's comprehensive 
business plan and the extent and nature of an applicant's potential 
community development impact that will be catalyzed relative to the 
amount of assistance to be provided by the Fund. While ensuring 
fairness and consistency, the Fund will seek to implement the 
evaluation and selection process in a manner that takes into 
consideration the unique characteristics of applicants that vary by 
organizational type, total asset size, and stage of organizational 
development.

Subpart I--Terms and Conditions of Assistance

    While Federal and State agencies will retain responsibility for 
assuring the safety and soundness of insured CDFIs, pursuant to 
Sec. 1805.900 the Fund will (to the extent practicable) ensure that 
unregulated awardees are financially and managerially sound and 
maintain appropriate internal controls. Prior to receiving assistance, 
each awardee will execute an agreement with the Fund that describes its 
performance goals and other terms and conditions of assistance. Section 
1805.901 describes the nature and use of the Fund's assistance 
agreements. The agreement will contain sanctions for noncompliance. As 
required by the Act, any proposed sanctions to be imposed on an insured 
CDFI must be discussed with the appropriate Federal banking agency 
under specific procedures. Pursuant to Sec. 1805.902, disbursement of 
assistance from the Fund will be in a lump sum or over a period of 
time, as determined by the Fund. However, the Fund may provide no 
financial assistance until the awardee has secured firm commitments for 
its corresponding matching funds. This provision is intended to ensure 
that no Federal funds are released until other resources are leveraged.
    Section 1805.903 describes the recordkeeping and reporting 
requirements applicable to awardees. These requirements are consistent 
with the Fund's fiduciary and monitoring responsibilities. Awardees are 
required to submit quarterly data on financial indicators and 
performance measures and annual reports and audits on its financial and 
programmatic performance. The revised interim rule contains 
modifications intended to provide awardees flexibility in their 
quarterly reports as well as flexibility in the timing of the 
submission of reports.
    In developing its revised regulations, the Fund has sought to 
minimize its recordkeeping and reporting requirements. The Fund 
requests input on how to further reduce such burden while still meeting 
its statutory monitoring and enforcement requirements.
    All awardees shall be subject to legal requirements pertaining to 
the Fund's assistance, including conflict of interest standards. 
Section 1805.905 requires each awardee to comply with all other 
governmental requirements. Section 1805.906 requires awardees to 
maintain standards of conduct acceptable to the Fund. Section 1805.907 
describes lobbying restrictions applicable to awardees.

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.
Kirsten S. Moy,
Director, Community Development Financial Institutions Fund.

    For the reasons set forth in the preamble, chapter XVIII of title 
12 of the Code of Federal Regulations is amended by revising part 1805 
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--Target Markets

1805.300  Target markets--general.
1805.301  Investment Area.
1805.302  Targeted Population.

Subpart D--Use of Funds/Eligible Activities

1805.400  Purposes of financial assistance.
1805.401  Eligible activities.
1805.402  Restrictions on use of assistance.
1805.403  Technical assistance.

Subpart E--Investment Instruments

1805.500  Investment instruments--general.
1805.501  Forms of investment instruments.
1805.502  Assistance limits.
1805.503  Authority to sell.

Subpart F--Matching Funds Requirements

1805.600  Matching funds--general.
1805.601  Comparability of form and value.
1805.602  Severe constraints waiver.
1805.603  Time frame for raising match.
1805.604  Retained earnings.

Subpart G--Applications for Assistance

1805.700  Notice of funds availability.
1805.701  Application contents.

Subpart H--Evaluation and Selection of Applications

1805.800  Evaluation and selection--general.
1805.801  Geographic diversity.
1805.802  Evaluation of applications.

Subpart I--Terms and Conditions of Assistance

1805.900  Safety and soundness.
1805.901  Assistance Agreement; sanctions.
1805.902  Disbursement of funds.
1805.903  Data collection and reporting.
1805.904  Information.
1805.905  Compliance with government requirements.
1805.906  Conflict of interest requirements.
1805.907  Lobbying restrictions.
1805.908  Criminal provisions.
1805.909  Fund deemed not to control.
1805.910  Limitation on liability.
1805.911  Fraud, waste and abuse.

    Authority: 12 U.S.C. 4703, 4717; chapter X, Pub. L. 104-19, 109 
Stat. 237 (12 U.S.C. 4703 note).

[[Page 16448]]

Subpart A--General Provisions


Sec. 1805.100  Purpose.

    The purpose of the Community Development Financial Institutions 
Program is to facilitate the creation of a national network of 
financial institutions that is dedicated to community development.


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 
competitive 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 assistance from the Bank Enterprise 
Award Program (part 1806 of this chapter) if it has:
    (i) An application for assistance pending under the Community 
Development Financial Institutions Program;
    (ii) Received assistance under the Community Development Financial 
Institutions Program within the preceding 12-month period; or
    (iii) Received assistance under the Community Development Financial 
Institutions Program for the same activities as proposed under an 
application for the Bank Enterprise Award Program.
    (2) An Equity Investment (as defined in part 1806 of this chapter) 
in, or a loan to, a Community Development Financial Institution made by 
a Bank Enterprise Award Program Awardee may be used to meet the 
matching fund requirements described in subpart F of this part. Receipt 
of such Equity Investment or loan 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 
assistance 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. 1811 et 
seq.), and also includes the National Credit Union Administration with 
respect to Insured Credit Unions;
    (e) Assistance Agreement means a formal agreement between the Fund 
and an Awardee which specifies the terms and conditions of assistance 
under this part;
    (f) Awardee means an Applicant selected by the Fund to receive 
assistance pursuant to this part;
    (g) Community Development Financial Institution (or CDFI) means an 
entity currently meeting the eligibility requirements under 
Sec. 1805.200;
    (h) 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;
    (i) Community Facility means a facility where health care, child 
care, educational, cultural, or social services are provided; /
    (j) 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;
    (k) 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;
    (l) 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 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.);
    (m) Community Partnership means an agreement between an Applicant 
and a Community Partner to collaboratively provide loans, equity 
investments, or Development Services to an Investment Area(s) or a 
Targeted Population(s);
    (n) Comprehensive Business Plan means a document covering not less 
than the next five years which meets the requirements described under 
Sec. 1805.701(d);
    (o) 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. 1811 et seq.);
    (p) Development Investment means an equity investment made by an 
Applicant which, in the judgment of the Fund, directly 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;
    (q) Development Services means activities that promote community 
development and are integral to lending and Development Investment 
activities. Such services shall prepare or assist potential borrowers 
or investees to utilize the lending or investment products of the 
Awardee, its Affiliates, or its Community Partners. Such services 
include, for example:
    (1) Financial or credit counseling to individuals for the purpose 
of facilitating home ownership, promoting self-employment, or enhancing 
consumer financial management skills; or
    (2) Technical assistance to borrowers or investees for the purpose 
of enhancing business planning, marketing, management, and financial 
management skills;
    (r) Financial Services means checking, check-cashing, money orders, 
certified checks, automated teller machines, deposit-taking, and safe 
deposit box services;
    (s) Fund means the Community Development Financial Institutions 
Fund established under section 104(a) (12 U.S.C. 4703(a)) of the Act;

[[Page 16449]]

    (t) 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. 1601 et seq.), public domain Indian allotments, and former 
Indian reservations in the State of Oklahoma;
    (u) 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;
    (v) 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;
    (w) Insured CDFI means a CDFI that is an Insured Depository 
Institution or an Insured Credit Union;
    (x) Insured Credit Union means any credit union, the member 
accounts of which are insured by the National Credit Union Share 
Insurance Fund;
    (y) Insured Depository Institution means any bank or thrift, the 
deposits of which are insured by the Federal Deposit Insurance 
Corporation;
    (z) Investment Area means a geographic area meeting the 
requirements of Sec. 1805.301;
    (aa) 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;
    (bb) Metropolitan Area means an area designated as such by the 
Office of Management and Budget pursuant to 44 U.S.C. 3504(d)(3) and 31 
U.S.C. 1104(d) and Executive Order 10253 (3 CFR, 1949-1953 Comp., p. 
758), as amended;
    (cc) Non-Regulated CDFI means any entity meeting the eligibility 
requirements of Sec. 1805.200 which is not a Depository Institution 
Holding Company, Insured Depository Institution, or Insured Credit 
Union;
    (dd) 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 Trust Territories of the Pacific Islands, the 
Virgin Islands, and the Northern Mariana Islands;
    (ee) 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(h)(4); and
    (ff) Targeted Population means individuals or an identifiable group 
meeting the requirements of Sec. 1805.302.


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 number 1505-0154.

Subpart B-Eligibility


Sec. 1805.200  Applicant eligibility.

    (a) General requirements. (1) An entity that meets the requirements 
described in paragraphs (b) through (h) of this section will be 
considered a CDFI and, subject to paragraph (a)(3) of this section, 
will be eligible to apply for assistance under this part. Criteria to 
establish compliance with such requirements are set forth in 
Sec. 1805.701(b).
    (2) An entity that proposes to become a CDFI is eligible to apply 
for assistance under this part if the Fund determines that such 
entity's application materials provide a realistic course of action to 
ensure that it will meet the requirements described in paragraphs (b) 
through (h) of this section within two years of entering into an 
Assistance Agreement with the Fund or such lesser period as may be set 
forth in an applicable Notice of Funds Availability (NOFA). The Fund 
shall not, however, disburse any financial assistance to such an entity 
before it meets the requirements described in paragraphs (b) through 
(h) of this section.
    (3) The Fund shall require an entity to meet any additional 
eligibility requirements that the Fund deems appropriate.
    (4) The Fund, in its sole discretion, shall determine whether an 
Applicant fulfills the requirements set forth in this section and 
Sec. 1805.701(b).
    (b) Primary mission. A CDFI shall have a primary mission of 
promoting community development.
    (c) Target market. A CDFI shall serve an Investment Area(s) or 
Targeted Population(s).
    (d) Financing entity. A CDFI shall be an entity whose predominant 
business activity is the provision of loans or Development Investments.
    (e) Development Services. A CDFI, directly or through an Affiliate, 
shall provide Development Services in conjunction with loans or 
Development Investments.
    (f) 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.
    (g) Non-government entity. A CDFI shall not be an agency or 
instrumentality of the government 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 that it is not controlled by such entities and 
maintains independent decision-making power over its activities.
    (h) 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 
paragraphs (a) through (g) of 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 paragraphs (a) through 
(g) of 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 paragraphs (a) 
through (g) of this section.

[[Page 16450]]

    (4) For the purposes of paragraphs (h)(1), (2) and (3) of this 
section, an Applicant will not be considered to be a Subsidiary of any 
Insured Depository Institution or Depository Institution Holding 
Company that controls less than 25 percent of any class of its voting 
shares, and which does not, in any manner, otherwise control the 
election of a majority of directors of the Applicant.


Sec. 1805.201  Certification as a Community Development Financial 
Institution.

    An entity may apply to the Fund for certification that it meets the 
CDFI eligibility requirements (as described under Sec. 1805.200) 
regardless of whether it is seeking financial or technical assistance 
from the Fund. Entities seeking such certification shall provide the 
information described under Sec. 1805.701(b). Certification by the Fund 
will verify that the entity meets the CDFI eligibility requirements. 
However, such a certification shall not constitute an opinion by the 
Fund as to the financial viability of the entity that obtains such 
certification 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 paragraphs (b) through (h) of Sec. 1805.200 
are no longer met.

Subpart C--Target Markets


Sec. 1805.300  Target markets--general.

    An Applicant shall designate one or more Investment Area(s) or 
Targeted Population(s) that it proposes to serve. An Applicant may also 
choose to serve both an Investment Area(s) and a Targeted 
Population(s). An Investment Area shall meet specific geographic and 
other criteria discussed in Sec. 1805.301. A Targeted Population shall 
consist of Low-Income persons or those who otherwise lack adequate 
access to loans or equity investments.


Sec. 1805.301  Investment Area.

    (a) General. A geographic area will be considered eligible for 
designation as an Investment Area if it:
    (1)(i) Meets at least one of the objective criteria of economic 
distress as set forth in paragraph (d) of this section and has 
significant unmet needs for loans or equity investments as described in 
paragraph (e) of this section; or
    (ii) Encompasses or is located in an Empowerment Zone or Enterprise 
Community designated under section 1391 of the Internal Revenue Code of 
1986 (26 U.S.C. 1391); and
    (2) 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 Trust Territories of the Pacific 
Islands, the Virgin Islands, and the Northern Mariana Islands).
    (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 can 
designate one or more Investment Areas as part of a single application.
    (c) Designation. An Applicant can designate an Investment Area by 
selecting:
    (1) A geographic unit(s) which individually meets one of the 
criteria in paragraph (d) of this section; or
    (2) A group of contiguous geographic units which together meet one 
of the criteria in paragraph (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 1990 (or subsequent) 
decennial census and 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-Metropolitan Area median family 
income, whichever is greater;
    (3) The unemployment rate is at least 1.5 times the national 
average;
    (4) The percentage of occupied distressed housing (as indicated by 
lack of complete plumbing and occupancy of more than one person per 
room) is at least 20 percent; or
    (5) In areas located outside of a Metropolitan Area, the county 
population loss between 1980 and 1990 is at least 10 percent.
    (e) Unmet needs. An Investment Area will be deemed to have 
significant unmet needs for loans or equity investments if studies or 
other analyses provided by the Applicant adequately demonstrate a 
pattern of unmet needs for loans and equity investments within such 
area(s).
    (f) Serving Investment Areas. An Applicant can serve an Investment 
Area directly or through borrowers or investees that serve the 
Investment Area or provide significant benefits to its residents.


Sec. 1805.302  Targeted Population.

    (a) A Targeted Population shall mean individuals, or an 
identifiable group of individuals, who: are Low-Income persons; or lack 
adequate access to loans or equity investments. An Applicant can serve 
the members of a Targeted Population directly or through borrowers or 
investees that directly serve or provide significant benefits to such 
members.
    (b) 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 Trust Territories of the 
Pacific Islands, the Virgin Islands, and the Northern Mariana Islands).
    (c) An Applicant shall provide its products and services in a 
manner that is consistent with the Equal Credit Opportunity Act (15 
U.S.C. 1691), to the extent that the Applicant is subject to the 
requirements of such Act.

Subpart D--Use of Funds/Eligible Activities


Sec. 1805.400  Purposes of financial assistance.

    The Fund may provide financial assistance through investment 
instruments described under subpart E of this part. Such financial 
assistance is intended to strengthen the capital position and enhance 
the ability of an Awardee to make loans and Development Investments and 
provide Financial Services.


Sec. 1805.401  Eligible activities.

    Financial assistance provided under this part may be used by an 
Awardee to serve Investment Area(s) or Targeted

[[Page 16451]]

Population(s) by developing or supporting:
    (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. 1805.402  Restrictions on use of assistance.

    (a) An Awardee shall only use assistance provided by the Fund and 
its corresponding matching funds 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. 1805.403  Technical assistance.

    (a) General. 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 
or not 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. 1805.502.
    (c) An Applicant seeking technical assistance must meet the 
eligibility requirements of Sec. 1805.200 and submit an application as 
described in Sec. 1805.701.
    (d) Applicants for technical assistance pursuant to this part will 
be evaluated pursuant to the competitive review criteria in subpart H 
of this part, except that requirements for matching funds are not 
applicable to technical assistance requests.

Subpart E--Investment Instruments


Sec. 1805.500  Investment instruments--general.

    The Fund's primary objective in awarding financial assistance is to 
enhance the stability, performance and capacity of an Awardee. The Fund 
will provide financial assistance to an Awardee through one or more of 
the investment instruments described in Sec. 1805.501, and under such 
terms and conditions as described in this subpart E. The Fund, in its 
sole discretion, may provide financial assistance in amounts, through 
investment instruments, or under rates, terms and conditions that are 
different from those requested by an Applicant.


Sec. 1805.501  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) Capital 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. Deposits in 
an Insured CDFI shall not be subject to any requirement for collateral 
or security.


Sec. 1805.502  Assistance limits.

    (a) General. 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) Additional amounts. 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 only be used 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 H of this part.
    (c) An Awardee may only receive the assistance described in 
paragraph (b) of this section if no other application to serve 
substantially the same Investment Area(s) or Targeted Population(s) 
that meets the requirements of Sec. 1805.802(a) was submitted to the 
Fund prior to the receipt of the application of said Awardee and within 
the current funding round.


Sec. 1805.503  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 F--Matching Funds Requirements


Sec. 1805.600  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. 1805.602, 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 another Federal grant or award program cannot be used to 
satisfy the matching requirements described in this section. Community

[[Page 16452]]

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. However, funds spent for operating expenses prior to the 
calendar year in which falls the deadline for receipt of applications 
pursuant to an applicable NOFA shall not be used to meet the matching 
requirements.


Sec. 1805.601  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. 1805.602). 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. 1805.602  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.
    (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. 1805.603  Time frame for raising match.

    Applicants may use monies that have been obtained or legally 
committed for up to one year prior to the publication of a NOFA, or 
such earlier date or period specified in the NOFA, for an applicable 
funding round to meet the matching requirements. An Applicant shall 
raise the balance of its matching requirements within the period set 
forth in the applicable NOFA.


Sec. 1805.604  Retained earnings.

    (a) An Applicant that proposes to meet all or a portion of its 
matching funds requirements as set forth in this part by committing 
available earnings retained from its operations pursuant to 
Sec. 1805.601(c) shall be subject to the restrictions described in this 
section.
    (b)(1) In the case of a for-profit Applicant, retained earnings 
that can be used for matching funds purposes shall consist of:
    (i) The increase in retained earnings (excluding the after-tax 
value to an Applicant of any grants and other donated assets) that has 
occurred over the Applicant's most recent fiscal year (e.g., retained 
earnings at the end of fiscal year 1996 less retained earnings at the 
end of fiscal year 1995); or
    (ii) The annual average of such increases that have occurred over 
the Applicant's three most recent fiscal years.
    (2) Such retained earnings can be used to match a request for an 
equity investment. The terms and conditions of financial assistance 
will be determined by the Fund.
    (c)(1) In the case of a non-profit Applicant (other than an Insured 
Credit Union), retained earnings that can be used for matching funds 
purposes shall consist of:
    (i) The increase in an Applicant's net assets (excluding the amount 
of any grants and value of other donated assets) that has occurred over 
the Applicant's most recent fiscal year; or
    (ii) The annual average of such increases that has occurred over 
the Applicant's three most recent fiscal years.
    (2) Such retained earnings can be used to match a request for a 
capital grant. The terms and conditions of financial assistance will be 
determined by the Fund.
    (d)(1) In the case of an Insured Credit Union Applicant, retained 
earnings that can be used for matching funds purposes shall consist of:
    (i) The increase in net capital 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 net capital that has been accumulated since the 
inception of the Applicant provided that the conditions described in 
paragraph (d)(4) of this section are satisfied.
    (2) For the purpose of paragraph (d)(4) of this section, net 
capital shall be comprised of ``Regular Reserves'', ``Other Reserves'' 
(excluding reserves specifically dedicated for losses), and ``Undivided 
Earnings'' as such terms are used in the National Credit Union 
Administration's accounting manual.
    (3) Such retained earnings can be used to match a request for a 
capital grant. The terms and conditions of financial assistance will be 
determined by the Fund.
    (4) If the option described in paragraph (d)(1)(iii) of this 
section is used:
    (i) The Assistance Agreement shall require that:
    (A) An Awardee increase its member and/or non-member shares by an 
amount that is at least equal to four times the amount of net capital 
that is committed as matching funds;
    (B) Such increase be achieved within 18 months of the last day of 
the month prior to the month in which the Applicant is selected to 
receive assistance; and
    (C) Such increase be maintained for the period of time covered by 
the Comprehensive Business Plan;
    (ii) The Applicant's Comprehensive Business Plan shall discuss its 
strategy for raising the required shares and the activities associated 
with such increased shares; (iii) The level from which the

[[Page 16453]]

increases in shares described in paragraph (d)(4)(i) of this section 
will be measured shall be the greater of the level of shares as of:
    (A) The end of the calendar year immediately preceding the 
applicable application deadline; or
    (B) The last day of the month prior to the month in which an 
Applicant is selected to receive assistance; and
    (iv) Financial assistance shall be disbursed by the Fund only as 
the amount of increased shares described in paragraph (d)(4)(i)(A) of 
this section is achieved.
    (5) The Fund will allow an Applicant to utilize the option 
described in paragraph (d)(1)(iii) for matching funds only if it 
determines, in its sole discretion, that the Applicant will have a high 
probability of success in increasing its shares to the specified 
amounts.
    (e) An Applicant may only use retained earnings to meet the 
matching funds requirements if it has liquidity (as determined by the 
Fund) in amounts that are equal to or greater than the amount of 
retained earnings that is proposed for use as matching funds. In 
assessing an Applicant's liquidity for the purposes of this paragraph 
(e), the Fund may exclude any amounts that it determines are not 
available to promote an Awardee's performance goals and the purposes of 
the CDFI Program.
    (f) 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.

Subpart G--Applications for Assistance


Sec. 1805.700  Notice of Funds Availability.

    Each Applicant shall submit an application for financial or 
technical assistance under this part in accordance with these 
regulations and the applicable NOFA published in the Federal Register. 
The NOFA will advise potential Applicants on how to obtain an 
application packet and will establish deadlines and other requirements. 
The NOFA 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.


Sec. 1805.701  Application contents.

    Unless otherwise specified in an applicable NOFA, each application 
must contain the information specified in the application packet 
including the items specified in this section. To facilitate coherence 
and avoid duplication, an Applicant may present its application in an 
order and format that it believes to be the most appropriate, provided 
that the requested information is included and that an index is 
included to assist the Fund in locating the items requested in this 
section.
    (a) Award request. An Applicant shall indicate:
    (1) The dollar amount, form, rates, terms and conditions of 
financial assistance requested; and
    (2) Any technical assistance needs for which it is requesting 
assistance.
    (b) Eligibility verification. An Applicant shall provide 
information necessary to establish that it is, or will be, a CDFI. An 
Applicant shall demonstrate whether it meets the eligibility 
requirements described in Sec. 1805.200 by providing the information 
requested in this paragraph (b). The Fund, in its sole discretion, 
shall determine whether an Applicant has satisfied the requirements of 
this paragraph (b).
    (1) Primary mission. (i) 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 and its Affiliates are principally 
directed:
    (A) Within the geographic boundaries of an Investment Area(s);
    (B) To members of a Targeted Population(s);
    (C) To projects that provide significant benefits to residents of 
an Investment Area(s) or members of a Targeted Population(s); or
    (D) To any combination of the above. The Fund may consider other 
factors, either in the alternative or in addition to those mentioned 
above, as it deems appropriate.
    (ii) Using indicators selected by the Applicant that are 
appropriate given the nature of the products and services it (and its 
Affiliates) offers, an Applicant shall provide information pertinent to 
an evaluation of whether the activities of the Applicant and each 
Affiliate, when viewed collectively (as a whole), are principally 
directed in the manner described in paragraph (b)(1)(i) of this 
section.
    (iii) An Applicant shall provide the information requested in 
paragraph (b)(1)(ii) of this section in accordance with paragraph (c) 
of this section.
    (2) Target markets. Using the information in paragraph (b)(1) of 
this section that is submitted for the Applicant (excluding information 
on any Affiliates), an Applicant shall demonstrate that its total 
activities are principally directed to serving Investment Area(s), 
Targeted Population(s) or both.
    (3) Designation. An Applicant shall provide a description of the 
Investment Area(s) or Targeted Population(s) to be served. If an 
Applicant is serving:
    (i) An Investment Area(s), it shall submit:
    (A) A completed Investment Area Designation worksheet contained in 
the application packet;
    (B) A map of the designated area(s); and
    (C) Studies or other analyses as described in Sec. 1805.301(e);
    (ii) A Targeted Population(s), it shall submit:
    (A) In the case of a Low Income Targeted Population, a description 
of the service area from which the Low Income Targeted Population is 
drawn (which could be, for example, a local, regional or national 
service area); or
    (B) In the case of a Targeted Population defined other than on the 
basis of Low Income, studies or other analyses that provide adequate 
evidence of lack of adequate access to loans or equity investments.
    (4) Financing entity. (i) A CDFI shall be an entity whose 
predominant business activity is the provision, in arms-length 
transactions, of loans, Development Investments, and/or similar 
financing. An Applicant can demonstrate that it is such an entity if it 
is a(n):
    (A) Depository Institution Holding Company;
    (B) Insured Depository Institution or Insured Credit Union; or
    (C) Organization which is deemed by the Fund to have such a 
predominant business activity as a result of analysis of its financial 
statements, annual reports, organizing documents, and any other 
information submitted as part of its application. In conducting such 
analysis, the Fund may take into consideration an Applicant's 
institutional type, total asset size, and stage of organizational 
development.
    (ii) An Applicant described under:
    (A) Paragraph (b)(4)(i)(A) of this section shall submit a copy of 
its organizing documents that indicate that it is a Depository 
Institution Holding Company;
    (B) Paragraph (b)(4)(i)(B) of this section shall submit a copy of 
its current certificate of insurance issued by the Federal Deposit 
Insurance Corporation or the National Credit Union Administration; and
    (C) Paragraph (b)(4)(i)(C) of this section shall submit a copy of 
its balance sheets and income and expense

[[Page 16454]]

statements (and any notes or other supplemental information to its 
financial statements) as described in paragraph (d)(2)(i) of this 
section which clearly document its assets, liabilities, and net worth 
that are dedicated to lending and Development Investments and an 
explanation of how such assets, liabilities and net worth support these 
activities. An Applicant shall provide the information specified in 
this paragraph (b)(4)(ii)(C) for such periods as specified in paragraph 
(c) of this section.
    (5) Development Services. An Applicant shall submit a summary 
description of the Development Services to be offered, the expected 
provider of such services, and information on the persons expected to 
use such services.
    (6) Accountability. An Applicant shall describe how it has and will 
maintain accountability to the residents of the Investment Area(s) or 
Targeted Population(s) it serves.
    (7) Non-government. An Applicant shall submit articles of 
incorporation (or comparable organizing documents), charter, bylaws, or 
other legal documentation or opinions sufficient to verify that it is 
not a government entity.
    (8) Ownership. An Applicant shall submit information indicating the 
portion of shares of all classes of voting stock that are held by each 
Insured Depository Institution or Depository Institution Holding 
Company investor (if any).
    (9) Previous Awardees. In the case of an Applicant that has 
previously received assistance under this part, the Applicant shall 
demonstrate that it:
    (i) Has substantially met its performance goals and other 
requirements described in its previous Assistance Agreement(s); and
    (ii) Will expand its operations into a new Investment Area(s), 
serve a new Targeted Population(s), offer more products or services, or 
increase the volume of its activities.
    (10) Previous history. An Applicant with a prior history of serving 
Investment Area(s) or Targeted Population(s) shall:
    (i) Describe its activities, operations and community benefits 
created for residents of the Investment Area(s) or Targeted 
Population(s) for such periods as described in paragraph (c) of this 
section; and
    (ii) Demonstrate that the Applicant will expand its operations into 
a new Investment Area(s), serve a new Target Population(s), offer more 
products or services, or increase the volume of its activities.
    (c) Time of operation. At the time of submission of an application, 
an Applicant that has been in operation for:
    (1) Three years or more shall submit information on its activities 
(as described in paragraphs (b)(1), (2) and (10) of this section) and 
financial statements (as described in paragraph (d)(2)(i) of this 
section) for the three most recent fiscal years;
    (2) For more than one year, but less than three years, shall submit 
information on its activities (as described in paragraphs (b)(1), (2) 
and (10) of this section) and financial statements (as described in 
paragraph (d)(2)(i) of this section) for each full fiscal year since 
its inception; or
    (3) For less than one year (including a start-up organization), 
shall submit information on its activities and financial statements as 
described in paragraph (d) of this section.
    (d) Comprehensive Business Plan. An Applicant shall submit a five-
year Comprehensive Business Plan that addresses the items described in 
this paragraph (d). The Comprehensive Business Plan shall demonstrate 
that the Applicant shall have the capacity to operate as a CDFI upon 
receiving financial assistance from the Fund pursuant to this part. The 
Plan should include projections that are appropriate given an 
Applicant's current and anticipated organizational type, total asset 
size, and stage of organizational development.
    (1) Executive summary. An Applicant shall provide an executive 
summary of the Comprehensive Business Plan which includes a description 
of the institution (including relationships to any Affiliates), markets 
served or to be served, community needs, and other pertinent 
information.
    (2) Financial performance.--(i) Historic performance. An Applicant 
shall submit historic financial statements for such periods as 
specified in paragraph (c) of this section. Such statements should 
include balance sheets, income and expense statements, and a 
capitalization statement (which includes information on changes in 
capital structure and funding from outside sources) for the Applicant. 
The Applicant shall provide information necessary to assess trends in 
financial and operating performance (e.g., portfolio delinquencies, 
defaults and charge-offs, origination volume and volume of loans 
closed, annual or cumulative operating ratios).
    (ii) Future projections. An Applicant shall submit projections for 
each of the next five years which includes balance sheet projections, 
income and expense projections, operating budgets, capitalization 
projections, estimates of the volume of new activity to be achieved 
assuming that assistance is provided by the Fund, and a description of 
any assumptions that underlie its projections.
    (iii) Financial statements. (A) An Applicant shall submit:
    (1) Audited financial statements;
    (2) Financial statements that have been reviewed by a certified 
public accountant; or
    (3) Financial statements that have been reviewed by the Applicant's 
Appropriate Federal Banking Agency.
    (B) All financial statements must utilize accrual based accounting 
methods. All historic financial statements shall be reported on the 
basis of the Applicant's fiscal year.
    (iv) Financial management policies. An Applicant shall submit 
information on its financial management policies that describe its 
methodologies for underwriting and approving loans and investments and 
managing and monitoring its portfolio, internal operations, and 
capitalization needs.
    (3) Management capacity. An Applicant shall provide information on 
the background and capacity of its management team, including the 
relevant background and expertise of management (such as resumes or 
statements of personal history), key personnel and governing board 
members, if appropriate. The Applicant shall also provide information 
on any training or technical assistance needed to enhance the capacity 
of the organization to successfully carry out its Comprehensive 
Business Plan.
    (4) Market analysis. An Applicant shall provide an analysis of its 
target markets. An Applicant must:
    (i) Describe its proposed target market(s), including a description 
of the characteristics of the Investment Area(s) (e.g., location, 
boundaries, economic characteristics, relationships to Metropolitan, 
non-Metropolitan, or regional markets) or Targeted Population(s) (e.g., 
number of persons, income, and other socio-economic characteristics), 
its methodology for selecting such target market(s), the size of the 
market(s), and any relevant market trends;
    (ii) Describe the products and services (and corresponding pricing) 
it proposes to provide and analyze the competitiveness of such products 
and services in the target market(s); and
    (iii) Identify and analyze any characteristics of the target 
market(s) that will create opportunities or present impediments for its 
products, services and overall market strategy (e.g., economic 
conditions, perceived or

[[Page 16455]]

documented credit needs or Financial Service needs, market activity, 
neighborhood perceptions, government services or delivery systems, 
community institutions, or strength of the employment base).
    (5) Strategy. An Applicant shall describe its strategy for 
delivering its products and services to its target market(s). An 
Applicant may also describe any product or service development 
activities that are necessary before undertaking its strategy including 
the nature, scope, cost, timing, and risks of such activities. An 
Applicant shall also describe anticipated incremental increases in 
activity to be achieved with assistance provided by the Fund and 
matching funds.
    (6) Coordination strategy. An Applicant shall describe:
    (i) Its plan to coordinate use of assistance from the Fund with 
existing Federal, State, local, and tribal government assistance 
programs and private sector resources;
    (ii) How its proposed activities are consistent with existing 
economic, community and housing development plans adopted for an 
Investment Area(s) or Targeted Population(s); and
    (iii) How it will coordinate with community organizations, 
financial institutions, and Community Partners (if applicable) which 
will provide loans, equity investments, secondary markets, or other 
services to an Investment Area(s) or a Targeted Population(s).
    (7) Projected community impact. An Applicant shall provide an 
estimate of the benefits expected to be created within its Investment 
Area(s) or Targeted Population(s) over the next five years, as 
indicated by the extent to which:
    (i) The Applicant will concentrate its activities within an 
Investment Area(s) or among Targeted Population(s);
    (ii) The Applicant's activities will expand economic opportunity 
(e.g., number of jobs created, jobs retained, businesses financed, 
business ownership opportunities facilitated, residents of Investment 
Area(s) or members of Targeted Population(s) employed, number or dollar 
amount of business loans and investment originations);
    (iii) The Applicant's activities will facilitate revitalization 
(e.g., number of square feet of commercial space financed, dollar 
amount of commercial real estate loan originations, indicators of 
demand for such commercial space (e.g., market vacancy rates, pre-
leased tenants, number of long term leases), number and square feet of 
Community Facility space financed, number of long term leases, and 
dollar amount of Community Facility loan originations);
    (iv) The Applicant's activities will promote affordable housing 
(e.g., number of affordable rental units, dollar amount of affordable 
rental housing loans originated, information on the demand for such 
housing (e.g., market vacancy rates, number of people on public and 
assisted housing waiting lists), information on the type of size of 
units and the people who will reside in such units (e.g., families, 
special needs populations), number of homes purchased and dollar amount 
of home ownership loan originations));
    (v) The Applicant will provide Development Services (as measured by 
the number of individuals that will receive Development Services); and
    (vi) The Applicant will provide Financial Services (as measured by 
the number of new customers of Financial Services (e.g., individuals 
opening checking and savings accounts). In addition, the Applicant 
shall provide such other indicators as deemed appropriate by the 
Applicant or the Fund.
    (8) Community need. An Applicant may provide information on the 
extent of economic distress within its Investment Area(s) or needs of 
its Targeted Population(s) to supplement the data required pursuant to 
subpart C of this part and paragraph (b)(3) of this section. Such 
information may be from sources other than the 1990 decennial census.
    (9) Funding sources. An Applicant shall provide information:
    (i) On its current and projected sources of capital and other 
financial support;
    (ii) To demonstrate that it has a plan for achieving or maintaining 
financial viability within the five-year period; and
    (iii) To demonstrate that it will, to the maximum extent 
appropriate, increase self-sufficiency. Such information shall 
demonstrate that the Applicant will not be dependent upon future awards 
from the Fund for continued viability.
    (10) Risks and assumptions. An Applicant shall identify and discuss 
critical risks (including strategies to mitigate risk) and assumptions 
contained in its Comprehensive Business Plan, and any significant 
impediments to the Plan's implementation.
    (11) Schedule. An Applicant shall provide a schedule indicating the 
timing of major events necessary to realize the objectives of its 
Comprehensive Business Plan.
    (12) Community Partnership. In the case of an Applicant submitting 
an application with a Community Partner, the Applicant shall:
    (i) Describe how the Applicant and the Community Partner will 
participate in carrying out the Community Partnership and how the 
partnership will enhance activities serving the Investment Area(s) or 
Targeted Population(s);
    (ii) Demonstrate that the Community Partnership activities are 
consistent with the Comprehensive Business Plan;
    (iii) Provide information necessary to evaluate such an application 
as described under Sec. 1805.802(b)(4);
    (iv) Include a copy of any written agreement between the Applicant 
and the Community Partner related to the Community Partnership; and
    (v) Provide information to demonstrate that the Applicant meets the 
eligibility requirements described in Sec. 1805.200 and satisfies the 
selection criteria described in subpart H of this part. (A Community 
Partner shall not be required to meet the eligibility requirements 
described in Sec. 1805.200.)
    (e) Matching funds. (1) An Applicant shall submit a detailed 
description of its plans for raising matching funds and likely or 
committed sources of funds to match the amount of financial assistance 
requested from the Fund. An Applicant shall indicate the extent to 
which such matching funds will be derived from private, nongovernment 
sources.
    (2) An Applicant shall submit a description of any matching funds 
previously obtained or legally committed. Such description shall 
include the name of the source, total amount of such match, the date 
the matching funds were obtained or legally committed, if applicable, 
the extent to which, and for what purpose, such matching funds have 
been used to date, and terms and restrictions on use for each matching 
source, including any restriction that might reasonably be construed as 
a limitation on the ability of the Applicant to use the funds for 
matching purposes. The application shall include copies of any 
agreements, memoranda of understanding, letters of intent, or similar 
documents pertaining to matching funds.
    (3) If an Applicant intends to use retained earnings to meet the 
matching funds requirements, it shall provide the information described 
in paragraph (d)(2)(iii) of this section and a copy of its tax returns 
for the same period, or, in the case of an Insured Credit Union, a copy 
of its most recent Form 5300 that has been submitted to the National 
Credit Union Administration. The Applicant shall submit a certification 
from its governing body:

[[Page 16456]]

    (i) As to the amount and form of retained earnings available as 
matching funds; and
    (ii) That such earnings will be used for the purposes described in 
its application.
    (4) If the Applicant is requesting a ``severe constraints waiver'' 
of any matching requirements, it shall submit the information requested 
in Sec. 1805.602.
    (f) Support. An Applicant shall provide information to demonstrate 
the extent of support (if any) within the Investment Area(s) or 
Targeted Population(s) for its activities.
    (g) Community Ownership and Governance. An Applicant shall provide 
information to demonstrate whether it is Community-Owned or Community-
Governed.
    (h) Conflict of interest. An Applicant shall submit a copy of its 
conflict of interest policies that are consistent with the requirements 
of Sec. 1805.906.
    (i) Environmental information. The Applicant shall provide 
sufficient information regarding the potential environmental impact of 
its proposed activities in order for the Fund to complete its 
environmental review requirements pursuant to part 1815 of this 
chapter.
    (j) Applicant certification. The Applicant and Community Partner 
(if applicable) shall certify that:
    (1) It possesses the legal authority to apply for assistance from 
the Fund;
    (2) The application has been duly authorized by its governing body 
and duly executed;
    (3) It will not use any Fund resources for lobbying activities as 
set forth in Sec. 1805.907; and
    (4) It will comply with all relevant provisions of this chapter and 
all applicable Federal, State, and local laws, ordinances, regulations, 
policies, guidelines, and requirements.

Subpart H--Evaluation and Selection of Applications


Sec. 1805.800  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), that is intended to:
    (a) Ensure that Applicants are evaluated on a competitive basis in 
a fair and consistent manner;
    (b) Ensure that all Awardees satisfy quality standards; and
    (c) Take into consideration the unique characteristics of 
institutions that vary by institution type, total asset sizes, stage of 
organizational development, markets served, products and services 
provided, and location.


Sec. 1805.801  Geographic diversity.

    In selecting Awardees, the Fund shall seek to fund a geographically 
diverse group of Applicants serving Metropolitan Areas, non-
Metropolitan Areas, and Indian Reservations from different regions of 
the United States.


Sec. 1805.802  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 under 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 or 
supplemental information from the Applicant, if it deems it 
appropriate.
    (b) Substantive Review. In evaluating and selecting Applicants, the 
Fund will evaluate factors including the following:
    (1) Financial Strength and Organizational Capacity. The Fund will 
examine several criteria in evaluating financial and organizational 
capacity and an Applicant's likelihood of success in meeting the goals 
of its Comprehensive Business Plan. These criteria will include the 
experience, strength and background of an Applicant's management team 
and other key personnel, the quality of its financial management 
policies and practices, the breadth and depth of its financial 
resources, the quality of its Comprehensive Business Plan, and trends 
in financial and operating performance.
    (2) External resources. The Fund will evaluate the extent of 
external resources available to an Applicant based on:
    (i) The amount of firm commitments to meet or exceed the matching 
requirements and the likely success of the plan for raising the balance 
of the matching funds in a timely manner;
    (ii) The extent to which the matching funds are, or will be, 
derived from private sources or new investments;
    (iii) Whether an Applicant is, or will become, an Insured CDFI; and
    (iv) The extent to which an Awardee will use assistance to expand 
the funds available for lending and equity investments beyond the sum 
of the award and the matching funds.
    (3) Community impact. The Fund will evaluate an application's 
community impact based on:
    (i) 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;
    (ii) The extent to which an Applicant will concentrate its 
activities on serving Investment Area(s) or Targeted Population(s);
    (iii) The extent of need for loans, equity investments, Development 
Services, and Financial Services within the designated Investment 
Area(s) or Targeted Population(s);
    (iv) The extent to which the activities proposed in the 
Comprehensive Business Plan will expand economic opportunities or 
promote community development within the designated Investment Area(s) 
or Targeted Population(s);
    (v) The extent of support from the designated Investment Area(s) or 
Targeted Population(s);
    (vi) The extent to which an Applicant is, or will be, Community-
Owned or Community-Governed;
    (vii) The extent to which an Applicant will increase its resources 
through such means as a Community Partnership, participation in the 
secondary market, and coordination with other institutions (e.g., a 
local Empowerment Zone or Enterprise Community coordinating entity);
    (viii) The extent and nature of the potential community development 
impact that will be catalyzed by the Fund's assistance, relative to the 
amount of such assistance to be provided; and
    (ix) In the case of an Applicant with a prior history of serving 
Investment Area(s) or Targeted Population(s), the extent of success in 
serving them.
    (4) Community Partnerships. Community Partnerships will be 
evaluated based on the extent to which the Applicant and Community 
Partner meet the factors described in paragraphs (b)(1), (2) and (3) of 
this section and giving consideration to the extent to which:
    (i) The Community Partner will participate in carrying out the 
activities of the Community Partnership;
    (ii) The Community Partnership will enhance the likelihood of 
success of the Comprehensive Business Plan; and
    (iii) Service to an Investment Area(s) or Targeted Population(s) 
will be better performed by a Community Partnership than by an 
Applicant alone.
    (5) Other factors. The Fund may consider any other factors with 
respect to any application as it deems appropriate.
    (c) Consultation with Appropriate Federal Banking Agencies. The 
Fund shall 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

[[Page 16457]]

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) 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 NOFA.

Subpart I--Terms and Conditions of Assistance


Sec. 1805.900  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 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. 1805.901  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 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. 
Performance goals for Insured CDFIs shall be determined in consultation 
with the Appropriate Federal Banking Agency. Such goals shall be 
incorporated in, and enforced under, the Awardee's Assistance 
Agreement.
    (c) The Assistance Agreement shall provide that, in the event of 
fraud, mismanagement, noncompliance with the Fund's regulations or 
noncompliance with the terms and conditions of the Assistance Agreement 
on the part of the Awardee (or the 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 any other action as permitted by the terms of the 
Assistance Agreement.
    (d) In the case of an Insured Depository Institution, the 
Assistance Agreement shall provide that the provisions of the Act, this 
part, and the Assistance Agreement shall be enforceable under section 8 
of the Federal Deposit Insurance Act by the Appropriate Federal Banking 
Agency 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. 1805.902  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 firm 
commitments for the matching funds required for such assistance. At a 
minimum, a firm commitment must consist of a binding 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. 1805.903  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 which 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.

[[Page 16458]]

    (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) Review. (1) At least annually, the Fund will review the 
progress of an Awardee (and a Community Partner, if appropriate) in 
implementing its Comprehensive Business Plan and satisfying the terms 
and conditions of its Assistance Agreement.
    (2) An Awardee shall submit a report within 45 days after the end 
of each calendar quarter, or within some other period after the end of 
each calendar quarter as may be agreed to in the Assistance Agreement, 
with information on, unless otherwise determined by mutual agreement 
between the Awardee and the Fund, the performance of its loans, 
Development Investments, Development Services, and Financial Services 
in the previous quarter, and unaudited financial statements. Such 
report shall include key indicators of portfolio performance, including 
volume of originations, delinquencies, and defaults, and charge-offs 
for the previous quarter.
    (3) An Awardee shall submit a report within 60 days after the end 
of each Federal fiscal year, or by such alternative deadline as may be 
agreed to in the Assistance Agreement, with:
    (i) Information on its customer profile and the performance of its 
loans, Development Investments, Development Services, and Financial 
Services for the previous year;
    (ii) Information on its portfolio performance, including volume of 
originations, delinquencies, and defaults and charge-offs for the 
previous year;
    (iii) Qualitative and quantitative information on an Awardee's 
compliance with its performance goals and (if appropriate) an analysis 
of factors contributing to any failure to meet such goals;
    (iv) Information describing the manner in which Fund assistance and 
any corresponding matching funds were used. The Fund will use such 
information to verify that assistance was used in a manner consistent 
with the Assistance Agreement;
    (v) Certification that an Awardee continues to meet the eligibility 
requirements described in Sec. 1805.200; and
    (vi) Its most recent audited financial statements prepared by an 
independent certified public accountant. Such statements shall cover 
the operations of the Awardee's most recently completed fiscal year. 
The audit shall be conducted in accordance with generally accepted 
Government Auditing Standards set forth in the General Accounting 
Office's Government Auditing Standards (1994 Revision) issued by the 
Comptroller General and OMB Circular A-133 (``Audits of Institutions of 
Higher Education and Other Nonprofit Institutions''), as applicable.
    (4) The Fund shall make reports described in paragraph (e)(2) and 
(e)(3) of 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. (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 the Appropriate 
Federal Banking Agency under this section to the extent practicable to 
eliminate duplicative requests for information and reports from, and 
record keeping by, an Insured CDFI or other institution that is 
examined by or subject to the reporting requirements of an Appropriate 
Federal Banking Agency.
    (4) Notwithstanding paragraphs (f)(1) and (2) of this section, the 
Fund may require an Insured CDFI or other institution that is examined 
by or subject to the reporting requirements of an Appropriate Federal 
Banking 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.
    (5) Nothing in this part shall be construed to permit the Fund to 
require an Insured CDFI or other institution that is examined by or 
subject to the reporting requirements of a Appropriate Federal Banking 
Agency to obtain, maintain, or furnish an examination report of any 
Appropriate Federal Banking 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 
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, and any other 
party providing information under this paragraph (f) of this section 
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; and
    (2) General Accounting Office materials may be obtained from GAO

[[Page 16459]]

Distribution, 700 4th Street, NW., Suite 1100, Washington, DC 20548.


Sec. 1805.904  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 the Insured CDFIs or other institution that is 
examined by or subject to the reporting requirements of an Appropriate 
Federal Banking Agency.


Sec. 1805.905  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. 1805.906  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 Development 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 or a Depository Institution 
Holding Company shall comply with the restrictions on Insider 
activities and any comparable restrictions established by its 
Appropriate Federal Banking Agency.
    (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 
Development 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. 1805.907  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. 1805.908  Criminal provisions.

    The criminal provisions of 18 U.S.C. 657 regarding embezzlement or 
misappropriation of funds are applicable to all Awardees and Insiders.


Sec. 1805.909  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. 1805.910  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. 1805.911  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.

[FR Doc. 97-8783 Filed 4-2-97; 1:09 pm]
BILLING CODE 4810-70-P