New CDFI info collection would eliminate race as criteria

This regulatory shift may change how your community-based lending partners qualify for federal funding. The Treasury Department is proposing to remove race and ethnicity as automatic criteria for Community Development Financial Institutions (CDFIs) to identify 'target markets.' Currently, many specialized lenders use these designations to access government capital, which they then lend to consumers in underserved areas. If this proposal passes, CDFIs will likely have to rely more on geographic or income-based data to justify their lending activities. For retailers, this matters because CDFIs often provide the financing backbone for 'second-look' or subprime programs in your stores. If your financing partner is a CDFI specifically focused on minority communities, they may face a higher administrative burden to maintain their status. This could lead to a temporary tightening of credit or a shift in how they approve customers. You should check with your smaller, community-focused finance providers to see if their certification status is at risk. While this doesn't ban lending to specific groups, it changes the paperwork required to support those programs at the institutional level.

Source: American Banker — Top News

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