[Federal Register Volume 87, Number 144 (Thursday, July 28, 2022)]
[Notices]
[Pages 45399-45401]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-16143]


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DEPARTMENT OF THE TREASURY

Community Development Financial Institutions Fund

[CDFI-2022-0001]


Minority Lending Institution Designation Criteria

ACTION: Notice and request for comment.

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SUMMARY: The Community Development Financial Institutions Fund (CDFI 
Fund) at the Department of the Treasury requests comments from the 
public regarding the criteria to designate a certified Community 
Development Financial Institution (CDFI) as a Minority Lending 
Institution (MLI). Unless otherwise noted, capitalized terms found in 
this notice are defined in the regulations that govern the CDFI 
Program.

DATES: Written comments must be received on or before November 25, 2022 
to be assured of consideration.

ADDRESSES: You may submit comments via the Federal eRulemaking Portal: 
www.regulations.gov. Follow the instructions on the website for 
submitting comments. In general, all comments will be available for 
inspection at www.regulations.gov. Comments, including attachments and 
other supporting materials, are part of the public record. Do not 
submit any information in your comments or supporting materials that 
you consider confidential or inappropriate for public disclosure.
    For further information, contact Jeff Merkowitz, Senior Advisor, 
CDFI Fund, 1500 Pennsylvania Avenue NW, Washington, DC 20220 or by 
email at [email protected]. Other information regarding the CDFI Fund 
and its programs may be obtained through the CDFI Fund's website at 
www.cdfifund.gov.

SUPPLEMENTARY INFORMATION: Pursuant to section 523 of Division N of the 
Consolidated Appropriations Act, 2021, Public Law 116-260 (the Act), an 
MLI is a CDFI that (i) directs a majority of its financial products to 
minority populations or communities; and (ii) either (a) is a Minority 
Depository Institution (MDI) or (b) demonstrates accountability to 
Minority populations. Although no federal funding will be associated 
with an MLI designation at this time, the CDFI Fund seeks to implement 
the designation for those CDFIs that wish to be recognized for their 
high levels of service and accountability to Minority populations, as 
well as to identify barriers such CDFIs experience in providing access 
to capital. A list of designated MLIs will be made available to the 
public via the CDFI Fund website.
    Through this request for comment, the CDFI Fund seeks feedback from 
the public on certain aspects of the criteria and process the CDFI Fund 
will use to designate a CDFI as an MLI, as listed in Section I. The 
CDFI Fund also seeks any additional information beyond these questions 
that members of the public believe would assist the CDFI Fund in 
establishing policies and procedures related to MLI designation. The 
CDFI Fund will consider the feedback received through this request for 
comment prior to establishing a final definition and designation 
process.

I. Definitions

    A. Minority: The Act defines the term ``minority'' as ``any Black 
American, Hispanic American, Asian American, Native American, Native 
Alaskan, Native Hawaiian, or Pacific Islander.'' For purposes of 
designating an MLI, the CDFI Fund proposes to rely on the following 
definitions established by the 1997 Office of Management and Budget 
(OMB) standards on race and ethnicity:
    1. Native American/American Indian or Alaska Native. A person 
having origins in any of the original peoples of North and South 
America (including Central America), and who maintains tribal 
affiliation or community attachment.
    2. Asian. A person having origins in any of the original peoples of 
the Far East, Southeast Asia, or the Indian subcontinent including, for 
example, Cambodia, China, India, Japan, Korea, Malaysia, Pakistan, the 
Philippine Islands, Thailand, and Vietnam.
    3. Black or African American. A person having origins in any of the 
black racial groups of Africa.
    4. Hispanic or Latino. A person of Cuban, Mexican, Puerto Rican, 
South or Central American, or other Spanish culture or origin, 
regardless of race.
    5. Native Hawaiian or Other Pacific Islander. A person having 
origins in any of the original peoples of Hawaii, Guam, Samoa, or other 
Pacific Islands.
    Because of the Act's requirement to include ``any'' members of the 
listed Minority populations, this definition differs slightly from some 
of the definitions for Native populations used by the CDFI Fund in its 
other programs, most significantly in the absence of any residential 
requirement for Native Alaskans or Native Hawaiians. For example, for 
Target Market purposes and as part of the Native Initiatives program, 
the CDFI Fund recognizes the following Other Targeted Populations: 
``Native American/American Indian

[[Page 45400]]

with maintained tribal affiliation or community attachment, Native 
Alaskan residing in Alaska with maintained tribal affiliation or 
community attachment, Native Hawaiian residing in Hawaii.''
    B. Majority-Minority Census Tracts: For purposes of designating an 
MLI, the CDFI Fund proposes to define a Majority-Minority Census Tract 
as those census tracts or equivalents in which the sum of the tract's 
non-duplicative population of Minority persons is greater than 50% of 
the census tract's total population, as determined by the U.S. Census 
Bureau and identified by the CDFI Fund on its website in the table of 
all census tracts or equivalents that meet this definition based on the 
2011-2015 American Community Survey (ACS) (see https://www.cdfifund.gov/documents/geographic-reports). The census data upon 
which the CDFI Fund proposes to rely for this purpose will be updated 
periodically based upon the most recent decennial census or, for a mid-
decade update, using the five-year ACS. At this time, the CDFI Fund 
anticipates that it will implement the use of the 2016-2020 ACS data by 
the end of the 2022 calendar year.
    1. Are the proposed definitions of ``Minority'' and ``Majority-
Minority Census Tracts'' appropriate for the purposes of designating an 
MLI?

II. Designation Criteria

    In accordance with the Act's definition of MLI, the CDFI Fund is 
considering the following criteria to designate a CDFI as an MLI.
    A. CDFI Status: To receive the MLI designation, the Act requires 
that an entity be certified as a CDFI, meaning that the entity must 
meet all applicable CDFI certification requirements. CDFI certification 
application requirements and supplemental information can be found on 
the CDFI Fund website at https://www.cdfifund.gov/programs-training/certification/cdfi.
    B. Financial Products Directed to Minorities and Majority-Minority 
Census Tracts: To fulfill the statutory requirement that a majority of 
an MLI's financial products are directed at Minorities or Majority-
Minority Census Tracts or equivalent, the CDFI Fund proposes to seek 
evidence that an applicant has directed greater than 50% of both the 
number and dollar volume of its arm's-length, on-balance sheet 
Financial Products to Minorities (including minority-owned businesses) 
or Majority-Minority Census Tracts over the most recently completed 36 
months upon initial designation, and on a three-year rolling average 
over each subsequent, completed fiscal year to maintain the MLI 
designation. Entities with less than three years of financing activity 
will be measured based upon the full history of their financing 
activity.
    1. Is a rolling 36-month period the appropriate length of time to 
assess an applicant's track record of serving Minorities or Majority-
Minority Census Tracts for the purposes of designating a CDFI an MLI? 
Should the CDFI Fund instead require applicants to meet this 
requirement using some other time period, either upon initial 
designation or to maintain the designation? If yes, what is an 
appropriate time period?
    2. The Act requires that an MLI must direct a majority of its 
financial products ``at minorities or majority-minority census tracts 
or equivalents.'' Should the CDFI Fund assess Financial Products 
delivered to legal entities that are not owned or controlled by 
Minority individuals to finance projects such as affordable housing, 
child care centers, charter schools, or health centers that are not 
located within a Majority-Minority Census Tract but whose end-
beneficiaries (e.g., customers, residents, or employees) are members of 
a Minority population? If yes, how?
    C. Accountability: In addition to the above criteria, the Act 
requires that an MLI be a CDFI that is recognized as an MDI or meets 
standards for accountability to minority populations as determined by 
the CDFI Fund. The Act recognizes MDIs defined in section 308(b) of the 
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 
(12 U.S.C. 1463 note), or otherwise considered to be an MDI by the 
appropriate Federal banking agency, as defined in section 3 of the 
Federal Deposit Insurance Act (12 U.S.C. 1813), or by the National 
Credit Union Administration, as applicable.
    Under current practice, a CDFI must demonstrate accountability to 
the Target Market it serves through representation on its governing 
board or advisory board. For a CDFI serving a Minority Targeted 
Population, a board member must be a member of that Minority population 
to count towards the accountability requirements. When assessing 
whether an advisory board provides accountability to Minority 
populations, the CDFI Fund reviews each board member and also considers 
the following factors: how often the advisory board meets (must be at 
least bi-annually); how the advisory board members were selected; how 
advisory board members obtain input from Minority populations; and how 
the advisory board input is incorporated into the organization's 
governing board's decision-making processes.
    The CDFI Fund is considering whether non-MDI CDFIs seeking MLI 
status should demonstrate accountability to Minority populations 
through Minority representation on the CDFI's governing board or 
advisory board. The CDFI Fund seeks comment on whether to require that 
a majority of a CDFI's governing board members should be members of a 
Minority population and whether CDFIs should have options to meet the 
accountability standards through loan committees (committees delegated 
authority by the governing board to approve or disapprove loan 
applications) or a non-governing advisory board.
    In addition, the CDFI Fund is considering whether to allow a CDFI's 
executive staff to demonstrate accountability to Minority populations 
for the purpose of an MLI designation. Currently, for CDFI 
certification purposes, principals or staff members of an applicant 
organization or its Subsidiaries, Affiliates, or investors, or whose 
family members are principals or staff members, cannot be used to 
demonstrate Target Market accountability, as it is considered a 
conflict of interest.
    For example, one approach could be for the CDFI Fund to establish 
the following options to meet the accountability criteria for 
designating an MLI.
    Option One: Greater than 50 percent of the governing board or 
ownership of an organization is made up of individuals who are members 
of Minority populations;
    Option Two: Between 33 percent and 50 percent of the governing 
board or ownership of an organization is made up of individuals who are 
members of Minority populations, and at least two of the following 
additional criteria are met: the chief executive officer of the 
organization is a member of a Minority population; greater than 50 
percent of the executive staff, other than the chief executive officer, 
are members of Minority populations; greater than 50 percent of the 
loan committee members are members of Minority populations; and greater 
than 50 percent of the organization's advisory board members are 
members of Minority populations.
    1. Should a majority (greater than 50 percent) of a CDFI's 
governing board members be required to be members of Minority 
populations to demonstrate accountability to Minority populations? 
Specifically, the CDFI Fund requests comments on whether it should set 
a standard higher than the 33 percent level proposed separately for 
Native

[[Page 45401]]

CDFI designation and for general Target Market accountability as part 
of the CDFI Fund certification standards (see https://www.cdfifund.gov/programs-training/certification/cdfi/certification-pra).
    2. Should there be options for CDFIs to meet the accountability 
requirement through a lower threshold of Minority representation on a 
CDFI's governing board? If yes, what level of representation is 
appropriate?
    3. Alternatively, is a standard of 33 percent Minority 
representation for a CDFI's governing board members in combination with 
66 percent for a CDFI's advisory board (with at least one governing 
board member serving on the advisory board) appropriate to demonstrate 
accountability to Minority populations?
    4. Given the regulatory requirements for the governing board 
composition of regulated financial institutions, as well as the absence 
of governing boards for some privately held entities, should there also 
be an option for non-MDI regulated entities or privately held entities 
without a governing board to demonstrate accountability for the 
purposes of MLI designation? If yes, what standard should be used?
    5. Should the CDFI Fund allow a CDFI's principals or executive 
staff (meaning all directors and executive officers vested with the 
powers to manage and supervise the day-to-day affairs of an 
organization) to demonstrate accountability to Minority populations, 
either as an alternative to accountability through a governing board or 
in combination with a lower threshold of representative governing board 
members? If yes:
    a. Which and how many of a CDFI's executive staff members should be 
necessary to demonstrate accountability to Minority populations, and in 
what combination with the CDFI's governing board?
    b. The use of executive staff or principals to demonstrate 
accountability to a Minority population may be undermined due to the 
principal's or executive staff member's financial relationship to the 
organization. Are there any appropriate safeguards to mitigate such a 
conflict between the interests of a principal or executive staff member 
and the Minority community to which they are to be accountable? If yes, 
what are some safeguards?
    6. Should the CDFI Fund allow the ownership of a CDFI to 
demonstrate accountability to Minority populations, either as an 
alternative to accountability through a governing board or in 
combination with a lower threshold of representative governing board 
members? If yes, should accountability mirror the MDI definition (i.e., 
51 percent or more of the voting stock is owned by minority 
individuals) to be counted in determining minority ownership? If 
ownership should be permitted to demonstrate accountability only in 
combination with some level of governing board representation, what 
should that threshold be?
    7. Should the CDFI Fund allow the composition of a CDFI's loan 
committees to demonstrate accountability to Minority populations, 
either as an alternative to accountability through a governing board or 
in combination with a lower threshold of representative governing board 
members? If yes, how many members of a CDFI's loan committee should be 
necessary to demonstrate accountability to Minority populations, and in 
what combination with the CDFI's governing board?
    8. If a CDFI serves multiple Minority populations, for purposes of 
the MLI designation should it be required to have board or other 
representation reflective of each of the Minority populations it 
serves? If yes, how should the share of board or other representation 
for each Minority population the CDFI serves be determined?
    9. The CDFI Fund is also considering the relationship between the 
standards for designation as an MLI and those for designation as a 
Native CDFI. To what extent should the two align?
    a. Should status as a Native MDI automatically qualify as an 
accountability criterion for designation as a Native CDFI?
    b. Should the status as a Native MDI automatically qualify as an 
accountability criterion if the CDFI also serves other Minority 
populations?
    10. Should MLIs be able to demonstrate accountability through means 
other than those identified above? If yes, how?

III. General Designation Questions for Public Comment

    In addition to the questions above, the CDFI Fund welcomes public 
comment on any aspect of the process or substance of the MLI 
designation. Is there additional information that the CDFI Fund should 
consider in the MLI designation process? If yes, please describe.
    Authority: 12 U.S.C. 4701 et seq.; 12 CFR 1805; Public Law 116-260.

Jodie L. Harris,
Director, Community Development Financial Institutions Fund.
[FR Doc. 2022-16143 Filed 7-27-22; 8:45 am]
BILLING CODE 4810-05-P