[Federal Register Volume 65, Number 157 (Monday, August 14, 2000)]
[Rules and Regulations]
[Pages 49642-49656]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-20267]



[[Page 49641]]

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

Part II





Department of the Treasury





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



Community Development Financial Institutions Fund



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



12 CFR Part 1805



Community Development Financial Institutions Program; Interim Rule



Funds Availability Inviting Applications for the Community Development 
Financial Institutions Program-Core and Intermediary Component; Notices

  Federal Register / Vol. 65, No. 157 / Monday, August 14, 2000 / Rules 
and Regulations  

[[Page 49642]]


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

DEPARTMENT OF THE TREASURY

Community Development Financial Institutions Fund

12 CFR Part 1805

RIN 1505-AA71


Community Development Financial Institutions Program

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

ACTION: Revised interim rule with request for comment.

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

SUMMARY: The Department of the Treasury is issuing a revised interim 
rule implementing the Community Development Financial Institutions 
Program (CDFI Program) 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 (target 
markets). In order for an organization to qualify as a CDFI, the 
organization must meet specific eligibility criteria. Two such criteria 
are that the organization shall have a primary mission of promoting 
community development and its total activities must be principally 
directed toward serving a target market. This revised interim rule 
makes three changes. First, it clarifies the primary mission 
eligibility test. Second, the revised interim rule provides that an 
organization can establish that its target market has either 
significant unmet needs for or lacks adequate access to loans or equity 
investments by demonstrating a lack of adequate access to financial 
services. Third, this revised interim rule reduces the burden for an 
organization to demonstrate that it serves a targeted population 
comprised of an identifiable group of individuals lacking access to 
loans, equity investments, or financial services. In order to 
facilitate implementation of the CDFI Program by participating CDFIs, 
the complete text of the regulations, as amended, is published by this 
revised interim rule.

DATES: Revised interim rule effective August 14, 2000.
    Comments must be received in the offices of the Fund on or before 
October 13, 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, investment capital, and financial services are 
essential ingredients for creating and retaining jobs, developing 
affordable housing, revitalizing neighborhoods, unleashing the economic 
potential of small businesses, and empowering people. 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 in them.
    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 sixth 
round of the Core Component of the CDFI Program and another for the 
fifth 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 2001, the Fund expects to issue a NOFA 
for the first round of the Small and Emerging CDFI Assistance (SECA) 
Component, which will replace the Technical Assistance Component of the 
CDFI Program. Under the SECA Component, the Fund will provide small and 
emerging CDFIs with financial assistance and/or technical assistance.
    On November 1, 1999, the Fund published in the Federal Register a 
revised interim rule (64 FR 59076) implementing the CDFI Program (the 
current rule). The deadline for the submission of comments was January 
14, 2000.

[[Page 49643]]

II. Comments on the November 1, 1999 Interim Rule

    By the close of the January 14, 2000 comment period, the Fund 
received comments on the November 1, 1999 interim rule from six 
organizations. The following includes a discussion of the significant 
and most heavily commented upon issues:

Financing Entity Eligibility Test

    Section 1805.201(b)(2) of the current rule provides that in order 
for an organization to qualify as a CDFI, such organization 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. Three commenters were concerned that 
requiring an organization's predominant business activity to be a 
combination of Financial Products and Development Services would have a 
dilutive effect on the Financing entity eligibility test. The 
commenters expressed concern that the Fund's consideration of the 
combination of Development Services and Financial Products could result 
in the certification of organizations whose predominant business 
activity is the provision of technical assistance. One commenter also 
advised that the current rule is in direct violation of the Act.
    The Fund shares the view that a CDFI should not pass the Financing 
entity eligibility test if its predominant business activity is the 
provision of technical assistance. However, the Fund disagrees that the 
current rule would have a dilutive effect that could result in the 
certification of organizations whose predominant business activity is 
the provision of technical assistance. Specifically, Sec. 1805.104(q) 
of the current rule defines Development Services as activities that are 
integral to the provision of Financial Products in that such services 
must prepare or assist an organization's borrowers or investees to 
utilize its Financial Products. As a result, in order for an 
organization that provides Development Services to meet the Financing 
entity eligibility test, it must provide such services in conjunction 
with, and in support of, its Financial Products. The current rule also 
is wholly consistent with the Act, which expressly provides that a CDFI 
``means a person (other than an individual) that--provides development 
services in conjunction with equity investments or loans, directly or 
through a subsidiary or affiliate * * *'' See 12 U.S.C. 
4702(5)(A)(iii). Congress thus clearly contemplated that the Fund 
combine Financial Products and Development Services without any fixed 
percentage threshold. As a result, Sec. 1805.201(b)(2) remains 
substantively unchanged.
    Four commenters also suggested that the Fund include the provision 
of Financial Services in determining whether an organization meets the 
Financing entity eligibility test. The commenters noted that for 
community development credit unions and community development banks, 
the provision of Financial Services is the primary way in which they 
serve their Target Markets. The Fund agrees with the commenters' point 
that provision of Financial Services should be considered when 
evaluating whether a regulated financial institution meets the 
Financing entity eligibility test, and believes that the current rule 
effectively accomplishes the commenters' objectives. Specifically, 
Secs. 1805.201(b)(2)(i)(B) and (C) provide, respectively, that 
community development credit unions and community development banks 
automatically meet the Financing entity eligibility test by virtue of 
their status as insured depository institutions and insured credit 
unions.
    Section 1805.201(b)(2)(ii)(C) requires organizations to submit a 
copy of their most recent year-end financial statements documenting 
their assets dedicated to Financial Products, Development Services and/
or other similar financing. One commenter suggested that the Fund 
require three years of year-end financial statements instead of one. In 
an effort to minimize reporting burdens on Applicants, the Fund intends 
to continue to request only the most recent year-end financial 
statements for the purpose of reviewing an Applicant's assets dedicated 
to Financial Products, Development Services, and/or other similar 
financing activities. Thus, Sec. 1805.201(b)(2)(ii)(C) remains 
substantively unchanged. However, in the preamble to the current rule, 
the Fund expressly reserved its right, consistent with Sec. 1805.600 of 
the current rule, to require the submission of additional years of 
year-end financial statements if the Fund deems it appropriate.
    Section 1805.201(b)(2)(ii)(C) also requires organizations to submit 
information on the percentage of staff time dedicated to the provision 
of Financial Products, Development Services, and/or other similar 
financing. One commenter suggested that this level of information was 
insufficient for purposes of accurately reflecting the qualifications 
of an organization as a CDFI. The commenter suggested that the Fund 
consider additional factors such as the business plan and alternative 
sources of committed capital/investment. While the Fund believes that 
considering the additional factors suggested by the commenter is 
appropriate as a part of the qualitative evaluation of an 
organization's application for assistance pursuant to Sec. 1805.701(b), 
the Fund believes that such factors need not be considered for purposes 
of determining whether an organization meets the Financing entity 
eligibility test. As a result, Sec. 1805.201(b)(2)(ii)(C) remains 
substantively unchanged.

Primary Mission Eligibility Test

    Section 1805.201(b)(1) provides that in order for an organization 
to qualify as a CDFI, such organization's and its Affiliates' primary 
mission, when viewed collectively (as a whole), must be purposefully 
directed toward improving the social and/or economic conditions of 
underserved people and/or residents of distressed communities. Three 
commenters expressed concern that an organization that does not 
individually meet the Primary Mission eligibility test could meet such 
test based on it being an Affiliate of a larger organization, which 
individually meets such test. The commenters were concerned that if the 
Primary Mission eligibility test were to be applied this way, the end 
result would be a dilution of such test. The Fund recognizes the merits 
of these comments, and has revised the regulation accordingly. Section 
1805.201(b)(1) of the revised interim rule provides that the Fund will 
consider whether the activities of the Applicant individually and 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).

Definition of Equity Investment

    Section 1805.104(r) of the current rule provides that 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, or any other investment deemed to be an 
Equity Investment by the Fund. In the preamble to the current rule, the 
Fund stated that it considers Equity Investments also to include 
secondary capital accounts established with low-income designated 
credit unions. One commenter supported the inclusion of

[[Page 49644]]

secondary capital accounts within the meaning of Equity Investment, and 
encouraged the Fund to consider alternative sources of capital for 
credit unions as falling within the meaning of Equity Investment. The 
Fund agrees with the comment and will consider, on a case-by-case 
basis, under Sec. 1805.104(q), whether other sources of capital for 
credit unions qualify as Equity Investments.

Investment Area Eligibility

    Section 1805.201(b)(3)(ii)(A)(2) of the current rule provides that 
in order for a geographic area to qualify as an Investment Area, 
generally it must have, among other things, significant unmet needs for 
loans or Equity Investments. Two commenters suggested that in addition 
to loans or Equity Investments, the Fund also should consider whether a 
geographic area has significant unmet needs for Financial Services. The 
Fund shares the view that access to Financial Services is critical to 
underserved communities and, in addition, believes that a lack of 
access to Financial Services is indicative of, or a proxy for, a lack 
of access to loans and Equity Investments. Moreover, the Fund believes 
that utilizing a lack of adequate access to Financial Services, as a 
proxy for lack of adequate access to loans or Equity Investments is 
consistent with Congressional intent. Specifically, the Conference 
Report underlying the Act expressly provides that the Fund is required 
to develop objective criteria for determining unmet needs for loans and 
Equity Investments. Thus, Sec. 1805.201(b)(3)(ii)(A)(2) has been 
modified in the manner suggested by the two commenters.

Targeted Population Eligibility

    Section 1805.201(b)(3)(iii) of the current rule provides that a 
Targeted Population shall mean individuals, or an identificable group 
of individuals, who are Low-Income people or lack adequate access to 
loans or Equity Investments in an organization's service area. One 
commenter suggested that a Targeted Population also should include 
individuals or an identifiable group of individuals who lack adequate 
access to Financial Services. The Fund shares the commenter's view that 
access to Financial Services is critical to underserved populations, 
and, in addition, believes that a lack of access to Financial Services 
is indicative of, or a proxy for, a lcak of access to loans and Equity 
Investments. Moreover, the Fund believes that utilizing a lack of 
adequate access to Financial Services, as a proxy for lack of access to 
loans or Equity Investments is consistent with Congressional intent. 
Specifically, the Conference Report underlying the Act expressly 
provides that in determining which groups or individuals qualify as a 
Targeted Population, the Fund should focus on Low-Income persons and 
those who are otherwise underserved by financial institutions 
(including those historically denied access to Financial Services based 
on their race, gender, ethnicity or national origin). Thus, 
Sec. 1805.201(b)(3)(iii) has been modified in the manner suggested by 
the commenter.

Target Market Eligibility Test

    Section 1805.201(b)(3) of the current rule provides that in order 
for an organization to meet the Target Market eligibility test, such 
organization must demonstrate that its total activities are principally 
directed to serving an Investment Area(s), Targeted Population(s) or 
both. One commenter suggested that the Fund deem insured credit unions 
that have received a low-income designation from the National Credit 
Union Administration (NCUA) to have met the Target Market eligibility 
test. While the Fund utilizes NCUA's low-income designation as an 
indicator that such designated credit unions have a primary mission of 
community development, the Fund must reject this comment because NCUA's 
low-income designation criteria are not wholly consistent with the 
Target Market criteria of the Fund. For example, in order to receive a 
low-income designation from NCUA, the credit union must predominantly 
serve (i.e., more than 50 percent) low-income members; whereas, in 
order for the same credit union to meet the Fund's Target Market 
eligibility test, 60 percent of the credit union's activities must be 
directed to serving low-income members. In addition, NCUA includes in 
its definition of low-income credit union members, individuals who are 
full or part-time students. Accordingly, if an insured credit union's 
membership predominantly comprises full or part-time students, such 
insured credit union would be eligible for designation by NCUA as a 
low-income credit union. The Fund does not deem full or part-time 
students, or any other group, to be low-income without regard to actual 
incomes. As a result, Sec. 1805.201(b)(3) of the current rule remains 
substantively unchanged.

Eligibility of Credit Unions as CDFIs

    Section 1805.201(b)(6) of the current rule provides that in order 
for an organization to be certified as a CDFI, the organization shall 
not be an agency or instrumentality of the United States. One commenter 
sought clarification on whether insured credit unions could be 
certified as CDFIs in light of certain case law holding that insured 
credit unions are instrumentalities of the United States. The Fund's 
review of such case law indicates that it does not address whether 
insured credit unions are Federal instrumentalities under the Act and, 
additionally, the Fund believes that such cases are of limited 
relevance in light of the plain language of the Act. Specifically, 
several sections of the Act expressly provide that insured credit 
unions can be CDFIs, and as such can receive assistance from the Fund. 
For example, the Act defines the term ``insured community development 
financial institution'' as including insured credit unions. See 12 
U.S.C. 4702(13). The Act also expressly provides that the Fund may 
provide financial assistance to credit unions in the form of ``credit 
union shares.'' See 12 U.S.C. 4707(a)(1)(A). Accordingly, the Fund 
believes that there is no case law barring insured credit unions from 
qualifying as CDFIs under the Act.

Application Format

    In the preamble to the current rule, the Fund advised that it was 
deleting a provision from the regulations that allowed Applicants to 
present their applications for assistance in an order and format that 
they believed to be the most appropriate. The Fund advised that 
affording applicants such flexibility made it considerably more 
difficult for the Fund to evaluate applications. One commenter 
disagreed with this deletion claiming that it requires applicants to 
rework business plans to conform to a prescribed format. Another 
commenter supported a more structured application format, provided that 
the Fund set forth the specific requirements in the application and 
provide applicants the flexibility to present their own circumstances 
within that format. The Fund agrees with the latter comment, and 
believes that the current application format allows applicants 
sufficient flexibility to present their best case for funding. 
Moreover, the Fund has found that a prescribed format is necessary for 
a fair and orderly application evaluation process.

Annual Report Due Date

    Section 1805.803(e)(3) of the current rule provides that an awardee 
shall submit an annual report to the Fund within 60 days after the end 
of its fiscal year, or by such alternative deadline as may be agreed to 
by the awardee and the Fund. One commenter suggested that, in order to 
ensure that any references to an awardee's financial condition be

[[Page 49645]]

accurately reflected, this time frame should be increased to 120 days 
to conform to the general deadline set forth in Sec. 1805.803(e)(4) for 
submission of audited financial statements. The Fund is committed to 
ensuring that awardees have sufficient time to meet Fund reporting 
requirements. For example, Sec. 1805.803(e)(3) of the current rule 
allows the Fund and awardees to agree to a deadline greater than 60 
days for the submission of an annual report. For this reason and 
because the annual report does not require the submission of 
information on the financial condition of an awardee, Sec. 1805.803(e) 
remains substantively unchanged.

III. Summary of Additional Change

Target Market Eligibility Test--Targeted Population

    Section 1805.201(b)(3)(iii) of the current rule provides that an 
organization may meet the Target Market eligibility test by serving a 
Targeted Population. A Targeted Population, under the current rule, 
means individuals, or an identifiable group of individuals, who are 
either Low-Income persons or lack adequate access to loans or Equity 
Investments. Section 1805.201(b)(3)(iii)(B)(2) of the current rule 
provides that in order for an Applicant to demonstrate that it serves a 
Targeted Population comprising individuals who lack adequate access to 
loans or Equity Investments, the Applicant must provide: (1) A 
description of the 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 or 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. The Fund believes that this three-part 
test imposes undue burdens on Applicants. Specifically, it would be 
unduly burdensome to require Applicants to submit studies demonstrating 
that an identifiable group of individuals, on a national basis or 
within the Applicant's service area, has traditionally been denied 
access to loans or Equity Investments, and then demonstrate that the 
Applicant's clients who comprise the identifiable group of individuals 
lack adequate access to loans or Equity Investments. As a result, the 
Fund is modifying what an Applicant must provide. In lieu of studies, 
an Applicant must provide, under Sec. 1805.201(b)(3)(iii) of the 
revised interim rule, a brief analytical narrative with information 
demonstrating that the members of the identifiable group in the 
Applicant's service area lack adequate access to loans, Equity 
Investments, or Financial Services. An Applicant may not have to 
provide the aforementioned analytical narrative if its Targeted 
Population is one listed by the Fund in the applicable NOFA and/or 
application for certification as one with respect to which the Fund 
believes that credible evidence exists demonstrating that such Targeted 
Population lacks adequate access to loans, Equity Investments or 
Financial Services in the Applicant's service area.

IV. Rulemaking Analysis

Executive Order (E.O.) 12866

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

Regulatory Flexibility Act

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

Paperwork Reduction Act

    The collections of information contained in this interim rule have 
been previously reviewed and approved by the Office of Management and 
Budget (OMB) in accordance with the Paperwork Reduction Act of 1995 and 
assigned OMB Control 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.

[[Page 49646]]

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
    (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, 
childcare, 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

[[Page 49647]]

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 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

[[Page 49648]]

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 (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 individually and 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).
    (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) in this section.
    (ii) Investment Area. (A) General. A geographic area will be 
considered eligible for designation as an Investment Area if it:
    (1) Is entirely located within the geographic boundaries of the 
United States (which shall encompass any State of the United States, 
the District of Columbia or any territory of the United States, Puerto 
Rico, Guam, American Samoa, the 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, Equity Investments, or Financial 
Services 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 section 1391 of the Internal Revenue Code of 
1986 (26 U.S.C. 1391).
    (B) Geographic units. Subject to the remainder of this paragraph 
(b)(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:

[[Page 49649]]

    (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, Equity Investments, or Financial 
Services within such area(s).
    (F) Serving Investment Areas. An Applicant may serve an Investment 
Area directly or through borrowers or investees that serve the 
Investment Area or provide significant benefits to its residents. 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, Equity Investments, or 
Financial Services in the Applicant's service area. The members of a 
Targeted Population shall reside within the boundaries of the United 
States (which shall encompass any State of the United States, the 
District of Columbia or any territory of the United States, Puerto 
Rico, Guam, American Samoa, the Trust 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; and
    (ii) A brief analytical narrative with information demonstrating 
that the identifiable group of individuals in the Applicant's service 
area, lacks adequate access to loans, Equity Investments, or Financial 
Services.
    (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

[[Page 49650]]

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 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

[[Page 49651]]

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.
    (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 have occurred over the 
Applicant's most recent fiscal year;
    (ii) The annual average of such increases that has occurred over 
the Applicant's three most recent fiscal years; or
    (iii) The entire retained earnings that have been accumulated since 
the inception of the Applicant provided that the 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

[[Page 49652]]

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 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

[[Page 49653]]

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
    (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

[[Page 49654]]

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;
    (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 12 U.S.C. 
1818 of the Federal Deposit Insurance Act by the Appropriate Federal 
Banking Agency and that any violation of such provisions shall be 
treated as a violation of the Federal Deposit Insurance Act. Nothing in 
this paragraph (d) precludes the Fund from directly enforcing the 
Assistance Agreement as provided for under the terms of the Act.
    (e) The Fund shall notify the Appropriate Federal Banking Agency 
before imposing any sanctions on an Insured CDFI or other institution 
that is examined by or subject to the reporting requirements of that 
agency. The Fund shall not impose a sanction described in paragraph (c) 
of this section if the Appropriate Federal Banking Agency, in writing, 
not later than 30 calendar days after receiving notice from the Fund:
    (1) Objects to the proposed sanction;
    (2) Determines that the sanction would:
    (i) Have a material adverse effect on the safety and soundness of 
the institution; or
    (ii) Impede or interfere with an enforcement action against that 
institution by that agency;
    (3) Proposes a comparable alternative action; and
    (4) Specifically explains:
    (i) The basis for the determination under paragraph (e)(2) of this 
section and, if appropriate, provides documentation to support the 
determination; and
    (ii) How the alternative action suggested pursuant to paragraph 
(e)(3) of this section would be as effective as the sanction proposed 
by the Fund in securing compliance and deterring future noncompliance.
    (f) In reviewing the performance of an Awardee in which its 
Investment Area(s) includes an Indian Reservation or Targeted 
Population(s) includes an

[[Page 49655]]

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 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 paragraph (e)(2) and 
(e)(3) of this section available for public inspection after deleting 
any materials necessary to protect privacy or proprietary interests.
    (f) Exchange of information with Appropriate Federal Banking 
Agencies. (1) Except as provided in paragraph (f)(4) of this section, 
prior to directly requesting information from or imposing reporting or 
record keeping requirements on an Insured CDFI or other institution 
that is examined by or subject to the reporting requirements of an 
Appropriate Federal Banking Agency, the Fund shall consult with the 
Appropriate Federal Banking Agency to determine if the information 
requested is available from or may be obtained by such agency in the 
form, format, and detail required by the Fund.
    (2) If the information, reports, or records requested by the Fund 
pursuant to paragraph (f)(1) of this section are not provided by the 
Appropriate Federal Banking Agency within 15 calendar days after the 
date on which the material is requested, the Fund may request the 
information from or impose the record keeping or reporting requirements 
directly on such

[[Page 49656]]

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 an 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:
    (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 is 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: August 7, 2000.
Maurice A. Jones,
Deputy Director for Policy and Programs, Community Development 
Financial Institutions Fund.
[FR Doc. 00-20267 Filed 8-11-00; 8:45 am]
BILLING CODE 4810-70-P