[Federal Register Volume 64, Number 210 (Monday, November 1, 1999)]
[Rules and Regulations]
[Pages 59076-59093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28281]



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Part X





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; Interim Rule and 
Funds Availability Inviting Applications for the Community Development 
Financial Institutions (CDFI) Program--Core and Intermediary 
Components; Notice

  Federal Register / Vol. 64, No. 210 / Monday, November 1, 1999 / 
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.

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SUMMARY: The Department of the Treasury is issuing a revised interim 
rule implementing the Community Development Financial Institutions 
Program (CDFI Program) administered by the Community Development 
Financial Institutions Fund (Fund). The purpose of the CDFI Program is 
to promote economic revitalization and community development through 
investment in and assistance to Community Development Financial 
Institutions (CDFIs). Under the CDFI Program, the Fund provides 
financial and technical assistance in the form of grants, loans, equity 
investments and deposits to competitively selected CDFIs. The Fund 
provides such assistance to CDFIs to enhance their ability to make 
loans and investments, and to provide services for the benefit of 
designated investment areas, targeted populations, or both. After 
selection for such assistance, each CDFI will enter into an assistance 
agreement with the Fund that will include performance goals, matching 
funds requirements and reporting requirements. This revised interim 
rule: Revises, clarifies and streamlines CDFI certification and funding 
eligibility requirements; affords CDFIs greater flexibility in meeting 
matching funds requirements; clarifies the funding and certification 
applications' content requirements and evaluation criteria; reduces the 
frequency of previously approved collections of information by 
replacing some of the quarterly reporting requirements with semi-annual 
reporting requirements and other quarterly reporting requirements with 
annual reporting requirements; and makes other technical and clarifying 
changes that the Fund believes will inure to the benefit of CDFIs and 
entities proposing to become CDFIs.

DATES: Revised interim rule effective November 1, 1999; comments must 
be received in the offices of the Fund on or before January 14, 2000.

ADDRESSES: All comments concerning this interim rule should be 
addressed to the Deputy Director for Policy and Programs, Community 
Development Financial Institutions Fund, Department of the Treasury, 
601 13th Street, NW., Suite 200 South, Washington, DC 20005. Comments 
may be inspected at the above address weekdays between 9:30 a.m. and 
4:30 p.m. Other information regarding the Fund and its programs may be 
obtained through the Fund's web site at http://www.treas.gov/cdfi.

FOR FURTHER INFORMATION CONTACT: Maurice A. Jones, Deputy Director for 
Policy and Programs, Community Development Financial Institutions Fund, 
at (202) 622-8662. (This is not a toll free number.)

SUPPLEMENTARY INFORMATION:

I. Background

    The Community Development Financial Institutions Fund (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 the Administrator of the Fund as set forth in the authorizing 
statute.
    The Fund's programs are designed to facilitate the flow of lending 
and investment capital to distressed communities and to individuals who 
have been unable to take full advantage of the financial services 
industry. The initiative is an important step in rebuilding poverty-
stricken and transitional communities and creating economic opportunity 
for people often left out of 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 
businesses, and empowering people. Over the past several 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 Fund was established to promote economic revitalization and 
community development through, among other things, investment in and 
assistance to community development financial institutions (CDFIs), 
which specialize in serving underserved markets and the people who live 
there. CDFIs--while highly effective--are typically small in scale and 
often have difficulty raising the capital needed to meet the demands 
for their products and services. Under the CDFI Program, the Fund 
provides CDFIs with financial and technical assistance in the form of 
grants, loans, equity investments, and deposits in order to enhance 
their ability to make loans and investments, and provide services for 
the benefit of designated investment areas, targeted populations or 
both. Applicants participate in the CDFI Program through a competitive 
application and selection process in which the Fund makes funding 
decisions based on pre-established evaluation criteria. Program 
participants generally receive monies from the Fund only after being 
certified as a CDFI and entering into an assistance agreement with the 
Fund. These assistance agreements include performance goals, matching 
funds requirements and reporting requirements.
    This issue of the Federal Register contains two separate Notices of 
Funds Availability (NOFAs) for the CDFI Program, one for the fifth 
round of the Core Component of the CDFI Program and another for the 
fourth round of the Intermediary Component of the CDFI Program. Under 
the Core Component, the Fund provides financial and technical 
assistance to CDFIs that directly serve their Target Markets through 
loans, investments and other activities, rather than primarily through 
the financing of other CDFIs. Under the Intermediary Component, the 
Fund provides financial and technical assistance to CDFIs that 
primarily provide assistance to other CDFIs and/or support the 
formation of CDFIs. In January 2000, the Fund expects to issue a NOFA 
for the third round of the Technical Assistance Component of the CDFI 
Program. Under the Technical Assistance Component, the Fund provides 
CDFIs with technical assistance in the form of grants that may be used 
to enhance the capacity of CDFIs through the acquisition of training 
services, consulting services, and/or technology. Since these 
regulations were last amended, the Fund has identified a number of 
provisions that need to be updated, clarified, expanded, and 
simplified.

II. Summary of Changes

Authorities

    The current rule contains a list of authorities. This interim rule 
updates the list by adding 31 U.S.C. 321, which governs the 
promulgation of regulations. The current rule lists 12 U.S.C. 4703 note 
with a reference to Public Law

[[Page 59077]]

104-19. The Fund is deleting the reference to this public law, for 
purposes of regulatory economy and because there is more than one 
public law underlying the Sec. 4703 note.

Relationship to Other Fund Programs

    Section 1805.102(a) of the current rule prohibits, under certain 
circumstances, an Insured CDFI from receiving funding under both the 
Bank Enterprise Award (BEA) Program and the CDFI Program. This interim 
rule revises Sec. 1805.102(a) to conform more closely with the 
counterpart provision contained in the BEA Program regulations (12 CFR 
1806.102(a)) and the Bank Enterprise Act of 1991, as amended, (12 
U.S.C. 1834a(g)).

Definitions

    Section 1805.104 of the current rule contains a list of 
definitions. This interim rule revises Sec. 1805.104 by amending 
several definitions and adding new definitions. First, Sec. 1805.104(h) 
adds a new definition for ``Community Development Financial Institution 
Intermediary'' in recognition of the CDFI Program's Intermediary 
Component.
    Second, Sec. 1805.104(p) of the current rule contains a definition 
of ``Development Investment.'' In Sec. 1805.104(r) of this interim 
rule, the Fund is renaming ``Development Investment'' as ``Equity 
Investment'' and is adding an inclusive list of items that comprise 
``Equity Investments.'' This inclusive list is largely derived from the 
BEA Program regulation definition of equity investment at 12 CFR 
1806.103(t). Under this interim rule, Equity Investments can comprise 
loans made on such terms that they have sufficient characteristics of 
equity and are considered as such by the Fund. Specifically, the Fund 
will generally consider a loan to be equity-like where: (1) the 
repayment of loan principal and/or interest is payable only out of 
available cash flow, so nonpayment of principal and/or interest will 
not automatically result in a default; (2) the maturity date of the 
loan is indeterminate in that the debtor is required to repay the 
principal on the maturity date only if it has sufficient resources; and 
(3) the loan is subordinated to payment obligations due all other 
creditors of the debtor, except other holders of similar type loans. 
The Fund also interprets ``Equity Investment'' to comprise secondary 
capital accounts established with low-income designated credit unions 
under 12 CFR 701.34. In order to distinguish ``equity investments'' 
made by the Fund from ``Equity Investments'' made by CDFIs, this 
interim rule distinguishes the two by capitalizing ``Equity 
Investments'' made by CDFIs.
    Third, Sec. 1805.104(q) of the current rule defines ``Development 
Services'' as activities that promote community development and are 
integral to lending and Development Investment activities and which 
prepare potential borrowers or investees to utilize the lending or 
investment products of the Awardee, its Affiliates, or its Community 
Partners. Section 1805.104(q) of this interim rule defines 
``Development Services'' as activities that promote community 
development and are integral to the Applicant's provision of Financial 
Products and which prepare current or potential borrowers or investees 
to utilize the Financial Products of the Applicant. This interim rule 
replaces ``Awardee'' with ``Applicant'' because the provision of 
Development Services is necessary, as a threshold matter, for an 
institution to be eligible to apply for and receive assistance under 
the CDFI Program. This interim rule deletes references to the Awardee's 
Affiliates, or its Community Partners, because the Fund believes that 
the provision of Development Services must prepare the Awardee's 
current or potential borrowers or investees to utilize the Financial 
Products of the Awardee itself and not those of its Affiliates or its 
Community Partners. ``Financial Products'' is a new term defined in 
Sec. 1805.104(s) of this interim rule, and is discussed below.
    Fourth, Sec. 1805.104(s) of this interim rule adds a definition of 
``Financial Products.'' This interim rule defines ``Financial 
Products'' as loans and Equity Investments and, in the case of CDFI 
Intermediaries, grants to CDFIs and/or emerging CDFIs and deposits in 
insured credit union CDFIs and/or emerging insured credit union CDFIs. 
The Fund is adding this definition as a shorthand definition for loans 
and Equity Investments made by CDFIs. The rationale for the Fund's 
expansion of the definition for CDFI Intermediaries is explained below 
under Applicant Eligibility.
    Fifth, Sec. 1805.104(ii) of this interim rule adds a definition of 
``Target Market'' as comprising an Investment Area(s) and/or Targeted 
Population(s). The Fund is adding this definition to clarify the 
meaning of such term, which is contained throughout this interim rule.

Applicant Eligibility

    Section 1805.200 of the current rule contains eligibility 
requirements for an entity to qualify as a CDFI and apply for 
assistance under the CDFI Program. Section 1805.200(a)(2) of the 
current rule provides that an entity that proposes to become a CDFI is 
eligible to apply for assistance if the Fund determines that such 
entity will meet the CDFI eligibility requirements 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 believes that the time frame contained in 
the current rule is too indeterminate and is a frequent source of 
confusion for Applicants. The Fund believes that a clearer and more 
measurable time frame for determining eligibility is appropriate and 
will better serve the interests of the affected community. As a result, 
Sec. 1805.200(a)(2) of this interim rule requires an entity to meet the 
CDFI eligibility requirements within 24 months from September 30 of the 
calendar year in which the applicable NOFA application deadline falls 
or such other period as may be set forth in the applicable NOFA. Under 
this interim rule, such other period can be a period lesser or greater 
than the 24 months described above.
    Sections 1805.200(b)-(g) of the current rule contains six criteria 
that an entity must meet to qualify as a CDFI. In addition, 
Secs. 1805.701(b)(1)-(8) of the current rule contains the application 
content requirements governing how an entity applying for assistance 
under the CDFI Program is to demonstrate that it meets the CDFI 
eligibility requirements described in Sec. 1805.200 of the current 
rule. The Fund believes that the segregation of these two sections is 
too diffuse and too confusing for Applicants. The Fund also believes 
that Secs. 1805.200(b)-(g) and 1805.701(b)(1)-(8) of the current rule 
should be consolidated for purposes of regulatory economy and 
efficiency. As a result, the Fund has decided to consolidate these 
sections into Sec. 1805.201(b) of this interim rule.
    Section 1805.200(b) of the current rule provides that in order to 
qualify as a CDFI, an entity must have a primary mission of community 
development. Section 1805.701(b)(1) of the current rule provides that 
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 toward serving an Investment 
Area(s), a Targeted Population(s), or a combination of the two. The 
Fund has decided to revise the primary mission test, because the Fund 
believes the current test to be: (1) partially duplicative of the 
Target Market eligibility test under Secs. 1805.200(c) and 
1805.701(b)(2) of the current rule, which

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requires an Applicant to establish that its total activities (excluding 
information on any Affiliates) are principally directed toward serving 
an Investment Area(s), Targeted Population(s), or both; and (2) unduly 
burdensome on Applicants in terms of providing the requisite level of 
data. As a result, Sec. 1805.201(b)(1) of this interim rule provides 
that in determining whether an Applicant meets the primary mission 
eligibility test, the Fund will consider whether the activities of the 
Applicant and its Affiliates, when viewed collectively (as a whole), 
are purposefully directed toward improving the social and/or economic 
conditions of underserved people (which may include Low-Income persons 
and persons who lack adequate access to capital and/or Financial 
Services) and/or residents of distressed communities (which may include 
Investment Areas). The Fund believes that Sec. 1805.201(b)(1) of this 
interim rule will reduce burdens associated with meeting the primary 
mission eligibility test, because the market that an Applicant (and its 
Affiliates) must serve in order to meet this test is no longer 
restricted to Investment Areas or Targeted Populations. However, the 
Fund is still requiring Applicants to meet the same Target Market 
eligibility test of the current rule as described in 
Sec. 1805.201(b)(3) of this interim rule.
    The Fund intends to implement the primary mission eligibility test 
as follows. The Fund will review the incorporating documents, bylaws, 
annual reports, and/or other organizational documents of an Applicant 
and its Affiliates to determine whether the activities of the Applicant 
and its Affiliates, as a whole, are purposefully directed toward 
improving the social and/or economic conditions of underserved people 
and/or residents of distressed communities. In circumstances where the 
organizational documents do not, in the judgment of the Fund, 
demonstrate such a primary mission, the Fund will examine whether the 
actual activities of the Applicant and its Affiliates, combined, 
demonstrates such a primary mission.
    Sections 1805.200(d) and 1805.701(b)(4) of the current rule contain 
the Financing entity eligibility test, which provides that in order for 
an entity to qualify as a CDFI, such entity's predominant business 
activity must be, through arms-length transactions, the provision of 
loans, Development Investments, and/or other similar financing. Because 
the Act provides that a CDFI must provide Development Services in 
conjunction with loans and Equity Investments (12 U.S.C. 
4702(5)(A)(iii)) and because Development Services support an 
Applicant's financing activities, Sec. 1805.201(b)(2) of this interim 
rule provides that an entity's predominant business activity must be 
the provision, in arms-length transactions, of Financial Products, 
Development Services and/or other similar financing. The Fund 
interprets ``other similar financing'' as including: (1) pre-
development grants, provided that, in the opinion of the Fund, they are 
offered to the entity's borrowers or potential borrowers; and (2) loan 
packaging, provided that, in the opinion of the Fund, the entity 
finances more than a nominal portion of the loan that is being packaged 
for another entity.
    The Fund intends to implement the Financing entity eligibility test 
in Sec. 1805.201(b)(2) of this interim rule as follows. First, the Fund 
will determine whether an entity's provision of Financial Products and 
Development Services, combined, comprise a simple majority of its 
activities (i.e., greater than 50 percent). If so, the entity will be 
deemed to have met the Financing entity eligibility test. If not, the 
Fund will then consider the extent to which the entity engages in other 
similar financing activities. If an entity's provision of Financial 
Products, Development Services and other similar financing activities, 
combined, comprises a simple majority of its activities, the entity 
will be deemed to have met the Financing entity eligibility test. If 
not, the Fund will then consider whether an entity's provision of 
Financial Products, Development Services and other similar financing 
activities, combined, comprise a plurality (the largest component) of 
the entity's activities. If an entity's provision of Financial 
Products, Development Services, and other similar financing activities, 
combined, comprise a plurality of its activities, the entity will be 
deemed to have met the Financing entity eligibility test.
    Section 1805.701(b)(4)(ii)(C) of the current rule requires a Non-
Regulated Applicant to demonstrate that it meets the Financing entity 
eligibility test by submitting, among other things, as many as three 
years of year-end financial statements. The Fund believes that this 
requirement is unduly burdensome on Applicants. Accordingly, 
Sec. 1805.201(b)(2)(ii)(C) of this interim rule requires each Applicant 
to submit only its most recent year-end financial statements. However, 
the Fund reserves the right, consistent with Sec. 1805.600 of this 
interim rule, to require Applicants to submit prior years' financial 
statements, if the Fund deems it appropriate. Furthermore, the Fund 
believes that in order to more effectively and accurately determine 
whether an Applicant's predominant business activity is the provision 
of Financial Products, Development Services, and/or other similar 
financing, the Fund needs to examine an Applicant's allocation of staff 
resources. Accordingly, Sec. 1805.201(b)(2)(ii)(C) requires an 
Applicant to provide qualitative and quantitative information on the 
percentage of Applicant staff time dedicated to the provision of 
Financial Products, Development Services and/or other similar 
financing.
    As discussed above, Financial Products comprise loans and Equity 
Investments and, in the case of CDFI Intermediaries, grants to CDFIs 
and/or emerging CDFIs and deposits in insured credit union CDFIs and/or 
emerging insured credit union CDFIs. The Fund's rationale for including 
the aforementioned grants and deposits of CDFI Intermediaries is that 
said grants and deposits will, consistent with Sec. 1805.100 of this 
interim rule, facilitate the creation of a national network of 
financial institutions dedicated to community development. In some 
cases, grants and deposits constitute the primary means by which a CDFI 
Intermediary fulfills its role of supporting the creation and 
development of CDFIs. Further, grants constitute the most attractive 
form of capital to enable CDFIs to expand or to facilitate the start-up 
of new or emerging CDFIs. Deposits in insured credit union CDFIs in the 
form of Share Certificates constitute one of the most effective ways to 
provide capital to a credit union CDFI. The Fund believes that 
encouraging CDFI Intermediaries to provide capital to CDFIs and CDFIs 
in formation in the most effective and attractive forms possible 
furthers the purposes of the Act by enhancing the liquidity of CDFIs so 
that they may pursue economic revitalization in communities throughout 
the United States.
    Section 1805.200(e) of the current rule contains the Development 
Services eligibility test, which provides that in order for an entity 
to qualify as a CDFI, the entity must directly, or through an 
Affiliate, provide Development Services. The Fund believes that this 
language should be expanded to reflect the fact that an entity may 
provide Development Services through a contractual agent. Accordingly, 
Sec. 1805.201(b)(4) of this interim rule provides that the entity must 
directly, through an Affiliate or through a contract with another 
provider, provide Development Services.

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Certification as a Community Development Financial Institution

    Section 1805.201 of the current rule provides that an entity may 
apply for certification as a CDFI and also provides that the Fund may 
decertify a certified entity after a determination that it no longer 
meets the eligibility requirements of Secs. 1805.200(b) through (h). 
The Fund believes that this language should be expanded to include the 
additional eligibility requirements that the Fund may impose in 
accordance with Sec. 1805.200(a)(3) of the current rule. Accordingly, 
Sec. 1805.201(a) of this interim rule provides that the Fund may 
decertify a certified CDFI after a determination that it no longer 
meets the eligibility requirements of Sec. 1805.201(b), 
Sec. 1805.200(b), or Sec. 1805.200(a)(3).
    Sections 1805.300 through 1805.302 of the current rule discuss in 
greater detail the Target Market eligibility test contained in 
Sec. 1805.200(c) of the current rule. The Fund has decided to 
consolidate these sections into Sec. 1805.201(b) of this interim rule 
for purposes of regulatory economy and efficiency. The Fund also has 
made numbering changes to the subsequent sections to conform with this 
consolidation.
    Section 1805.301(d) of the current rule contains a listing of 
objective criteria of economic distress necessary for geographic 
unit(s) to qualify as an eligible Investment Area. These criteria 
include the percentage of the population living in poverty, the 
percentage of Low-Income households, the unemployment rate, the 
percentage of occupied distressed housing, and the county population 
loss. These criteria conform with the Act (12 U.S.C. 4702(16)(A)(i)), 
which confers upon the Fund the authority to expand these distress 
criteria to include rural population outmigration. Accordingly, the 
Fund has decided to add rural population net migration loss to the list 
of objective criteria of economic distress. This new objective 
criterion is found in Sec. 1805.201(b)(3)(ii)(D)(5)(ii) of this interim 
rule, and provides that for areas located outside of a Metropolitan 
Area, the county net migration loss (outmigration less immigration) 
over the five year period preceding the most recent decennial census is 
at least 5 percent.
    Section 1805.302(c) of the current rule provides that an Applicant 
shall provide its products and services in a manner consistent with the 
Equal Credit Opportunity Act, to the extent that the Applicant is 
subject to such Act. The Fund is deleting this language from this 
interim rule for purposes of regulatory economy and efficiency inasmuch 
as this requirement is already reflected in Sec. 1805.905 of the 
current rule (Sec. 1805.805 of this interim rule), which provides that 
an Awardee shall comply with all applicable Federal laws.
    Section 1805.302(a) of the current rule provides that a Targeted 
Population may include an identifiable group of individuals that lack 
adequate access to loans or equity investments. Section 
1805.701(b)(3)(ii)(B) of the current rule provides that in order for 
such an identifiable group to meet the Target Market/Targeted 
Population eligibility test, an Applicant must submit to the Fund 
studies or analyses that evidence lack of adequate access to loans or 
equity investments. The Fund believes that the current rule needs to be 
clarified to reflect that the identifiable group of individuals must be 
drawn from the Applicant's service area, and to more accurately reflect 
the information the Fund needs in determining whether an identifiable 
group of individuals lacks adequate access to loans or Equity 
Investments. Accordingly, Sec. 1805.201(b)(3)(iii)(B)(2) of this 
interim rule provides that an Applicant must submit: (1) A description 
of the Applicant's service area from which the Targeted Population is 
drawn; (2) studies, analyses or other information demonstrating that 
the identifiable group of individuals, either on a national basis or on 
a localized basis in the Applicant's service area, lacks adequate 
access to loans and Equity Investments; and (3) studies, analyses or 
other information demonstrating that the Applicant's clients, who 
comprise the identifiable group of individuals, lack adequate access to 
loans or Equity Investments.

Technical Assistance

    Section 1805.403(d) of the current rule provides that applications 
for technical assistance will be evaluated pursuant to the competitive 
review criteria contained in the evaluation provisions of the current 
rule (Sec. 1805.802(b)). The Fund believes that, in the interest of 
economy and efficiency, it needs the flexibility to streamline the 
competitive review and evaluation of applications for technical 
assistance, particularly those received under the CDFI Program 
Technical Assistance Component in which the maximum amount of technical 
assistance typically awarded is $50,000. Section 1805.303(d) of this 
interim rule accomplishes this by providing that applications for 
technical assistance will be evaluated pursuant to the competitive 
review criteria contained in the evaluation provisions of this interim 
rule (Sec. 1805.701(b)), except as otherwise may be provided in the 
applicable NOFA. Section 1805.303(d) of this interim rule confers upon 
the Fund the discretion to select the specific evaluation criteria 
contained in Sec. 1805.701(b) of this interim rule that it intends to 
utilize in evaluating applications for technical assistance. However, 
this discretion is constrained by the Act, which expressly prescribes 
specific evaluation criteria that also are contained in 
Sec. 1805.701(b) of this interim rule. As a result, the Fund's 
selection of evaluation criteria for applications for technical 
assistance will, without exception, include all statutorily prescribed 
evaluation criteria.

Matching Funds Requirements

    Section 1805.600 of the current rule provides that funds used to 
satisfy a legal requirement for obtaining funds under another Federal 
grant or award program cannot be used to satisfy the matching 
requirements set forth in this section of the current rule. The Fund 
has decided to clarify this section by providing that in the case of an 
applicant that is a previous Awardee under the CDFI Program, such 
applicant cannot reuse matching funds used to satisfy the matching 
funds requirements for its prior CDFI Program award. Accordingly, 
Sec. 1805.500 of this interim rule provides that funds used to satisfy 
a legal requirement for obtaining funds under either the CDFI Program 
or another Federal grant or award program may not be used to satisfy 
the matching requirements.
    Section 1805.600 of the current rule provides that funds spent by 
an Applicant for operating expenses prior to the calendar year in which 
the applicable application deadline falls cannot be used to meet the 
matching funds requirements. The Fund has decided to eliminate this 
provision from Sec. 1805.500 of this interim rule to ease the burden on 
Applicants of substantiating that such matching funds were not used for 
operating expenses. However, the Fund will continue to determine, under 
Sec. 1805.500 of this interim rule, whether matching funds expended 
prior to the execution of an Assistance Agreement promoted the purposes 
of the Comprehensive Business Plan that the Fund is supporting through 
its assistance.
    Section 1805.602 of the current rule contains a ``severe 
constraints waiver'' in which Applicants with severe constraints on 
available sources of matching funds may seek a reduction in the 
matching funds requirements.

[[Page 59080]]

Section 1805.602(b) of the current rule limits the Fund's availability 
to grant severe constraints waivers to not more than 25 percent of the 
total funds available for ``obligation'' in any fiscal year. The Fund 
is adding an additional sentence to this section, in conformance with 
the Act, which specifically provides that not more than 25 percent of 
the total funds ``disbursed'' in any fiscal year may receive a severe 
constraints waiver (12 U.S.C. 4707(e)(3)). Accordingly, the second 
sentence of Sec. 1805.502(b) of this interim rule provides that not 
more than 25 percent of the total funds disbursed in any fiscal year 
may be matched under a severe constraints waiver.
    Section 1805.603 of the current rule provides that Applicants may 
use as matching funds 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. The current rule also provides that an Applicant shall 
raise the balance of its matching funds within the period set forth in 
the applicable NOFA. For purposes of regulatory economy and efficiency, 
the Fund has decided to streamline this section. As a result, 
Sec. 1805.503 of this interim rule provides that Applicants shall 
satisfy matching funds requirements within the period set forth in the 
applicable NOFA.
    Section 1805.604 of the current rule authorizes Applicants to 
utilize retained earnings as matching funds. Section 1805.604(d) of the 
current rule describes how retained earnings may be used by Insured 
Credit Unions to meet matching funds requirements. Insured Credit 
Unions are credit unions in which the member accounts are insured by 
the National Credit Union Share Insurance Fund (NCUSIF). When the Fund 
originally promulgated the current rule it did not intend to exclude 
those credit unions whose member accounts are insured but not by the 
NCUSIF from Sec. 1805.604(d) of the current rule. As a result, the Fund 
has revised Sec. 1805.504(d) of this interim rule to cover all credit 
unions whose member accounts are insured and not just Insured Credit 
Unions.
    Section 1805.604(d)(4)(i)(B) of the current rule requires Insured 
Credit Unions seeking to meet their matching funds requirements by 
utilizing retained earnings in the form of net capital accumulated 
since inception to increase their shares fourfold ``within 18 months of 
the last day of the month prior to the month in which the Applicant is 
selected to receive assistance.'' The Fund believes that the time frame 
contained in the current rule is too indeterminate, too short and a 
frequent source of confusion for Applicants. The Fund believes that a 
longer, clearer and more measurable time frame is appropriate and would 
better serve the interests of the affected community. As a result, 
Sec. 1805.504(d)(4)(i)(B) of this interim rule provides that the 
fourfold increase in shares must be achieved ``within 24 months from 
September 30 of the calendar year in which the applicable application 
deadline falls.''
    Section 1805.604(d)(4)(i)(C) of the current rule requires that the 
fourfold increase in shares be maintained for the period of time 
covered by the Comprehensive Business Plan. The Fund is deleting this 
requirement in recognition of periodic fluctuations in share levels.
    Section 1805.604(d)(4)(iii) of the current rule prescribes a 
bifurcated methodology for determining the appropriate baseline from 
which the fourfold increase in shares is measured. The Fund believes 
that the current bifurcated methodology is a frequent cause of 
confusion for Applicants. As a result, the Fund has decided to simplify 
this methodology through a fixed and more easily determinable baseline. 
Specifically, Sec. 1805.504(d)(4)(iii) of this interim rule provides 
that the baseline will be as of September 30 of the calendar year in 
which the applicable application deadline falls.
    Section 1805.604(e) of the current rule provides that an Applicant 
may only use retained earnings to meet matching funds requirements if 
it has liquidity (as determined by the Fund) in amounts equal to or 
greater than the amount of retained earnings that is proposed to be 
used to meet matching funds requirements. For purposes of regulatory 
economy and efficiency, the Fund has decided to eliminate this 
requirement.

Applications for Assistance

    Section 1805.701 of the current rule provides that an Applicant may 
present its application in an order and format that it believes to be 
the most appropriate. The Fund has found that affording Applicants such 
flexibility makes it considerably more difficult for the Fund to 
evaluate applications. The Fund also believes that requiring all 
applications to be in the same order and format will inure to the 
benefit of all Applicants by ensuring a more efficient evaluation 
process. As a result, Sec. 1805.601 of this interim rule deletes this 
provision.
    Section 1805.701 of the current rule contains the application 
content requirements. The Fund has decided to revise this section 
(Sec. 1805.601 of this interim rule) to reduce burdens on Applicants.
    For example, Sec. 1805.701(d)(2)(iii)(B) of the current rule 
requires an Applicant to submit financial statements that utilize 
accrual based accounting methods. Section 1805.601(d)(4) of this 
interim rule continues to require the submission of financial 
statements but eliminates the requirement that such financial 
statements reflect accrual based accounting methods. The Fund believes 
that the elimination of this requirement will reduce burdens on those 
Applicants that currently utilize cash-based accounting methods. In 
addition, Sec. 1805.701(e)(2) of the current rule requires an Applicant 
to submit a description of matching funds previously obtained or 
legally committed and related matching funds documentation in the form 
of agreements, letters of intent, and memoranda of understanding. 
Section 1805.601(d)(8)(ii) of this interim rule continues to require an 
Applicant to submit a description of matching funds previously obtained 
or legally committed, but deletes the requirement that an Applicant 
submit with its application related matching funds documentation. The 
Fund will only request such matching funds documentation from those 
Applicants that advance to the second phase of the Fund's substantive 
review process.
    The Fund also has decided to reformat Sec. 1805.601 of this interim 
rule to conform more closely with the Fund's new application packet. 
The new application packet contains several changes that also are 
intended to reduce burdens on Applicants. For example, the new 
application packet is a stand-alone document that identifies all 
application content requirements. Previous application packets directed 
Applicants to the current rule to ascertain the application content 
requirements. Applicants thus had to refer to two discrete documents in 
order to complete their applications. Such process has proven to be 
burdensome for Applicants in that it increased the amount of time it 
took them to complete the applications. The new application packet also 
contains clearer instructions, and identifies for each component part 
of the application the evaluation criteria and the points allocated for 
each evaluation criteria.
    Furthermore, in accordance with the authority conferred to the Fund 
under the Act (12 U.S.C. 4704(b)(6)), the Fund is adding a new 
application content requirement to better ensure that the Fund's 
resources promote economic revitalization and community development. 
Specifically,

[[Page 59081]]

Sec. 1805.601(d)(13) of this interim rule requires each Applicant to 
describe the extent of need for the Fund's assistance, as demonstrated 
by the extent of economic distress in the Applicant's Target Market and 
the extent to which the Applicant needs the Fund's assistance to carry 
out its Comprehensive Business Plan.

Evaluation and Selection of Applications

    Section 1805.800 of the current rule provides that part of the 
Fund's evaluation process may include an interview(s). In the past two 
funding rounds of the CDFI Program, the Fund has conducted interviews 
telephonically and in the offices of the Applicant. Section 1805.700 of 
this interim rule clarifies that the Fund may conduct not only 
telephonic interviews but also interviews in the form of site visits to 
an Applicant's and/or an Applicant's clients', borrowers', or 
investees' places of business.
    Section 1805.802(b) of the current rule contains an inclusive 
listing of application evaluation factors. The Fund has reformatted and 
revised these factors to better reflect the Fund's intention to achieve 
maximum community impact under the CDFI Program and to conform with the 
Fund's new application packet. Section 1805.802(b)(1) of the current 
rule includes as an evaluation factor the quality of an Applicant's 
Comprehensive Business Plan. The Fund is deleting this specific 
evaluation factor from Sec. 1805.701(b) of this interim rule, because 
the Fund believes this factor is already captured in other evaluation 
factors. The deletion of this factor is not intended by the Fund to 
have any substantive effect.
    Consistent with its authority under the Act (12 U.S.C. 
4706(a)(14)), the Fund has decided to add a new evaluation factor. 
Specifically, Sec. 1805.701(b)(9) of this interim rule provides that 
the Fund will consider the extent of need for its assistance, as 
demonstrated by the extent of economic distress in the Applicant's 
Target Market, and the extent to which the Applicant needs the Fund's 
assistance to carry out its Comprehensive Business Plan. In the case of 
an Applicant that has previously received assistance under the CDFI 
Program, the Fund also will consider the Applicant's level of success 
in meeting its performance goals, financial soundness covenants (if 
applicable), and other requirements contained in the previously 
negotiated and executed Assistance Agreement(s) between the Fund and 
the Applicant, and whether the Applicant will expand the scope and 
volume of its activities with the help of additional assistance from 
the Fund. In the case of an Applicant that previously received funding 
under the CDFI Program, the Fund reserves the right to consider the 
extent to which the Applicant timely delivered its required reports to 
the Fund.
    Notwithstanding these changes to Sec. 1805.701(b) of this interim 
rule, the Fund reserves the right per Sec. 1805.701(b)(10) of this 
interim rule to consider other evaluation factors in evaluating 
applications. The Fund anticipates that it will publish such other 
evaluation factors in the applicable NOFA and/or the applicable 
application packet.

Data Collection and Reporting

    Section 1805.903(b) of the current rule requires Awardees to 
compile user profile information to assist the Fund in determining 
whether the Awardee's Target Market is adequately served. Section 
1805.803(b) of this interim rule adds a provision that the Awardee's 
compilation of user profile information will assist the Fund in 
evaluating the impact of the CDFI Program. Specifically, the Fund will 
request that the Awardee report user profile information as part of the 
reporting requirement that will assist the Fund in evaluating the 
impact of the CDFI Program. This impact reporting requirement is 
contained in Sec. 1805.903(c) of the current rule (Secs. 1805.803(c) 
and 1805.803(e)(5) of this interim rule), and has been previously 
reviewed and approved by OMB in accordance with the Paperwork Reduction 
Act of 1995 and assigned OMB Control Number 1505-0154.
    Section 1805.903(e)(2) of the current rule requires each Awardee to 
submit a quarterly report with information on the performance of its 
loans, Development Investments, Development Services, and Financial 
Services, unaudited financial statements, and information on portfolio 
performance. The Fund believes that these quarterly reporting 
requirements are unduly burdensome, and has decided to reduce the 
frequency of such reporting. In addition, the Fund has decided to 
narrow the scope of such reports. Specifically, Sec. 1805.803(e)(2) of 
this interim rule requires each Awardee to submit a semi-annual report 
(i.e., two per year) consisting of its internal (unaudited) financial 
statements and information on compliance with its financial soundness 
covenants. The Fund is adding to the semi-annual report a requirement 
that the Awardee report on its compliance with its financial soundness 
covenants. This requirement is similar to an existing requirement 
contained in each Assistance Agreement and does not impose any 
additional burdens on Awardees. Awardees will still be required to 
report on the performance of their Financial Products, Development 
Services, Financial Services, and portfolio performance; however, such 
reporting requirements will be added to the impact reporting 
requirement described in Sec. 1805.803(c) of this interim rule.
    Section 1805.903(e)(3) of the current rule requires each Awardee to 
submit an annual report consisting of: (1) information on the Awardee's 
customer profile and the performance of its products and services; (2) 
information on its portfolio performance; (3) qualitative and 
quantitative information on the Awardee's performance goals; (4) 
information describing the manner in which Fund assistance and any 
corresponding matching funds were used; (5) certification that the 
Awardee continues to meet the eligibility requirements described in 
Sec. 1805.200; and (6) its most recent audited financial statements 
prepared by an independent certified public accountant. The Fund has 
decided to remove several of the reporting requirements from the annual 
report and add them to the impact reporting requirement. In addition, 
the Fund is adding to the annual report a requirement that the Awardee 
provide a narrative description of the Awardee's activities in support 
of its Comprehensive Business Plan. This requirement is similar to an 
existing requirement contained in each Assistance Agreement, and does 
not impose any additional reporting burdens on Awardees. As a result, 
Sec. 1805.803(e)(3) of this interim rule requires each Awardee to 
submit an annual report consisting of: (1) a narrative description of 
an Awardee's activities in support of its Comprehensive Business Plan; 
(2) qualitative and quantitative information on an Awardee's compliance 
with its performance goals; (3) information describing the manner in 
which Fund assistance and any corresponding matching funds were used; 
and (4) certification that the Awardee continues to meet the 
eligibility requirements described in Sec. 1805.200.
    In addition, the Fund has decided to bifurcate the due dates for 
submission of the audited statements of financial condition and the 
other reporting requirements contained in the annual report. The Fund 
understands that a longer period of time is required for an Awardee's 
independent certified public accountant to conduct and complete an

[[Page 59082]]

audit of the Awardee than is required for an Awardee to prepare and 
submit to the Fund the other reporting requirements contained in the 
annual report. As a result, Sec. 1805.803(e)(4) of this interim rule 
generally affords an Awardee 120 days after the end of its fiscal year 
to submit its audited financial statements to the Fund, as opposed to 
Sec. 1805.803(e)(3) of this interim rule which generally affords an 
Awardee 60 days to submit its annual report to the Fund.

III. Rulemaking Analysis

Executive Order (E.O.) 12866

    It has been determined that this regulation is not a significant 
regulatory action as defined in Executive Order 12866. Therefore, a 
Regulatory Assessment is not required.

Regulatory Flexibility Act

    Because no notice of proposed rule making is required for this 
revised interim rule, the provisions of the Regulatory Flexibility Act 
(5 U.S.C. 601 et seq.) do not apply.

Paperwork Reduction Act

    The collections of information contained in this interim rule have 
been previously reviewed and approved by the Office of Management and 
Budget (OMB) in accordance with the Paperwork Reduction Act of 1995 and 
assigned OMB Control 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. 
This document restates the collections of information without 
substantive change.
    Comments concerning suggestions for reducing the burden of 
collections of information should be directed to the Deputy Director 
for Policy and Programs, Community Development Financial Institutions 
Fund, 601 13th Street, NW., Suite 200 South, Washington, DC 20005.

National Environmental Policy Act

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

Administrative Procedure Act

    Because the revisions to this interim rule relate to loans and 
grants, notice and public procedure and a delayed effective date are 
not required pursuant to the Administrative Procedure Act found at 5 
U.S.C. 553(a)(2).

Comment

    Public comment is solicited on all aspects of this interim 
regulation. The Fund will consider all comments made on the substance 
of this interim regulation, but does not intend to hold hearings.

Catalog of Federal Domestic Assistance Number

    Community Development Financial Institutions Program--21.020.

List of Subjects in 12 CFR Part 1805

    Community development, Grant programs--housing and community 
development, Loan programs--housing and community development, 
Reporting and recordkeeping requirements, Small businesses.
    For the reasons set forth in the preamble, 12 CFR part 1805 is 
revised to read as follows:

PART 1805--COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS PROGRAM

Subpart A--General Provisions

Sec.
1805.100  Purpose.
1805.101  Summary.
1805.102  Relationship to other Fund programs.
1805.103  Awardee not instrumentality.
1805.104  Definitions.
1805.105  Waiver authority.
1805.106  OMB control number.

Subpart B--Eligibility

1805.200  Applicant eligibility.
1805.201  Certification as a Community Development Financial 
Institution.

Subpart C--Use of Funds/Eligible Activities

1805.300  Purposes of financial assistance.
1805.301  Eligible activities.
1805.302  Restrictions on use of assistance.
1805.303  Technical assistance.

Subpart D--Investment Instruments

1805.400  Investment instruments--general.
1805.401  Forms of investment instruments.
1805.402  Assistance limits.
1805.403  Authority to sell.

Subpart E--Matching Funds Requirements

1805.500  Matching funds--general.
1805.501  Comparability of form and value.
1805.502  Severe constraints waiver.
1805.503  Time frame for raising match.
1805.504  Retained earnings.

Subpart F--Applications for Assistance

1805.600  Notice of Funds Availability.
1805.601  Application contents.

Subpart G--Evaluation and Selection of Applications

1805.700  Evaluation and selection--general.
1805.701  Evaluation of Applications.

Subpart H--Terms and Conditions of Assistance

1805.800  Safety and soundness.
1805.801  Assistance Agreement; sanctions.
1805.802  Disbursement of funds.
1805.803  Data collection and reporting.
1805.804  Information.
1805.805  Compliance with government requirements.
1805.806  Conflict of interest requirements.
1805.807  Lobbying restrictions.
1805.808  Criminal provisions.
1805.809  Fund deemed not to control.
1805.810  Limitation on liability.
1805.811  Fraud, waste and abuse.

    Authority: 12 U.S.C. 4703, 4703 note, 4717; and 31 U.S.C. 321.

Subpart A--General Provisions


Sec. 1805.100  Purpose.

    The purpose of the Community Development Financial Institutions 
Program is to 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 a Bank Enterprise Award under the 
Bank Enterprise Award Program (part 1806 of this chapter) if it has:
    (i) An application pending for assistance under the Community 
Development Financial Institutions Program;
    (ii) Directly received assistance in the form of a disbursement 
under the Community Development Financial Institutions Program within 
the preceding 12-month period; or

[[Page 59083]]

    (iii) Ever directly received assistance under the Community 
Development Financial Institutions Program for the same activities for 
which it is seeking a Bank Enterprise Award.
    (2) An equity investment (as defined in part 1806 of this chapter) 
in, or a loan to, a Community Development Financial Institution, or 
deposits in an Insured Community Development Financial Institution, 
made by a Bank Enterprise Award Program Awardee may be used to meet the 
matching funds requirements described in subpart E of this part. 
Receipt of such equity investment, loan, or deposit does not disqualify 
a Community Development Financial Institution from receiving assistance 
under this part.
    (b) Liquidity enhancement program. No entity that receives 
assistance through the liquidity enhancement program authorized under 
section 113 (12 U.S.C. 4712) of the Act may receive assistance under 
the Community Development Financial Institutions Program.


Sec. 1805.103  Awardee not instrumentality.

    No Awardee (or its Community Partner) shall be deemed to be an 
agency, department, or instrumentality of the United States.


Sec. 1805.104  Definitions.

    For the purpose of this part:
    (a) Act means the Community Development Banking and Financial 
Institutions Act of 1994, as amended (12 U.S.C. 4701 et seq.);
    (b) Affiliate means any company or entity that controls, is 
controlled by, or is under common control with another company;
    (c) Applicant means any entity submitting an application for 
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. 1813(q)), 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 described in 
Sec. 1805.200;
    (h) Community Development Financial Institution Intermediary (or 
CDFI Intermediary) means an entity that meets the CDFI Program 
eligibility requirements described in Sec. 1805.200 and whose primary 
business activity is the provision of Financial Products to CDFIs and/
or emerging CDFIs;
    (i) 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;
    (j) Community Facility means a facility where health care, child 
care, educational, cultural, or social services are provided;
    (k) 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;
    (l) 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;
    (m) 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.);
    (n) 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);
    (o) Comprehensive Business Plan means a document covering not less 
than the next five years which meets the requirements described under 
Sec. 1805.601(d);
    (p) Depository Institution Holding Company means a bank holding 
company or a savings and loan holding company as defined in section 3 
of the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(1));
    (q) Development Services means activities that promote community 
development and are integral to the Applicant's provision of Financial 
Products. Such services shall prepare or assist current or potential 
borrowers or investees to utilize the Financial Products of the 
Applicant. Such services include, for example: financial or credit 
counseling to individuals for the purpose of facilitating home 
ownership, promoting self-employment, or enhancing consumer financial 
management skills; or technical assistance to borrowers or investees 
for the purpose of enhancing business planning, marketing, management, 
and financial management skills;
    (r) Equity Investment means an 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. Equity Investments comprise a stock 
purchase, a purchase of a partnership interest, a purchase of a limited 
liability company membership interest, a loan made on such terms that 
it has sufficient characteristics of equity (and is considered as such 
by the Fund), or any other investment deemed to be an Equity Investment 
by the Fund;
    (s) Financial Products means loans, Equity Investments and, in the 
case of CDFI Intermediaries, grants to CDFIs and/or emerging CDFIs and 
deposits in insured credit union CDFIs and/or emerging insured credit 
union CDFIs;
    (t) Financial Services means checking, savings accounts, check-
cashing, money orders, certified checks, automated teller machines, 
deposit-taking, and safe deposit box services;
    (u) Fund means the Community Development Financial Institutions 
Fund established under section 104(a) (12 U.S.C. 4703(a)) of the Act;
    (v) Indian Reservation means any geographic area that meets the 
requirements of section 4(10) of the Indian Child Welfare Act of 1978 
(25 U.S.C. 1903(10)), and shall include land held by incorporated 
Native groups, regional corporations, and village corporations, as 
defined in and pursuant to the Alaska Native Claims Settlement Act (43 
U.S.C. 1602), public domain Indian allotments, and former Indian 
reservations in the State of Oklahoma;
    (w) 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;
    (x) Insider means any director, officer, employee, principal 
shareholder (owning, individually or in combination

[[Page 59084]]

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;
    (y) Insured CDFI means a CDFI that is an Insured Depository 
Institution or an Insured Credit Union;
    (z) Insured Credit Union means any credit union, the member 
accounts of which are insured by the National Credit Union Share 
Insurance Fund;
    (aa) Insured Depository Institution means any bank or thrift, the 
deposits of which are insured by the Federal Deposit Insurance 
Corporation;
    (bb) Investment Area means a geographic area meeting the 
requirements of Sec. 1805.201(b)(3);
    (cc) 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;
    (dd) Metropolitan Area means an area designated as such by the 
Office of Management and Budget pursuant to 44 U.S.C. 3504(e) and 31 
U.S.C. 1104(d) and Executive Order 10253 (3 CFR, 1949-1953 Comp., p. 
758), as amended;
    (ee) Non-Regulated CDFI means any entity meeting the eligibility 
requirements described in Sec. 1805.200 which is not a Depository 
Institution Holding Company, Insured Depository Institution, or Insured 
Credit Union;
    (ff) 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;
    (gg) Subsidiary means any company which is owned or controlled 
directly or indirectly by another company and includes any service 
corporation owned in whole or part by an Insured Depository Institution 
or any Subsidiary of such a service corporation, except as provided in 
Sec. 1805.200(b)(4);
    (hh) Targeted Population means individuals or an identifiable group 
meeting the requirements of Sec. 1805.201(b)(3); and
    (ii) Target Market means an Investment Area(s) and/or a Targeted 
Population(s).


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 Sec. 1805.201(b) and paragraph (b) 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.
    (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 Sec. 1805.201(b) 
and paragraph (b) of this section within 24 months from September 30 of 
the calendar year in which the applicable application deadline falls or 
such other period as may be set forth in an applicable NOFA. The Fund 
will not, however, disburse any financial assistance to such an entity 
before it meets the requirements described in 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. 1805.201(b).
    (b) Provisions applicable to Depository Institution Holding 
Companies and Insured Depository Institutions. (1) A Depository 
Institution Holding Company may qualify as a CDFI only if it and its 
Affiliates collectively satisfy the requirements described in this 
section.
    (2) No Affiliate of a Depository Institution Holding Company may 
qualify as a CDFI unless the holding company and all of its Affiliates 
collectively meet the requirements described in this section.
    (3) No Subsidiary of an Insured Depository Institution may qualify 
as a CDFI if the Insured Depository Institution and its Subsidiaries do 
not collectively meet the requirements described in this section.
    (4) For the purposes of paragraphs (b)(1), (2) and (3) of this 
section, an Applicant will be considered to be a Subsidiary of any 
Insured Depository Institution or Depository Institution Holding 
Company that controls 25 percent or more of any class of the 
Applicant's voting shares, or otherwise controls, in any manner, the 
election of a majority of directors of the Applicant.


Sec. 1805.201  Certification as a Community Development Financial 
Institution.

    (a) General. An entity may apply to the Fund for certification that 
it meets the CDFI eligibility requirements regardless of whether it is 
seeking financial or technical assistance from the Fund. Entities 
seeking such certification shall provide the information set forth in 
paragraph (b) of this section. Certification by the Fund will verify 
that the entity meets the CDFI eligibility requirements. However, such 
certification shall not constitute an opinion by the Fund as to the 
financial viability of the CDFI or that the CDFI will be selected to 
receive an award from the Fund. The Fund, in its sole discretion, shall 
have the right to decertify a certified entity after a determination 
that the eligibility requirements of paragraph (b) of this section, 
Sec. 1805.200(b), or Sec. 1805.200(a)(3) (if applicable) are no longer 
met.
    (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 this paragraph (b) and Sec. 1805.200 by 
providing the information requested in paragraphs (b)(1) through (b)(7) 
of this section. The Fund, in its sole discretion, shall determine 
whether an Applicant has satisfied the requirements of this paragraph 
(b) and Sec. 1805.200.
    (1) Primary mission. A CDFI shall have a primary mission of 
promoting community development. In determining whether an Applicant 
has such a primary mission, the Fund will consider whether the 
activities of the Applicant and its Affiliates, when viewed 
collectively (as a whole), are purposefully directed toward improving 
the social and/or economic conditions of underserved people (which may 
include Low-Income persons and

[[Page 59085]]

persons who lack adequate access to capital and/or Financial Services) 
and/or residents of distressed communities (which may include 
Investment Areas).
    (2) Financing entity. (i) A CDFI shall be an entity whose 
predominant business activity is the provision, in arms-length 
transactions, of Financial Products, Development Services, and/or other 
similar financing. An Applicant may demonstrate that it is such an 
entity if it is a(n):
    (A) Depository Institution Holding Company;
    (B) Insured Depository Institution or Insured Credit Union; or
    (C) Organization that is deemed by the Fund to have such a 
predominant business activity as a result of analysis of its financial 
statements, organizing documents, and any other information required to 
be submitted as part of its application. In conducting such analysis, 
the Fund may take into consideration an Applicant's total assets and 
its use of personnel.
    (ii) An Applicant described under:
    (A) Paragraph (b)(2)(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)(2)(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)(2)(i)(C) of this section shall submit a copy of 
its most recent year-end financial statements (and any notes or other 
supplemental information to its financial statements) documenting its 
assets dedicated to Financial Products, Development Services and/or 
other similar financing, and an explanation of how such assets support 
these activities. An Applicant also shall provide qualitative and 
quantitative information on the percentage of Applicant staff time 
dedicated to the provision of Financial Products, Development Services, 
and/or other similar financing.
    (3) Target Market. (i) General. An Applicant shall provide a 
description of one or more Investment Areas and/or Targeted Populations 
that it serves, and shall demonstrate that its total activities are 
principally directed to serving the Investment Areas, Targeted 
Populations, or both. An Investment Area shall meet specific geographic 
and other criteria described in paragraph (b)(3)(ii) of this section, 
and a Targeted Population shall meet the criteria described in 
paragraph (b)(3)(iii) of this section.
    (ii) Investment Area. (A) General. A geographic area will be 
considered eligible for designation as an Investment Area if it:
    (1) Is entirely located within the geographic boundaries of the 
United States (which shall encompass any State of the United States, 
the District of Columbia or any territory of the United States, Puerto 
Rico, Guam, American Samoa, the Trust Territories of the Pacific 
Islands, the Virgin Islands, and the Northern Mariana Islands); and 
either
    (2) Meets at least one of the objective criteria of economic 
distress as set forth in paragraph (b)(3)(ii)(D) of this section and 
has significant unmet needs for loans or Equity Investments as 
described in paragraph (b)(3)(ii)(E) of this section; or
    (3) Encompasses or is located in an Empowerment Zone or Enterprise 
Community designated under Sec. 1391 of the Internal Revenue Code of 
1986 (26 U.S.C. 1391).
    (B) Geographic units. Subject to the remainder of this paragraph 
(b)(3)(ii)(B), an Investment Area shall consist of a geographic unit(s) 
that is a county (or equivalent area), minor civil division that is a 
unit of local government, incorporated place, census tract, block 
numbering area, block group, or American Indian or Alaska Native area 
(as such units are defined or reported by the U.S. Bureau of the 
Census). However, geographic units in Metropolitan Areas that are used 
to comprise an Investment Area shall be limited to census tracts, block 
groups and American Indian or Alaskan Native areas. An Applicant may 
designate one or more Investment Areas as part of a single application.
    (C) Designation. An Applicant may designate an Investment Area by 
selecting:
    (1) A geographic unit(s) which individually meets one of the 
criteria in paragraph (b)(3)(ii)(D) of this section; or
    (2) A group of contiguous geographic units which together meet one 
of the criteria in paragraph (b)(3)(ii)(D) of this section, provided 
that the combined population residing within individual geographic 
units not meeting any such criteria does not exceed 15 percent of the 
total population of the entire Investment Area.
    (D) Distress criteria. An Investment Area (or the units that 
comprise an area) must meet at least one of the following objective 
criteria of economic distress (as reported in the most recently 
completed decennial census published by the U.S. Bureau of the Census):
    (1) The percentage of the population living in poverty is at least 
20 percent;
    (2) In the case of an Investment Area located:
    (i) Within a Metropolitan Area, the median family income shall be 
at or below 80 percent of the Metropolitan Area median family income or 
the national Metropolitan Area median family income, whichever is 
greater; or
    (ii) Outside of a Metropolitan Area, the median family income shall 
be at or below 80 percent of the statewide non-Metropolitan Area median 
family income or the national non-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:
    (i) The county population loss in the period between the most 
recent decennial census and the previous decennial census is at least 
10 percent; or
    (ii) The county net migration loss (outmigration minus immigration) 
over the five year period preceding the most recent decennial census is 
at least 5 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 or Equity Investments within such 
area(s).
    (F) Serving Investment Areas. An Applicant may serve an Investment 
Area directly or through borrowers or investees that serve the 
Investment Area or provide significant benefits to its residents. To 
demonstrate that it is serving an Investment Area, an Applicant shall 
submit:
    (1) A completed Investment Area Designation worksheet referenced in 
the application packet;
    (2) A map of the designated area(s); and
    (3) Studies or other analyses as described in paragraph 
(b)(3)(ii)(E) of this section.
    (iii) Targeted Population. (A) General. Targeted Population shall 
mean individuals, or an identifiable group of individuals, who are Low-
Income persons or lack adequate access to loans or Equity Investments 
in the Applicant's service area. The members of a Targeted Population 
shall reside within the boundaries of the United States (which shall 
encompass any State of the United States, the District of Columbia or 
any territory of the United States, Puerto Rico, Guam, American Samoa, 
the Trust

[[Page 59086]]

Territories of the Pacific Islands, the Virgin Islands, and the 
Northern Mariana Islands).
    (B) Serving A Targeted Population. An Applicant may serve the 
members of a Targeted Population directly or indirectly or through 
borrowers or investees that directly serve or provide significant 
benefits to such members. To demonstrate that it is serving a Targeted 
Population, an Applicant shall submit:
    (1) 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
    (2) In the case of a Targeted Population defined other than on the 
basis of Low-Income--
    (i) A description of the service area from which the Targeted 
Population is drawn;
    (ii) Studies, analyses or other information demonstrating that the 
identifiable group of individuals, either on a national basis or on a 
localized basis in the Applicant's service area, lacks adequate access 
to loans or Equity Investments; and
    (iii) Studies, analyses or other information demonstrating that the 
Applicant's clients, who comprise the identifiable group of 
individuals, lack adequate access to loans or Equity Investments.
    (4) Development Services. A CDFI directly, through an Affiliate, or 
through a contract with another provider, shall provide Development 
Services in conjunction with its Financial Products. An Applicant shall 
submit a description of the Development Services to be offered, the 
expected provider of such services, and information on the persons 
expected to use such services.
    (5) Accountability. A CDFI must maintain accountability to 
residents of its Investment Area(s) or Targeted Population(s) through 
representation on its governing board or otherwise. 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.
    (6) Non-government. A CDFI shall not be an agency or 
instrumentality of the United States, or any State or political 
subdivision thereof. An entity that is created by, or that receives 
substantial assistance from, one or more government entities may be a 
CDFI provided it is not controlled by such entities and maintains 
independent decision-making power over its activities. An Applicant 
shall submit copies of its 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.
    (7) 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).

Subpart C--Use of Funds/Eligible Activities


Sec. 1805.300  Purposes of financial assistance.

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


Sec. 1805.301  Eligible activities.

    Financial assistance provided under this part may be used by an 
Awardee to serve Investment Area(s) or Targeted Population(s) by 
developing or supporting:
    (a) Commercial facilities that promote revitalization, community 
stability or job creation or retention;
    (b) Businesses that:
    (1) Provide jobs for Low-Income persons;
    (2) Are owned by Low-Income persons; or
    (3) Enhance the availability of products and services to Low-Income 
persons;
    (c) Community Facilities;
    (d) The provision of Financial Services;
    (e) Housing that is principally affordable to Low-Income persons, 
except that assistance used to facilitate home ownership shall only be 
used for services and lending products that serve Low-Income persons 
and that:
    (1) Are not provided by other lenders in the area; or
    (2) Complement the services and lending products provided by other 
lenders that serve the Investment Area(s) or Targeted Population(s);
    (f) The provision of Consumer Loans (a loan to one or more 
individuals for household, family, or other personal expenditures); or
    (g) Other businesses or activities as requested by the Applicant 
and deemed appropriate by the Fund.


Sec. 1805.302  Restrictions on use of assistance.

    (a) An Awardee shall use assistance provided by the Fund and its 
corresponding matching funds only for the eligible activities approved 
by the Fund and described in the Assistance Agreement.
    (b) An Awardee may not distribute assistance to an Affiliate 
without the Fund's consent.
    (c) Assistance provided upon approval of an application involving a 
Community Partnership shall only be distributed to the Awardee and 
shall not be used to fund any activities carried out by a Community 
Partner or an Affiliate of a Community Partner.


Sec. 1805.303  Technical assistance.

    (a) 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 
the recipient also receives financial assistance under this part. 
Technical assistance provided pursuant to this part is subject to the 
assistance limits described in Sec. 1805.402.
    (c) An Applicant seeking technical assistance must meet the 
eligibility requirements described in Sec. 1805.200 and submit an 
application as described in Sec. 1805.601.
    (d) Applicants for technical assistance pursuant to this part will 
be evaluated pursuant to the competitive review criteria in subpart G 
of this part, except as otherwise may be provided in the applicable 
NOFA. In addition, the requirements for matching funds are not 
applicable to technical assistance requests.

Subpart D--Investment Instruments


Sec. 1805.400  Investment instruments--general.

    The Fund'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

[[Page 59087]]

Awardee through one or more of the investment instruments described in 
Sec. 1805.401, and under such terms and conditions as described in this 
subpart D. The Fund, in its sole discretion, may provide financial 
assistance in amounts, through investment instruments, or under rates, 
terms and conditions that are different from those requested by an 
Applicant.


Sec. 1805.401  Forms of investment instruments.

    (a) Equity. The Fund may make nonvoting equity investments in an 
Awardee, including, without limitation, the purchase of nonvoting 
stock. Such stock shall be transferable and, in the discretion of the 
Fund, may provide for convertibility to voting stock upon transfer. The 
Fund shall not own more than 50 percent of the equity of an Awardee and 
shall not control its operations.
    (b) 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. 1805.402  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 be used only to finance activities in the new or expanded 
Investment Area(s) or Targeted Population(s); and
    (2) Must be distributed to a new Affiliate that meets the 
eligibility requirements described in Sec. 1805.200 and is selected for 
assistance pursuant to subpart G of this part.
    (c) An Awardee may receive the assistance described in paragraph 
(b) of this section only if no other application to serve substantially 
the same Investment Area(s) or Targeted Population(s) that meets the 
requirements of Sec. 1805.701(a) was submitted to the Fund prior to the 
receipt of the application of said Awardee and within the current 
funding round.


Sec. 1805.403  Authority to sell.

    The Fund may, at any time, sell its equity investments and loans, 
provided the Fund shall retain the authority to enforce the provisions 
of the Assistance Agreement until the performance goals specified 
therein have been met.

Subpart E--Matching Funds Requirements


Sec. 1805.500  Matching funds--general.

    All financial assistance awarded under this part shall be matched 
with funds from sources other than the Federal government. Except as 
provided in Sec. 1805.502, such matching funds shall be provided on the 
basis of not less than one dollar for each dollar provided by the Fund. 
Funds that have been used to satisfy a legal requirement for obtaining 
funds under either the CDFI Program or another Federal grant or award 
program may not be used to satisfy the matching requirements described 
in this section. Community Development Block Grant Program and other 
funds provided pursuant to the Housing and Community Development Act of 
1974, as amended (42 U.S.C. 5301 et seq.), shall be considered Federal 
government funds and shall not be used to meet the matching 
requirements. Matching funds shall be used as provided in the 
Assistance Agreement. Funds that are used prior to the execution of the 
Assistance Agreement may nevertheless qualify as matching funds 
provided the Fund determines in its reasonable discretion that such use 
promoted the purpose of the Comprehensive Business Plan that the Fund 
is supporting through its assistance.


Sec. 1805.501  Comparability of form and value.

    (a) Matching funds shall be at least comparable in form (e.g., 
equity investments, deposits, credit union shares, loans and grants) 
and value to financial assistance provided by the Fund (except as 
provided in Sec. 1805.502). The Fund shall have the discretion to 
determine whether matching funds pledged are comparable in form and 
value to the financial assistance requested.
    (b) In the case of an Awardee that raises matching funds from more 
than one source, through different investment instruments, or under 
varying terms and conditions, the Fund may provide financial assistance 
in a manner that represents the combined characteristics of such 
instruments.
    (c) An Awardee may meet all or part of its matching requirements by 
committing available earnings retained from its operations.


Sec. 1805.502  Severe constraints waiver.

    (a) In the case of an Applicant with severe constraints on 
available sources of matching funds, the Fund, in its sole discretion, 
may permit such Applicant to comply with the matching requirements by:
    (1) Reducing such requirements by up to 50 percent; or
    (2) Permitting an Applicant to provide matching funds in a form to 
be determined at the discretion of the Fund, if such an Applicant:
    (i) Has total assets of less than $100,000;
    (ii) Serves an area that is not a Metropolitan Area; and
    (iii) Is not requesting more than $25,000 in assistance.
    (b) Not more than 25 percent of the total funds available for 
obligation under this part in any fiscal year may be matched as 
described in paragraph (a) of this section. Additionally, not more than 
25 percent of the total funds disbursed under this part in any fiscal 
year may be matched as described in paragraph (a) of this section.
    (c) An Applicant may request a ``severe constraints waiver'' as 
part of its application for assistance. An Applicant shall provide a 
narrative justification for its request, indicating:
    (1) The cause and extent of the constraints on raising matching 
funds;
    (2) Efforts to date, results, and projections for raising matching 
funds;
    (3) A description of the matching funds expected to be raised; and
    (4) Any additional information requested by the Fund.
    (d) The Fund will grant a ``severe constraints waiver'' only in 
exceptional circumstances when it has been demonstrated, to the 
satisfaction of the Fund, that an Investment Area(s) or Targeted 
Population(s) would not be adequately served without the waiver.


Sec. 1805.503  Time frame for raising match.

    Applicants shall satisfy matching funds requirements within the 
period set forth in the applicable NOFA.


Sec. 1805.504  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. 1805.501(c) shall be subject to the restrictions described in this 
section.

[[Page 59088]]

    (b)(1) In the case of a for-profit Applicant, retained earnings 
that may 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 1999 less retained earnings at the 
end of fiscal year 1998); or
    (ii) The annual average of such increases that have occurred over 
the Applicant's three most recent fiscal years.
    (2) Such retained earnings may 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 a Credit 
Union), retained earnings that may 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 may 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 may be used for matching funds purposes shall consist of:
    (i) The increase in retained earnings that has occurred over the 
Applicant's most recent fiscal year;
    (ii) The annual average of such increases that has occurred over 
the Applicant's three most recent fiscal years; or
    (iii) The entire retained earnings that 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, retained 
earnings 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 may 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 retained 
earnings that is committed as matching funds; and
    (B) Such increase be achieved within 24 months from September 30 of 
the calendar year in which the applicable application deadline falls;
    (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 increases in shares described in 
paragraph (d)(4)(i) of this section will be measured will be as of 
September 30 of the calendar year in which the applicable application 
deadline falls; 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) of this section for matching funds 
only if it determines, in its sole discretion, that the Applicant will 
have a high probability of success in increasing its shares to the 
specified amounts.
    (e) 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 F--Applications for Assistance


Sec. 1805.600  Notice of Funds Availability.

    Each Applicant shall submit an application for financial or 
technical assistance under this part in accordance with the regulations 
in this subpart 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. 1805.601  Application contents.

    An Applicant shall provide information necessary to establish that 
it is, or will be, a CDFI. 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.
    (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) Previous Awardees. In the case of an Applicant that has 
previously received assistance under this part, the Applicant shall 
demonstrate that it:
    (1) Has substantially met its performance goals and other 
requirements described in its previous Assistance Agreement(s); and
    (2) 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.
    (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 Sec. 1805.201(b)(1) and (2) and paragraphs (d)(2) and 
(d)(9)(v) of this section) and financial statements (as described in 
paragraph (d)(4) 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 Sec. 1805.201(b)(1) and 
(2) and paragraphs (d)(2) and (d)(9)(vi) of this section) and financial 
statements (as described in paragraph (d)(4) of this section) for each 
full fiscal year since its inception; or
    (3) For less than one year, 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.
    (1) Executive summary. The executive summary shall include a 
description of the institution, products and services, markets served 
or to be served, accomplishments to date and key points of the 
Applicant's five year strategy, and other pertinent information.
    (2) Community development track record. The Applicant shall 
describe its

[[Page 59089]]

community development impact over the past three years, or for its 
period of operation if less than three years. In addition, an Applicant 
with a prior history of serving Investment Area(s) or Targeted 
Population(s) shall 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.
    (3) Operational capacity and risk mitigation strategies. An 
Applicant shall submit information on its policies and procedures for 
underwriting and approving loans and investments, monitoring its 
portfolio and internal controls and operations. An Applicant shall also 
submit a copy of its conflict of interest policies that are consistent 
with the requirements of Sec. 1805.806.
    (4) Financial track record and strength. An Applicant shall submit 
historic financial statements for such periods as specified in 
paragraph (c) of this section. An Applicant shall submit:
    (i) Audited financial statements;
    (ii) Financial statements that have been reviewed by a certified 
public accountant; or
    (iii) Financial statements that have been reviewed by the 
Applicant's Appropriate Federal Banking Agency. Such statements should 
include balance sheets or statements of financial position, income and 
expense statements or statements of activities, and cash flow 
statements. The Applicant shall also provide information necessary to 
assess trends in financial and operating performance.
    (5) Capacity, skills and experience of the management team. An 
Applicant shall provide information on the background and capacity of 
its management team, including key personnel and governing board 
members. 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.
    (6) Market analysis. An Applicant shall provide an analysis of its 
Target Market, including a description of the Target Market, and the 
extent of economic distress, an analysis of the needs of the Target 
Market for Financial Products, Financial Services and Development 
Services, and an analysis of the extent of demand within such Target 
Market for the Applicant's products and services. The Applicant also 
shall provide an assessment of any factors or trends that may affect 
the Applicant's ability to deliver its products and services within its 
Target Market.
    (7) Program design and implementation plan. An Applicant shall:
    (i) Describe the products and services it proposes to provide and 
analyze the competitiveness of such products and services in the Target 
Market;
    (ii) Describe its strategy for delivering its products and services 
to its Target Market;
    (iii) Describe how its proposed activities are consistent with 
existing economic, community and housing development plans adopted for 
an Investment Area(s) or Targeted Population(s);
    (iv) Describe its plan to coordinate use of assistance from the 
Fund with existing government assistance programs and private sector 
resources;
    (v) Describe how it will coordinate with community organizations, 
financial institutions, and Community Partners (if applicable) which 
will provide Equity Investments, loans, secondary markets, or other 
services in the Target Market; and
    (vi) Discuss the extent of community support (if any) within the 
Target Market for its activities.
    (8) Financial projections and resources. An Applicant shall provide 
:
    (i) Financial projections. (A) Projections for each of the next 
five years which include pro forma balance sheets or statements of 
financial position, income and expense statements or statements of 
activities, and a description of any assumptions that underlie its 
projections; and
    (B) Information to demonstrate that it has a plan for achieving or 
maintaining sustainability within the five-year period;
    (ii) Matching funds. (A) A detailed description of its plans for 
raising matching funds, including funds previously obtained or legally 
committed to match the amount of financial assistance requested from 
the Fund; and
    (B) An indication of the extent to which such matching funds will 
be derived from private, nongovernment sources. 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; and
    (iii) Severe constraints waiver. If the Applicant is requesting a 
``severe constraints waiver'' of any matching requirements, it shall 
submit the information requested in Sec. 1805.502.
    (9) Projected community impact. An Applicant shall provide:
    (i) Estimates of the volume of new activity to be achieved within 
its Target Market assuming that assistance is provided by the Fund;
    (ii) A description of the anticipated incremental increases in 
activity to be achieved with assistance provided by the Fund and 
matching funds within the Target Market;
    (iii) An estimate of the benefits expected to be created within its 
Target Market over the next five years;
    (iv) The extent to which the Applicant will concentrate its 
activities within its Target Market;
    (v) A description of how the Applicant will measure the benefits 
created as a result of its activities within its Target Market; and
    (vi) In the case of an Applicant with a prior history of serving a 
Target Market, an explanation of how the Applicant 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) 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. 1805.701(b)(6);
    (iv) Include a copy of any written agreement between the Applicant 
and the Community Partner related to the Community Partnership; and

[[Page 59090]]

    (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 G of this part. (A Community 
Partner shall not be required to meet the eligibility requirements 
described in Sec. 1805.200.)
    (13) Effective use of Fund resources. An Applicant shall describe 
the extent of need for the Fund's assistance, as demonstrated by the 
extent of economic distress in the Applicant's Target Market and the 
extent to which the Applicant needs the Fund's assistance to carry out 
its Comprehensive Business Plan.
    (e) Community ownership and governance. An Applicant shall provide 
information to demonstrate the extent to which the Applicant is, or 
will be, Community-Owned or Community-Governed.
    (f) 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.
    (g) 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. 1805.807; 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 G--Evaluation and Selection of Applications


Sec. 1805.700  Evaluation and selection--general.

    Applicants will be evaluated and selected, at the sole discretion 
of the Fund, to receive assistance based on a review process, that 
could include an interview(s) and/or site visit(s), that is intended 
to:
    (a) Ensure that Applicants are evaluated on a competitive basis in 
a fair and consistent manner;
    (b) Take into consideration the unique characteristics of 
Applicants that vary by institution type, total asset size, stage of 
organizational development, markets served, products and services 
provided, and location;
    (c) Ensure that each Awardee can successfully meet the goals of its 
Comprehensive Business Plan and achieve community development impact; 
and
    (d) Ensure that Awardees represent a geographically diverse group 
of Applicants serving Metropolitan Areas, non-Metropolitan Areas, and 
Indian Reservations from different regions of the United States.


Sec. 1805.701  Evaluation of applications.

    (a) Eligibility and completeness. An Applicant will not be eligible 
to receive assistance pursuant to this part if it fails to meet the 
eligibility requirements described in Sec. 1805.200 or if it has not 
submitted complete application materials. For the purposes of this 
paragraph (a), the Fund reserves the right to request additional 
information from the Applicant, if the Fund deems it appropriate.
    (b) Substantive review. In evaluating and selecting applications to 
receive assistance, the Fund will evaluate the Applicant's likelihood 
of success in meeting the goals of the Comprehensive Business Plan and 
achieving community development impact, by considering factors such as:
    (1) Community development track record (e.g., in the case of an 
Applicant with a prior history of serving a Target Market, the extent 
of success in serving such Target Market);
    (2) Operational capacity and risk mitigation strategies;
    (3) Financial track record and strength;
    (4) Capacity, skills and experience of the management team;
    (5) Solid understanding of its market context, including its 
analysis of current and prospective customers, the extent of economic 
distress within the designated Investment Area(s) or the extent of need 
within the designated Targeted Population(s), as those factors are 
measured by objective criteria, the extent of need for Equity 
Investments, loans, Development Services, and Financial Services within 
the designated Target Market, and the extent of demand within the 
Target Market for the Applicant's products and services;
    (6) Quality program design and implementation plan, including an 
assessment of its products and services, marketing and outreach 
efforts, delivery strategy, and coordination with other institutions 
and/or a Community Partner, or participation in a secondary market for 
purposes of increasing the Applicant's resources. In the case of an 
applicant submitting an application with a Community Partner, the Fund 
will evaluate the extent to which the Community Partner will 
participate in carrying out the activities of the Community 
Partnership; the extent to which the Community Partner will enhance the 
likelihood of success of the Comprehensive Business Plan; and the 
extent to which service to the designated Target Market will be better 
performed by a Community Partnership than by the Applicant alone;
    (7) Projections for financial performance, capitalization and 
raising needed external resources, including the amount of firm 
commitments and matching funds in hand to meet or exceed the matching 
funds requirements and, if applicable, the likely success of the plan 
for raising the balance of the matching funds in a timely manner, the 
extent to which the matching funds are, or will be, derived from 
private sources, and whether an Applicant is, or will become, an 
Insured CDFI;
    (8) Projections for community development impact, including the 
extent to which an Applicant will concentrate its activities on serving 
its Target Market(s), the extent of support from the designated Target 
Market, the extent to which an Applicant is, or will be, Community-
Owned or Community-Governed, and the extent to which the activities 
proposed in the Comprehensive Business Plan will expand economic 
opportunities or promote community development within the designated 
Target Market;
    (9) The extent of need for the Fund's assistance, as demonstrated 
by the extent of economic distress in the Applicant's Target Market and 
the extent to which the Applicant needs the Fund's assistance to carry 
out its Comprehensive Business Plan. In the case of an Applicant that 
has previously received assistance under the CDFI Program, the Fund 
also will consider the Applicant's level of success in meeting its 
performance goals, financial soundness covenants (if applicable), and 
other requirements contained in the previously negotiated and executed 
Assistance Agreement(s) with the Fund, and whether the Applicant will, 
with additional assistance from the Fund, expand its operations into a 
new Target Market, offer more products or services, and/or increase the 
volume of its activities;
    (10) The Fund may consider any other factors, as it deems 
appropriate, in reviewing an application.
    (c) Consultation with Appropriate Federal Banking Agencies. The 
Fund will consult with, and consider the views of, the Appropriate 
Federal Banking Agency prior to providing assistance to:
    (1) An Insured CDFI;

[[Page 59091]]

    (2) A CDFI that is examined by or subject to the reporting 
requirements of an Appropriate Federal Banking Agency; or
    (3) A CDFI that has as its Community Partner an institution that is 
examined by, or subject to, the reporting requirements of an 
Appropriate Federal Banking Agency.
    (d) 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 H--Terms and Conditions of Assistance


Sec. 1805.800  Safety and soundness.

    (a) Regulated institutions. Nothing in this part, or in an 
Assistance Agreement, shall affect any authority of an Appropriate 
Federal Banking Agency to supervise and regulate any institution or 
company.
    (b) Non-Regulated CDFIs. The Fund will, to the maximum extent 
practicable, ensure that Awardees that are Non-Regulated CDFIs are 
financially and managerially sound and maintain appropriate internal 
controls.


Sec. 1805.801  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 Awardees 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 (12 U.S.C. 1818) 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. 1805.802  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. 1805.803  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

[[Page 59092]]

members of Targeted Population(s) are adequately served and to evaluate 
the impact of the CDFI Program.
    (c) Access to records. An Awardee (and a Community Partner, if 
appropriate) must submit such financial and activity reports, records, 
statements, and documents at such times, in such forms, and accompanied 
by such reporting data, as required by the Fund or the U.S. Department 
of Treasury to ensure compliance with the requirements of this part and 
to evaluate the impact of the CDFI Program. The United States 
Government, including the U.S. Department of Treasury, the Comptroller 
General, and their duly authorized representatives, shall have full and 
free access to the Awardee's offices and facilities and all books, 
documents, records, and financial statements relating to use of Federal 
funds and may copy such documents as they deem appropriate. The Fund, 
if it deems appropriate, may prescribe access to record requirements 
for entities that are borrowers of, or that receive investments from, 
an Awardee.
    (d) Retention of records. An Awardee shall comply with all record 
retention requirements as set forth in OMB Circular A-110 (as 
applicable).
    (e) 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 within 60 days after the end of each 
semi-annual period, or within some other period as may be agreed to in 
the Assistance Agreement, internal financial statements covering the 
semi-annual reporting period (i.e., two periods per year) and 
information on its compliance with its financial soundness covenants.
    (3) An Awardee shall submit a report within 60 days after the end 
of its fiscal year, or by such alternative deadline as may be agreed to 
in the Assistance Agreement containing, unless otherwise determined by 
mutual agreement between the Awardee and the Fund, the following:
    (i) A narrative description of an Awardee's activities in support 
of its Comprehensive Business Plan;
    (ii) 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;
    (iii) 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; and certification that an Awardee 
continues to meet the eligibility requirements described in 
Sec. 1805.200.
    (4) An Awardee shall submit within 120 days after the end of its 
fiscal year, or within some other period as may be agreed to in the 
Assistance Agreement, fiscal year end statements of financial condition 
audited by an independent certified public accountant. The audit shall 
be conducted in accordance with generally accepted Government Auditing 
Standards set forth in the General Accounting Offices Government 
Auditing Standards (1994 Revision) issued by the Comptroller General 
and OMB Circular A-133 (Audits of States, Local Governments, and Non-
Profit Organizations), as applicable.
    (5) An Awardee shall submit a report within 120 days after the end 
of its fiscal year, or by such alternative deadline as may be agreed to 
in the Assistance Agreement containing, unless otherwise determined by 
mutual agreement between the Awardee and the Fund, the following 
information:
    (i) The Awardee's customer profile;
    (ii) Awardee activities including Financial Products and 
Development Services;
    (iii) Awardee portfolio quality;
    (iv) The Awardee's financial condition; and
    (v) The Awardee's community development impact.
    (6) The Fund shall make reports described in paragraphs (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 institutions 
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) 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:

[[Page 59093]]

    (1) OMB Circulars may be obtained from the Office of 
Administration, Publications Office, 725 17th Street, NW., Room 2200, 
New Executive Office Building, Washington, DC 20503 or on the Internet 
(http://www.whitehouse.gov/OMB/grants/index.html); and
    (2) General Accounting Office materials may be obtained from GAO 
Distribution, 700 4th Street, NW., Suite 1100, Washington, DC 20548.


Sec. 1805.804  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. 1805.805  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. 1805.806  Conflict of interest requirements.

    (a) Provision of credit to Insiders. (1) An Awardee that is a Non-
Regulated CDFI may not use any monies provided to it by the Fund to 
make any credit (including loans and Equity Investments) available to 
an Insider unless it meets the following restrictions:
    (i) The credit must be provided pursuant to standard underwriting 
procedures, terms and conditions;
    (ii) The Insider receiving the credit, and any family member or 
business partner thereof, shall not participate in any way in the 
decision making regarding such credit;
    (iii) The Board of Directors or other governing body of the Awardee 
shall approve the extension of the credit; and
    (iv) The credit must be provided in accordance with a policy 
regarding credit to Insiders that has been approved in advance by the 
Fund.
    (2) An Awardee that is an Insured CDFI 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 
Equity Investments) and contracts using monies from the Fund. No 
Insider of an Awardee shall solicit or accept gratuities, favors or 
anything of monetary value from any actual or potential borrowers, 
owners or contractors for such credit or contracts. Such policies shall 
provide for disciplinary actions to be applied for violation of the 
standards by the Awardee's Insiders.


Sec. 1805.807  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. 1805.808  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. 1805.809  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. 1805.810  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. 1805.811  Fraud, waste and abuse.

    Any person who becomes aware of the existence or apparent existence 
of fraud, waste or abuse of assistance provided under this part should 
report such incidences to the Office of Inspector General of the U.S. 
Department of the Treasury.

    Dated: October 25, 1999.
Maurice A. Jones,
Deputy Director for Policy and Programs, Community Development 
Financial Institutions Fund.
[FR Doc. 99-28281 Filed 10-29-99; 8:45 am]
BILLING CODE 4810-70-P