16444 Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations

DEPARTMENT OF THE TREASURY

Community Development Financial

Institutions Fund

12 CFR Part 1805

RIN 1505–AA71

Community Development Financial

Institutions Program

AGENCY: Community Development

Financial Institutions Fund, Department

of the Treasury.

ACTION: Revised interim rule with

request for comment.

SUMMARY: The Department of the

Treasury is issuing a revised interim

rule implementing the Community

Development Financial Institutions

Program (CDFI Program). The revised

interim rule is intended to enable the

CDFI Fund to administer the CDFI

Program in a more efficient manner. The

CDFI Fund’s programs are designed to

facilitate the flow of lending and

investment capital into distressed

communities and to individuals who

have been unable to take full advantage

of the financial services industry.

DATES: Revised interim rule effective

April 4, 1997; comments must be

received on or before July 31, 1997.

ADDRESSES: All comments concerning

this revised interim rule should be

addressed to the Director, Community

Development Financial Institutions

Fund, Department of the Treasury, 1500

Pennsylvania Avenue NW., Washington,

DC 20220. Comments may be inspected

at the above address weekdays between

9:30 a.m. and 4:30 p.m.

FOR FURTHER INFORMATION CONTACT:

Kirsten S. Moy, Director, Community

Development Financial Institutions

Fund, at (202) 622–8662. (This is not a

toll free number.)

SUPPLEMENTARY INFORMATION:

I. General

Executive Order (E.O.) 12866

It has been determined that this

regulation is not a significant regulatory

action as defined in E.O. 12866. Because

no substantive changes were made to

this regulation subsequent to

submission to the Office of Management

and Budget (OMB), the provisions of

section 6(a)(3)(E) of the E.O. do not

apply.

Regulatory Flexibility Act

Because no notice of proposed rule

making is required for this revised

interim rule, the provisions of the

Regulatory Flexibility Act (5 U.S.C. 601

et seq.) do not apply. Moreover, the

Department of the Treasury finds that

any economic or other consequence of

this revised interim rule are a direct

result of the implementation of statutory

provisions.

Paperwork Reduction Act

The Department of the Treasury is

issuing these revised interim regulations

without prior notice and public

procedure pursuant to the

Administrative Procedure Act (5 U.S.C.

553). For this reason, the collection of

information contained in these revised

interim regulations have been reviewed

under the requirements of the

Paperwork Reduction Act (44 U.S.C.

3507(j)) and, pending receipt and

evaluation of public comments,

approved by the OMB under control

number 1505–0154. An agency may not

conduct or sponsor, and a person is not

required to respond to, a collection of

information unless it displays a valid

control number assigned by OMB.

Comments concerning the collection of

information should be directed to the

Office of Management and Budget,

Attention: Desk Officer for the

Department of the Treasury, Community

Development Financial Institutions

Fund, Office of Information and

Regulatory Affairs, Washington, DC

20503, with copies to the Community

Development Financial Institutions

Fund, Department of the Treasury, 1500

Pennsylvania Avenue NW., Washington,

DC 20220. Any such comments should

be submitted not later than July 31,

1997. Comments are specifically

requested concerning:

(1) Whether the proposed collection(s)

of information is necessary for the

proper performance of the functions of

the Community Development Financial

Institutions Fund, including whether

the information will have practical

utility;

(2) The accuracy of the estimated

burden associated with the proposed

collection(s) of information (see below);

(3) How to enhance the quality,

utility, and clarity of the information to

be collected;

(4) How to minimize the burden of

complying with the proposed

collection(s) of information, including

the application of automated collection

techniques or other forms of information

technology; and

(5) Estimates of capital or start-up

costs and costs of operation,

maintenance, and purchase of services

to provide information.

Provisions requiring the collection of

information can be found in §§ 1805.701

and 1805.903 of these revised interim

regulations. The information requested

in such provisions will be used to

evaluate applications, monitor the

performance of entities receiving

assistance, and ensure compliance with

statutory and program requirements.

The collection(s) of information is

required to obtain a benefit. The

anticipated respondents and

recordkeepers are financial institutions

that may apply for and receive

assistance.

Estimated total annual reporting and/

or recordkeeping burden: 30,000.

Estimated average annual burden

hours per respondent and/or

recordkeeper: 100.

Estimated number of respondents

and/or record keepers: 300.

Estimated annual frequency of

responses: 1–4.

National Environmental Policy Act

Pursuant to Treasury Directive 75–02

(Department of the Treasury

Environmental Quality Program), the

Department has determined that these

revised interim regulations are

categorically excluded from the

National Environmental Policy Act and

do not require an environmental review.

Administrative Procedure Act

Pursuant to the provisions of 5 U.S.C.

553(a)(2), these revised interim

regulations are exempt from the

proposed rule-making requirements of 5

U.S.C. 553(b) and are being issued as

revised interim regulations without

opportunity for notice and public

comment prior to their effective date.

Furthermore, the Department for good

cause finds that notice and public

comment prior to effect are

impracticable and contrary to the public

interest. Congress appropriated funds

for the CDFI Fund in FY 1996 and

required such funds to be obligated by

September 30, 1997. If the Department

does not issue these regulations for

effect, it will not be feasible to

implement this program, as amended

prior to September 30, 1997 in a manner

that better achieves the results intended

by Congress.

Catalog of Federal Financial Assistance

Number

Community Development Financial

Institutions Program—21.020.

II. Background

The CDFI Fund was established as a

wholly owned government corporation

by the Community Development

Banking and Financial Institutions Act

of 1994 (the Act). Subsequent legislation

placed the Fund within the Department

of the Treasury and gave the Secretary

of the Treasury all powers and rights of
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations 16445

the Administrator of the Fund as set

forth in the authorizing statute.

Consistent with the placement and

administration of the Fund within the

Department’s organizational structure,

the Department of the Treasury’s

Inspector General will serve as the

Inspector General for the Fund. Any

individual who becomes aware of the

existence or apparent existence of fraud,

waste, or abuse of assistance provided

by the Fund is encouraged to report it

to the Department of the Treasury’s

Office of Inspector General in writing or

on the Inspector General’s Hotline (toll

free 1–800–359–3898). All telephone

calls will be handled confidentially.

Written complaints should be addressed

to the U.S. Department of the Treasury,

Office of Inspector General, Room 2412,

1500 Pennsylvania Avenue NW.,

Washington, DC 20220.

All records and materials pertaining

to the selection and awarding of

assistance by the Fund shall be fully

subject to the Freedom of Information

Act. Interested parties should contact

the U.S. Department of the Treasury,

Office of the Assistant Secretary for

Management, Disclosure Services at

(202) 622–1500.

The CDFI Fund’s programs are

designed to facilitate the flow of lending

and investment capital into distressed

communities and to individuals who

have been unable to take full advantage

of the financial services industry. The

initiative is an important step in

rebuilding poverty-stricken and

transitional communities and creating

economic opportunity for people often

left behind by the economic

mainstream.

Access to credit and investment

capital is an essential ingredient for

creating and retaining jobs, developing

affordable housing, revitalizing

neighborhoods, unleashing the

economic potential of small business,

and empowering people. Over the past

three decades, community-based

financial institutions have proven that

strategic lending and investment

activities tailored to the unique

characteristics of underserved markets

are highly effective in improving the

economic well being of communities

and the people who live there.

The CDFI Fund was established to

facilitate the creation of new, and

expansion of existing, financial

institutions that are specialized in

serving these markets. These

institutions—while highly effective—are

typically small in scale, too few in

number, and often have difficulty

raising the equity capital needed to meet

the demands for their products and

services. The investments by the CDFI

Program are intended to provide muchneeded capital that will enable existing

institutions to expand and facilitate the

start-up of new institutions.

This issue of the Federal Register also

contains two separate Notices of Funds

Availability (NOFAs) for the program,

one for the core component of the CDFI

Program and another for a new

intermediary component. The core

component provides direct assistance to

CDFIs that serve their target markets

through loans, investments and other

activities, rather than primarily through

the financing of other CDFIs. The core

component continues the basic

approach followed by the Fund in the

first round of the CDFI Program. For the

foreseeable future, the core component

will receive the great bulk of the Fund’s

resources devoted to the CDFI Program.

The new intermediary component

provides financial assistance to CDFIs

that provide financing primarily to other

CDFIs and/or to support the formation

of CDFIs. The Fund recognizes that

there are in existence certain

intermediary CDFIs, and others may be

created over time, that focus their

financing activities primarily on

financing other CDFIs. Such institutions

may have knowledge and capacity to

develop and implement a specialized

niche or niches in their financing of

CDFIs and/or CDFIs in formation. The

Fund believes that providing financial

assistance to such intermediaries can be

an effective way to expand its support

of the CDFI industry. To illustrate the

concept of an intermediary CDFI with a

few examples, an intermediary may

have a specialized niche or niches

focusing on financing a specific type or

types of CDFIs, providing small

amounts of capital per CDFI, financing

CDFIs with specialized risk levels, or

financing institutions seeking to become

CDFIs. By providing financial assistance

to specialized intermediaries, the Fund

believes it can leverage the expertise of

such intermediaries and strengthen the

Fund’s capacity to support the

development and enhancement of the

CDFI industry.

The revised interim rule published in

this issue of the Federal Register

incorporates only technical and other

clarifying changes to the previous

interim rule, including changes

designed to provide flexibility and ease

the burden of application and reporting

requirements. The Fund received 20

written submissions of formal

comments in response to the interim

rule for the CDFI Program published in

the Federal Register on October 19,

1995. The comments covered a variety

of subjects including eligibility, target

market designation, matching

requirements, application contents, and

the review process. The Fund has

determined that before developing a

final rule for this program, it would be

useful to give interested parties an

additional opportunity to comment on

the interim rule, informed by their

experience under the Program’s first

round and the process of developing

applications pursuant to the NOFAs

published separately in this issue of the

Federal Register. It is the Fund’s intent

to issue a final rule that incorporates or

addresses both the formal comments

previously submitted and new

comments received in response to the

publication of this revised interim rule.

The following is a summary of the

major provisions of the revised interim

regulations, including references to the

most significant changes from the earlier

interim rule.

III. Community Development Financial

Institutions Program

Subpart A—General Provisions

Under the Community Development

Financial Institutions Program (12 CFR

part 1805), the Fund provides financial

and technical assistance to selected

applicants in order to enhance their

ability to make loans and investments

and provide services for the benefit of

designated investment area(s), targeted

population(s), or both. The Fund selects

awardees through a competitive

application process. After selection,

each awardee will enter into an

assistance agreement with the Fund

which includes the establishment of

performance goals and other terms and

conditions.

Subpart A contains general provisions

including the purpose of the program

(§ 1805.100), a summary (§ 1805.101), its

relationship to other Fund programs

(§ 1805.102) and definitions

(§ 1805.104). Section 1805.104(aa)

amends the definition of Low Income to

accommodate appropriate adjustments

since the 1990 census.

Subpart B—Eligibility

Section 1805.200 establishes criteria

for qualification as a CDFI. The criteria

reflect the requirements stated in the

authorizing statute. To be eligible to

apply for assistance, an entity must

either be, or propose to become, a CDFI.

The revised interim regulations describe

the information needed by the Fund to

assess whether, among other things:

(1) The applicant has a primary

mission of community development;

(2) The applicant’s predominant

business activity is the provision of

loans or investments; and
16446 Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations

(3) The applicant serves an

investment area(s) or targeted

population(s).

The Fund recognizes that there will

be significant diversity among

applicants with respect to asset size,

organizational type, stage of

organizational development, products

and services offered, and geographic

location. Section 1805.200 provides that

although an entity that proposes to

become a CDFI may apply for

assistance, if selected to receive

financial assistance from the Fund such

entity will not receive such financial

assistance until it qualifies as a CDFI.

An entity may receive technical

assistance from the Fund before it

becomes a CDFI, if such technical

assistance is designed to assist it to

become a CDFI.

The revised interim rule provides that

an entity that proposes to become a

CDFI is eligible to apply for assistance

if the Fund determines that such entity’s

application materials provide a realistic

course of action to ensure that it can

qualify as a CDFI within two years of

entering into an assistance agreement

with the Fund (or such lesser period as

may be set forth in an applicable

NOFA). The Fund recognizes that in

certain cases, for example, start-ups that

must undertake substantial fund raising

and/or organizations that require

regulatory approvals, an entity selected

to receive assistance may not qualify as

a CDFI until some time after its

selection. However, the Fund believes

that in most cases substantially less than

two years will be required.

Section 1805.201 allows an entity to

apply to the Fund for certification as a

CDFI regardless of whether it is

applying for assistance. The Fund

believes that such a certification process

will recognize the importance of the

activities that institutions are engaged

in, enhance their credibility with

investors, and facilitate participation by

CDFIs in other government programs.

Subpart C—Target Markets

As stated in § 1805.300, an applicant

must designate one or more investment

areas or targeted populations as the

target market(s) it intends to serve.

Section 1805.301 gives each applicant

significant flexibility in designating an

investment area provided that certain

conditions are met. Investment areas

must meet objective criteria of distress.

Consistent with its statutory mandate,

the Fund has developed objective

criteria that are appropriate for

identifying distress in metropolitan,

non-metropolitan, and Native American

communities. Investment areas may be

comprised of a variety of different

geographic units in order to reflect the

neighborhoods, areas, or markets that

applicants serve or propose to serve.

Section 1805.301 requires that an

investment area in a metropolitan area

consist of census tracts, block groups, or

a combination thereof.

Section 1805.302 incorporates the

statutory requirements for defining a

targeted population.

Subpart D—Use of Funds/Eligible

Activities

Section 1805.401 lists the eligible

activities for which financial assistance

must be used and permits the Fund to

approve other activities. Section

1805.402 requires that an applicant use

the Fund’s assistance and any

corresponding matching funds for

purposes approved by the Fund as

reflected in an assistance agreement.

The revised interim regulations place

restrictions on such applicant’s

distribution of monies to affiliates or its

community partners. Section 1805.403

describes technical assistance which

may be sought as part of the application.

Technical assistance requests pursuant

to this part will be evaluated pursuant

to the same competitive review criteria

as financial assistance requests.

Subpart E—Investment Instruments

Section 1805.500 states that the

Fund’s primary objective in awarding

financial assistance is to enhance the

stability, performance, and capacity of

an awardee. The Fund retains discretion

to provide its assistance in a manner

and amount different from an

applicant’s request.

Section 1805.501 describes the types

of investment instruments through

which the Fund may provide financial

assistance. Section 1805.502 restates the

Act’s aggregate assistance limit of $5

million for each applicant in any threeyear period—which may be increased

by up to $3.75 million under special

circumstances which have been

clarified in the revised interim rule.

Subpart F—Matching Funds

Requirements

Pursuant to § 1805.600, each

applicant must obtain matching funds

from sources other than the Federal

government that are at least equal to the

amount of financial assistance provided

by the Fund. Community Development

Block Grant funds may not be used for

the match. As required by the Act and

§ 1805.601, the matching funds must be

comparable in form and value to the

Fund’s financial assistance. This

provision is intended to encourage

match providers to offer their resources

under the most favorable terms and

conditions possible and enable a CDFI

to obtain the Fund’s assistance in a like

manner.

Section 1805.603 permits applicants

to satisfy matching requirements with

funds obtained for up to one year prior

to publication of a NOFA or such earlier

date as may be specified in a NOFA for

a particular funding round. The revised

interim rule clarifies that funds that are

used prior to the execution of the

assistance agreement may nevertheless

qualify as matching funds provided the

Fund determines in its reasonable

discretion that such use promoted the

purpose of the comprehensive business

plan that the Fund is supporting

through its assistance. (The revised

interim rule further provides that funds

spent for operating expenses prior to the

calendar year in which the deadline

falls for receipt of applications in an

applicable NOFA shall not be eligible to

be considered as matching funds.) To

the extent consistent with the Act and

these revised interim regulations, the

Fund believes that applicants should be

able to use matching funds when they

are available.

Each NOFA may establish other

conditions or restrictions on the time

period for raising matching funds.

Subpart G—Applications For Assistance

Section 1805.701 specifies the

information that must be provided as

part of an application. This information

describes how an applicant can

demonstrate whether it meets the

eligibility requirements of subpart B.

The section also describes information

that an applicant must provide to be

evaluated and selected under subpart H.

The most significant component of the

application is a five-year comprehensive

business plan. The plan will provide the

basis for evaluating both the applicant’s

current capacity and its potential for the

future. The plan must include, among

other things, elements related to

financial performance, management

policies and capacity, market analysis,

coordination efforts, community impact,

funding resources, and timing. The

application must contain a detailed

description of the matching funds to be

raised by the applicant for use in

conjunction with the Fund’s assistance.

In order to facilitate coherence and

avoid duplication, the revised interim

rule permits an applicant to present its

application materials in an order and

format that it believes is the most

appropriate. The revised interim rule

also eliminates the Low Income

Targeted Population Worksheet.
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations 16447

Subpart H—Evaluation and Selection of

Applicants

Section 1805.800 outlines the

evaluation and selection process.

Section 1805.801 indicates the Fund’s

intent to seek to fund a geographically

diverse group of applicants as required

by the Act. The revised interim rule

amends the evaluation and selection

process discussed in subpart H. Without

eliminating any of the evaluation

factors, the revised interim rule

restructures the process of evaluating

applications described in § 1805.802 to

expedite the process and improve its

efficiency.

The revised interim rule states that

the Fund will not provide assistance to

an applicant that does not meet the

eligibility requirements or that has not

submitted complete application

materials. In addition, the revised

interim rule consolidates what had been

the Tier 2 (financial and organizational

capacity) and Tier 3 (other qualitative

criteria) reviews into one set of

substantive review criteria. The

selection criteria set forth with respect

to the CDFI Program in the interim rule

published in the Federal Register on

October 19, 1995, are retained,

including financial strength and

organizational capacity, extent of

external resources, and community

impact. The revised interim rule

clarifies that the criteria to be

considered include the quality of the

applicant’s comprehensive business

plan and the extent and nature of an

applicant’s potential community

development impact that will be

catalyzed relative to the amount of

assistance to be provided by the Fund.

While ensuring fairness and

consistency, the Fund will seek to

implement the evaluation and selection

process in a manner that takes into

consideration the unique characteristics

of applicants that vary by organizational

type, total asset size, and stage of

organizational development.

Subpart I—Terms and Conditions of

Assistance

While Federal and State agencies will

retain responsibility for assuring the

safety and soundness of insured CDFIs,

pursuant to § 1805.900 the Fund will (to

the extent practicable) ensure that

unregulated awardees are financially

and managerially sound and maintain

appropriate internal controls. Prior to

receiving assistance, each awardee will

execute an agreement with the Fund

that describes its performance goals and

other terms and conditions of

assistance. Section 1805.901 describes

the nature and use of the Fund’s

assistance agreements. The agreement

will contain sanctions for

noncompliance. As required by the Act,

any proposed sanctions to be imposed

on an insured CDFI must be discussed

with the appropriate Federal banking

agency under specific procedures.

Pursuant to § 1805.902, disbursement of

assistance from the Fund will be in a

lump sum or over a period of time, as

determined by the Fund. However, the

Fund may provide no financial

assistance until the awardee has secured

firm commitments for its corresponding

matching funds. This provision is

intended to ensure that no Federal

funds are released until other resources

are leveraged.

Section 1805.903 describes the

recordkeeping and reporting

requirements applicable to awardees.

These requirements are consistent with

the Fund’s fiduciary and monitoring

responsibilities. Awardees are required

to submit quarterly data on financial

indicators and performance measures

and annual reports and audits on its

financial and programmatic

performance. The revised interim rule

contains modifications intended to

provide awardees flexibility in their

quarterly reports as well as flexibility in

the timing of the submission of reports.

In developing its revised regulations,

the Fund has sought to minimize its

recordkeeping and reporting

requirements. The Fund requests input

on how to further reduce such burden

while still meeting its statutory

monitoring and enforcement

requirements.

All awardees shall be subject to legal

requirements pertaining to the Fund’s

assistance, including conflict of interest

standards. Section 1805.905 requires

each awardee to comply with all other

governmental requirements. Section

1805.906 requires awardees to maintain

standards of conduct acceptable to the

Fund. Section 1805.907 describes

lobbying restrictions applicable to

awardees.

List of Subjects in 12 CFR Part 1805

Community development, Grant

programs—housing and community

development, Loan programs—housing

and community development, Reporting

and recordkeeping requirements, Small

businesses.

Kirsten S. Moy,

Director, Community Development Financial

Institutions Fund.

For the reasons set forth in the

preamble, chapter XVIII of title 12 of the

Code of Federal Regulations is amended

by revising part 1805 to read as follows:

PART 1805—COMMUNITY

DEVELOPMENT FINANCIAL

INSTITUTIONS PROGRAM

Subpart A—General Provisions

Sec.

1805.100 Purpose.

1805.101 Summary.

1805.102 Relationship to other Fund

programs.

1805.103 Awardee not instrumentality.

1805.104 Definitions.

1805.105 Waiver authority.

1805.106 OMB control number.

Subpart B—Eligibility

1805.200 Applicant eligibility.

1805.201 Certification as a Community

Development Financial Institution.

Subpart C—Target Markets

1805.300 Target markets—general.

1805.301 Investment Area.

1805.302 Targeted Population.

Subpart D—Use of Funds/Eligible Activities

1805.400 Purposes of financial assistance.

1805.401 Eligible activities.

1805.402 Restrictions on use of assistance.

1805.403 Technical assistance.

Subpart E—Investment Instruments

1805.500 Investment instruments—general.

1805.501 Forms of investment instruments.

1805.502 Assistance limits.

1805.503 Authority to sell.

Subpart F—Matching Funds Requirements

1805.600 Matching funds—general.

1805.601 Comparability of form and value.

1805.602 Severe constraints waiver.

1805.603 Time frame for raising match.

1805.604 Retained earnings.

Subpart G—Applications for Assistance

1805.700 Notice of funds availability.

1805.701 Application contents.

Subpart H—Evaluation and Selection of

Applications

1805.800 Evaluation and selection—

general.

1805.801 Geographic diversity.

1805.802 Evaluation of applications.

Subpart I—Terms and Conditions of

Assistance

1805.900 Safety and soundness.

1805.901 Assistance Agreement; sanctions.

1805.902 Disbursement of funds.

1805.903 Data collection and reporting.

1805.904 Information.

1805.905 Compliance with government

requirements.

1805.906 Conflict of interest requirements.

1805.907 Lobbying restrictions.

1805.908 Criminal provisions.

1805.909 Fund deemed not to control.

1805.910 Limitation on liability.

1805.911 Fraud, waste and abuse.

Authority: 12 U.S.C. 4703, 4717; chapter X,

Pub. L. 104–19, 109 Stat. 237 (12 U.S.C. 4703

note).
16448 Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations

Subpart A—General Provisions

§ 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.

§ 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.

§ 1805.102 Relationship to other Fund

programs.

(a) Bank Enterprise Award Program.

(1) No Community Development

Financial Institution may receive

assistance from the Bank Enterprise

Award Program (part 1806 of this

chapter) if it has:

(i) An application for assistance

pending under the Community

Development Financial Institutions

Program;

(ii) Received assistance under the

Community Development Financial

Institutions Program within the

preceding 12-month period; or

(iii) Received assistance under the

Community Development Financial

Institutions Program for the same

activities as proposed under an

application for the Bank Enterprise

Award Program.

(2) An Equity Investment (as defined

in part 1806 of this chapter) in, or a loan

to, a Community Development Financial

Institution made by a Bank Enterprise

Award Program Awardee may be used

to meet the matching fund requirements

described in subpart F of this part.

Receipt of such Equity Investment or

loan does not disqualify a Community

Development Financial Institution from

receiving assistance under this part.

(b) Liquidity enhancement program.

No entity that receives assistance

through the liquidity enhancement

program authorized under section 113

(12 U.S.C. 4712) of the Act may receive

assistance under the Community

Development Financial Institutions

Program.

§ 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.

§ 1805.104 Definitions.

For the purpose of this part:

(a) Act means the Community

Development Banking and Financial

Institutions Act of 1994, as amended (12

U.S.C. 4701 et seq.);

(b) Affiliate means any company or

entity that controls, is controlled by, or

is under common control with another

company;

(c) Applicant means any entity

submitting an application for assistance

under this part;

(d) Appropriate Federal Banking

Agency has the same meaning as in

section 3 of the Federal Deposit

Insurance Act (12 U.S.C. 1811 et seq.),

and also includes the National Credit

Union Administration with respect to

Insured Credit Unions;

(e) Assistance Agreement means a

formal agreement between the Fund and

an Awardee which specifies the terms

and conditions of assistance under this

part;

(f) Awardee means an Applicant

selected by the Fund to receive

assistance pursuant to this part;

(g) Community Development

Financial Institution (or CDFI) means an

entity currently meeting the eligibility

requirements under § 1805.200;

(h) Community Development

Financial Institutions Program (or CDFI

Program) means the program authorized

by sections 105–108 of the Act (12

U.S.C. 4704–4707) and implemented

under this part;

(i) Community Facility means a

facility where health care, child care,

educational, cultural, or social services

are provided; /

(j) Community-Governed means an

entity in which the residents of an

Investment Area(s) or members of a

Targeted Population(s) represent greater

than 50 percent of the governing body;

(k) Community-Owned means an

entity in which the residents of an

Investment Area(s) or members of a

Targeted Population(s) have an

ownership interest of greater than 50

percent;

(l) Community Partner means a

person (other than an individual) that

provides loans, equity investments, or

Development Services and enters into a

Community Partnership with an

Applicant. A Community Partner may

include a Depository Institution Holding

Company, an Insured Depository

Institution, an Insured Credit Union, a

not-for-profit or for-profit organization,

a State or local government entity, a

quasi-government entity, or an

investment company authorized

pursuant to the Small Business

Investment Act of 1958 (15 U.S.C. 661

et seq.);

(m) Community Partnership means an

agreement between an Applicant and a

Community Partner to collaboratively

provide loans, equity investments, or

Development Services to an Investment

Area(s) or a Targeted Population(s);

(n) Comprehensive Business Plan

means a document covering not less

than the next five years which meets the

requirements described under

§ 1805.701(d);

(o) Depository Institution Holding

Company means a bank holding

company or a savings and loan holding

company as defined in section 3 of the

Federal Deposit Insurance Act (12

U.S.C. 1811 et seq.);

(p) Development Investment means an

equity investment made by an

Applicant which, in the judgment of the

Fund, directly supports or enhances

activities that serve an Investment

Area(s) or a Targeted Population(s).

Such investments must be made

through an arms-length transaction with

a third party that does not have a

relationship with the Applicant as an

Affiliate;

(q) Development Services means

activities that promote community

development and are integral to lending

and Development Investment activities.

Such services shall prepare or assist

potential borrowers or investees to

utilize the lending or investment

products of the Awardee, its Affiliates,

or its Community Partners. Such

services include, for example:

(1) Financial or credit counseling to

individuals for the purpose of

facilitating home ownership, promoting

self-employment, or enhancing

consumer financial management skills;

or

(2) Technical assistance to borrowers

or investees for the purpose of

enhancing business planning,

marketing, management, and financial

management skills;

(r) Financial Services means checking,

check-cashing, money orders, certified

checks, automated teller machines,

deposit-taking, and safe deposit box

services;

(s) Fund means the Community

Development Financial Institutions

Fund established under section 104(a)

(12 U.S.C. 4703(a)) of the Act;
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations 16449

(t) Indian Reservation means any

geographic area that meets the

requirements of section 4(10) of the

Indian Child Welfare Act of 1978 (25

U.S.C. 1903(10)), and shall include land

held by incorporated Native groups,

regional corporations, and village

corporations, as defined in and pursuant

to the Alaska Native Claims Settlement

Act (43 U.S.C. 1601 et seq.), public

domain Indian allotments, and former

Indian reservations in the State of

Oklahoma;

(u) Indian Tribe means any Indian

Tribe, band, pueblo, nation, or other

organized group or community,

including any Alaska Native village or

regional or village corporation, as

defined in or established pursuant to the

Alaska Native Claims Settlement Act (43

U.S.C. 1601 et seq.), which is recognized

as eligible for special programs and

services provided by the United States

to Indians because of their status as

Indians;

(v) Insider means any director, officer,

employee, principal shareholder

(owning, individually or in combination

with family members, five percent or

more of any class of stock), or agent (or

any family member or business partner

of any of the above) of any Applicant,

Affiliate or Community Partner;

(w) Insured CDFI means a CDFI that

is an Insured Depository Institution or

an Insured Credit Union;

(x) Insured Credit Union means any

credit union, the member accounts of

which are insured by the National

Credit Union Share Insurance Fund;

(y) Insured Depository Institution

means any bank or thrift, the deposits of

which are insured by the Federal

Deposit Insurance Corporation;

(z) Investment Area means a

geographic area meeting the

requirements of § 1805.301;

(aa) Low-Income means an income,

adjusted for family size, of not more

than:

(1) For Metropolitan Areas, 80 percent

of the area median family income; and

(2) For non-Metropolitan Areas, the

greater of:

(i) 80 percent of the area median

family income; or

(ii) 80 percent of the statewide nonMetropolitan Area median family

income;

(bb) Metropolitan Area means an area

designated as such by the Office of

Management and Budget pursuant to 44

U.S.C. 3504(d)(3) and 31 U.S.C. 1104(d)

and Executive Order 10253 (3 CFR,

1949–1953 Comp., p. 758), as amended;

(cc) Non-Regulated CDFI means any

entity meeting the eligibility

requirements of § 1805.200 which is not

a Depository Institution Holding

Company, Insured Depository

Institution, or Insured Credit Union;

(dd) State means any State of the

United States, the District of Columbia

or any territory of the United States,

Puerto Rico, Guam, American Samoa,

the Trust Territories of the Pacific

Islands, the Virgin Islands, and the

Northern Mariana Islands;

(ee) Subsidiary means any company

which is owned or controlled directly or

indirectly by another company and

includes any service corporation owned

in whole or part by an Insured

Depository Institution or any Subsidiary

of such a service corporation, except as

provided in § 1805.200(h)(4); and

(ff) Targeted Population means

individuals or an identifiable group

meeting the requirements of § 1805.302.

§ 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.

§ 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

§ 1805.200 Applicant eligibility.

(a) General requirements. (1) An

entity that meets the requirements

described in paragraphs (b) through (h)

of this section will be considered a CDFI

and, subject to paragraph (a)(3) of this

section, will be eligible to apply for

assistance under this part. Criteria to

establish compliance with such

requirements are set forth in

§ 1805.701(b).

(2) An entity that proposes to become

a CDFI is eligible to apply for assistance

under this part if the Fund determines

that such entity’s application materials

provide a realistic course of action to

ensure that it will meet the

requirements described in paragraphs

(b) through (h) of this section within

two years of entering into an Assistance

Agreement with the Fund or such lesser

period as may be set forth in an

applicable Notice of Funds Availability

(NOFA). The Fund shall not, however,

disburse any financial assistance to such

an entity before it meets the

requirements described in paragraphs

(b) through (h) of this section.

(3) The Fund shall require an entity

to meet any additional eligibility

requirements that the Fund deems

appropriate.

(4) The Fund, in its sole discretion,

shall determine whether an Applicant

fulfills the requirements set forth in this

section and § 1805.701(b).

(b) Primary mission. A CDFI shall

have a primary mission of promoting

community development.

(c) Target market. A CDFI shall serve

an Investment Area(s) or Targeted

Population(s).

(d) Financing entity. A CDFI shall be

an entity whose predominant business

activity is the provision of loans or

Development Investments.

(e) Development Services. A CDFI,

directly or through an Affiliate, shall

provide Development Services in

conjunction with loans or Development

Investments.

(f) Accountability. A CDFI must

maintain accountability to residents of

its Investment Area(s) or Targeted

Population(s) through representation on

its governing board or otherwise.

(g) Non-government entity. A CDFI

shall not be an agency or

instrumentality of the government of the

United States, or any State or political

subdivision thereof. An entity that is

created by, or that receives substantial

assistance from, one or more

government entities may be a CDFI

provided that it is not controlled by

such entities and maintains

independent decision-making power

over its activities.

(h) Provisions applicable to

Depository Institution Holding

Companies and Insured Depository

Institutions. (1) A Depository Institution

Holding Company may qualify as a

CDFI only if it and its Affiliates

collectively satisfy the requirements

described in paragraphs (a) through (g)

of this section.

(2) No Affiliate of a Depository

Institution Holding Company may

qualify as a CDFI unless the holding

company and all of its Affiliates

collectively meet the requirements

described in paragraphs (a) through (g)

of this section.

(3) No Subsidiary of an Insured

Depository Institution may qualify as a

CDFI if the Insured Depository

Institution and its Subsidiaries do not

collectively meet the requirements

described in paragraphs (a) through (g)

of this section.
16450 Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations

(4) For the purposes of paragraphs

(h)(1), (2) and (3) of this section, an

Applicant will not be considered to be

a Subsidiary of any Insured Depository

Institution or Depository Institution

Holding Company that controls less

than 25 percent of any class of its voting

shares, and which does not, in any

manner, otherwise control the election

of a majority of directors of the

Applicant.

§ 1805.201 Certification as a Community

Development Financial Institution.

An entity may apply to the Fund for

certification that it meets the CDFI

eligibility requirements (as described

under § 1805.200) regardless of whether

it is seeking financial or technical

assistance from the Fund. Entities

seeking such certification shall provide

the information described under

§ 1805.701(b). Certification by the Fund

will verify that the entity meets the

CDFI eligibility requirements. However,

such a certification shall not constitute

an opinion by the Fund as to the

financial viability of the entity that

obtains such certification or that the

CDFI will be selected to receive an

award from the Fund. The Fund, in its

sole discretion, shall have the right to

decertify a certified entity after a

determination that the eligibility

requirements of paragraphs (b) through

(h) of § 1805.200 are no longer met.

Subpart C—Target Markets

§ 1805.300 Target markets—general.

An Applicant shall designate one or

more Investment Area(s) or Targeted

Population(s) that it proposes to serve.

An Applicant may also choose to serve

both an Investment Area(s) and a

Targeted Population(s). An Investment

Area shall meet specific geographic and

other criteria discussed in § 1805.301. A

Targeted Population shall consist of

Low-Income persons or those who

otherwise lack adequate access to loans

or equity investments.

§ 1805.301 Investment Area.

(a) General. A geographic area will be

considered eligible for designation as an

Investment Area if it:

(1)(i) Meets at least one of the

objective criteria of economic distress as

set forth in paragraph (d) of this section

and has significant unmet needs for

loans or equity investments as described

in paragraph (e) of this section; or

(ii) Encompasses or is located in an

Empowerment Zone or Enterprise

Community designated under section

1391 of the Internal Revenue Code of

1986 (26 U.S.C. 1391); and

(2) Is entirely located within the

geographic boundaries of the United

States (which shall encompass any State

of the United States, the District of

Columbia or any territory of the United

States, Puerto Rico, Guam, American

Samoa, the Trust Territories of the

Pacific Islands, the Virgin Islands, and

the Northern Mariana Islands).

(b) Geographic units. Subject to the

remainder of this paragraph (b), an

Investment Area shall consist of a

geographic unit(s) that is a county (or

equivalent area), minor civil division

that is a unit of local government,

incorporated place, census tract, block

numbering area, block group, or

American Indian or Alaska Native area

(as such units are defined or reported by

the U.S. Bureau of the Census).

However, geographic units in

Metropolitan Areas that are used to

comprise an Investment Area shall be

limited to census tracts, block groups

and American Indian or Alaskan Native

areas. An Applicant can designate one

or more Investment Areas as part of a

single application.

(c) Designation. An Applicant can

designate an Investment Area by

selecting:

(1) A geographic unit(s) which

individually meets one of the criteria in

paragraph (d) of this section; or

(2) A group of contiguous geographic

units which together meet one of the

criteria in paragraph (d) of this section,

provided that the combined population

residing within individual geographic

units not meeting any such criteria does

not exceed 15 percent of the total

population of the entire Investment

Area.

(d) Distress criteria. An Investment

Area (or the units that comprise an area)

must meet at least one of the following

objective criteria of economic distress

(as reported in the 1990 (or subsequent)

decennial census and published by the

U.S. Bureau of the Census):

(1) The percentage of the population

living in poverty is at least 20 percent;

(2) In the case of an Investment Area

located:

(i) Within a Metropolitan Area, the

median family income shall be at or

below 80 percent of the Metropolitan

Area median family income or the

national Metropolitan Area median

family income, whichever is greater; or

(ii) Outside of a Metropolitan Area,

the median family income shall be at or

below 80 percent of the statewide nonMetropolitan Area median family

income or the national nonMetropolitan Area median family

income, whichever is greater;

(3) The unemployment rate is at least

1.5 times the national average;

(4) The percentage of occupied

distressed housing (as indicated by lack

of complete plumbing and occupancy of

more than one person per room) is at

least 20 percent; or

(5) In areas located outside of a

Metropolitan Area, the county

population loss between 1980 and 1990

is at least 10 percent.

(e) Unmet needs. An Investment Area

will be deemed to have significant

unmet needs for loans or equity

investments if studies or other analyses

provided by the Applicant adequately

demonstrate a pattern of unmet needs

for loans and equity investments within

such area(s).

(f) Serving Investment Areas. An

Applicant can serve an Investment Area

directly or through borrowers or

investees that serve the Investment Area

or provide significant benefits to its

residents.

§ 1805.302 Targeted Population.

(a) A Targeted Population shall mean

individuals, or an identifiable group of

individuals, who: are Low-Income

persons; or lack adequate access to loans

or equity investments. An Applicant can

serve the members of a Targeted

Population directly or through

borrowers or investees that directly

serve or provide significant benefits to

such members.

(b) The members of a Targeted

Population shall reside within the

boundaries of the United States (which

shall encompass any State of the United

States, the District of Columbia or any

territory of the United States, Puerto

Rico, Guam, American Samoa, the Trust

Territories of the Pacific Islands, the

Virgin Islands, and the Northern

Mariana Islands).

(c) An Applicant shall provide its

products and services in a manner that

is consistent with the Equal Credit

Opportunity Act (15 U.S.C. 1691), to the

extent that the Applicant is subject to

the requirements of such Act.

Subpart D—Use of Funds/Eligible

Activities

§ 1805.400 Purposes of financial

assistance.

The Fund may provide financial

assistance through investment

instruments described under subpart E

of this part. Such financial assistance is

intended to strengthen the capital

position and enhance the ability of an

Awardee to make loans and

Development Investments and provide

Financial Services.

§ 1805.401 Eligible activities.

Financial assistance provided under

this part may be used by an Awardee to

serve Investment Area(s) or Targeted
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations 16451

Population(s) by developing or

supporting:

(a) Commercial facilities that promote

revitalization, community stability or

job creation or retention;

(b) Businesses that:

(1) Provide jobs for Low-Income

persons;

(2) Are owned by Low-Income

persons; or

(3) Enhance the availability of

products and services to Low-Income

persons;

(c) Community Facilities;

(d) The provision of Financial

Services;

(e) Housing that is principally

affordable to Low-Income persons,

except that assistance used to facilitate

home ownership shall only be used for

services and lending products that serve

Low-Income persons and that:

(1) Are not provided by other lenders

in the area; or

(2) Complement the services and

lending products provided by other

lenders that serve the Investment

Area(s) or Targeted Population(s);

(f) The provision of Consumer Loans

(a loan to one or more individuals for

household, family, or other personal

expenditures); or

(g) Other businesses or activities as

requested by the Applicant and deemed

appropriate by the Fund.

§ 1805.402 Restrictions on use of

assistance.

(a) An Awardee shall only use

assistance provided by the Fund and its

corresponding matching funds for the

eligible activities approved by the Fund

and described in the Assistance

Agreement.

(b) An Awardee may not distribute

assistance to an Affiliate without the

Fund’s consent.

(c) Assistance provided upon

approval of an application involving a

Community Partnership shall only be

distributed to the Awardee and shall not

be used to fund any activities carried

out by a Community Partner or an

Affiliate of a Community Partner.

§ 1805.403 Technical assistance.

(a) General. The Fund may provide

technical assistance to build the

capacity of a CDFI or an entity that

proposes to become a CDFI. Such

technical assistance may include

training for management and other

personnel; development of programs,

products and services; improving

financial management and internal

operations; enhancing a CDFI’s

community impact; or other activities

deemed appropriate by the Fund. The

Fund, in its sole discretion, may provide

technical assistance in amounts, or

under terms and conditions that are

different from those requested by an

Applicant. The Fund may not provide

any technical assistance to an Applicant

for the purpose of assisting in the

preparation of an application. The Fund

may provide technical assistance to a

CDFI directly, through grants, or by

contracting with organizations that

possess the appropriate expertise.

(b) The Fund may provide technical

assistance regardless of whether or not

the recipient also receives financial

assistance under this part. Technical

assistance provided pursuant to this

part is subject to the assistance limits

described in § 1805.502.

(c) An Applicant seeking technical

assistance must meet the eligibility

requirements of § 1805.200 and submit

an application as described in

§ 1805.701.

(d) Applicants for technical assistance

pursuant to this part will be evaluated

pursuant to the competitive review

criteria in subpart H of this part, except

that requirements for matching funds

are not applicable to technical

assistance requests.

Subpart E—Investment Instruments

§ 1805.500 Investment instruments—

general.

The Fund’s primary objective in

awarding financial assistance is to

enhance the stability, performance and

capacity of an Awardee. The Fund will

provide financial assistance to an

Awardee through one or more of the

investment instruments described in

§ 1805.501, and under such terms and

conditions as described in this subpart

E. The Fund, in its sole discretion, may

provide financial assistance in amounts,

through investment instruments, or

under rates, terms and conditions that

are different from those requested by an

Applicant.

§ 1805.501 Forms of investment

instruments.

(a) Equity. The Fund may make

nonvoting equity investments in an

Awardee, including, without limitation,

the purchase of nonvoting stock. Such

stock shall be transferable and, in the

discretion of the Fund, may provide for

convertibility to voting stock upon

transfer. The Fund shall not own more

than 50 percent of the equity of an

Awardee and shall not control its

operations.

(b) Capital grants. The Fund may

award grants.

(c) Loans. The Fund may make loans,

if permitted by applicable law.

(d) Deposits and credit union shares.

The Fund may make deposits (which

shall include credit union shares) in

Insured CDFIs. Deposits in an Insured

CDFI shall not be subject to any

requirement for collateral or security.

§ 1805.502 Assistance limits.

(a) General. Except as provided in

paragraph (b) of this section, the Fund

may not provide, pursuant to this part,

more than $5 million, in the aggregate,

in financial and technical assistance to

an Awardee and its Affiliates during any

three-year period.

(b) Additional amounts. If an

Awardee proposes to establish a new

Affiliate to serve an Investment Area(s)

or Targeted Population(s) outside of any

State, and outside of any Metropolitan

Area, currently served by the Awardee

or its Affiliates, the Awardee may

receive additional assistance pursuant

to this part up to a maximum of $3.75

million during the same three-year

period. Such additional assistance:

(1) Shall only be used to finance

activities in the new or expanded

Investment Area(s) or Targeted

Population(s); and

(2) Must be distributed to a new

Affiliate that meets the eligibility

requirements described in § 1805.200

and is selected for assistance pursuant

to subpart H of this part.

(c) An Awardee may only receive the

assistance described in paragraph (b) of

this section if no other application to

serve substantially the same Investment

Area(s) or Targeted Population(s) that

meets the requirements of § 1805.802(a)

was submitted to the Fund prior to the

receipt of the application of said

Awardee and within the current funding

round.

§ 1805.503 Authority to sell.

The Fund may, at any time, sell its

equity investments and loans, provided

the Fund shall retain the authority to

enforce the provisions of the Assistance

Agreement until the performance goals

specified therein have been met.

Subpart F—Matching Funds

Requirements

§ 1805.600 Matching funds—general.

All financial assistance awarded

under this part shall be matched with

funds from sources other than the

Federal government. Except as provided

in § 1805.602, such matching funds

shall be provided on the basis of not less

than one dollar for each dollar provided

by the Fund. Funds that have been used

to satisfy a legal requirement for

obtaining funds under another Federal

grant or award program cannot be used

to satisfy the matching requirements

described in this section. Community
16452 Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations

Development Block Grant Program and

other funds provided pursuant to the

Housing and Community Development

Act of 1974, as amended (42 U.S.C. 5301

et seq.), shall be considered Federal

government funds and shall not be used

to meet the matching requirements.

Matching funds shall be used as

provided in the Assistance Agreement.

Funds that are used prior to the

execution of the Assistance Agreement

may nevertheless qualify as matching

funds provided the Fund determines in

its reasonable discretion that such use

promoted the purpose of the

Comprehensive Business Plan that the

Fund is supporting through its

assistance. However, funds spent for

operating expenses prior to the calendar

year in which falls the deadline for

receipt of applications pursuant to an

applicable NOFA shall not be used to

meet the matching requirements.

§ 1805.601 Comparability of form and

value.

(a) Matching funds shall be at least

comparable in form (e.g., equity

investments, deposits, credit union

shares, loans and grants) and value to

financial assistance provided by the

Fund (except as provided in

§ 1805.602). The Fund shall have the

discretion to determine whether

matching funds pledged are comparable

in form and value to the financial

assistance requested.

(b) In the case of an Awardee that

raises matching funds from more than

one source, through different

investment instruments, or under

varying terms and conditions, the Fund

may provide financial assistance in a

manner that represents the combined

characteristics of such instruments.

(c) An Awardee may meet all or part

of its matching requirements by

committing available earnings retained

from its operations.

§ 1805.602 Severe constraints waiver.

(a) In the case of an Applicant with

severe constraints on available sources

of matching funds, the Fund, in its sole

discretion, may permit such Applicant

to comply with the matching

requirements by:

(1) Reducing such requirements by up

to 50 percent; or

(2) Permitting an Applicant to provide

matching funds in a form to be

determined at the discretion of the

Fund, if such an Applicant:

(i) Has total assets of less than

$100,000;

(ii) Serves an area that is not a

Metropolitan Area; and

(iii) Is not requesting more than

$25,000 in assistance.

(b) Not more than 25 percent of the

total funds available for obligation

under this part in any fiscal year may be

matched as described in paragraph (a) of

this section.

(c) An Applicant may request a

‘‘severe constraints waiver’’ as part of its

application for assistance. An Applicant

shall provide a narrative justification for

its request, indicating:

(1) The cause and extent of the

constraints on raising matching funds;

(2) Efforts to date, results, and

projections for raising matching funds;

(3) A description of the matching

funds expected to be raised; and

(4) Any additional information

requested by the Fund.

(d) The Fund will grant a ‘‘severe

constraints waiver’’ only in exceptional

circumstances when it has been

demonstrated, to the satisfaction of the

Fund, that an Investment Area(s) or

Targeted Population(s) would not be

adequately served without the waiver.

§ 1805.603 Time frame for raising match.

Applicants may use monies that have

been obtained or legally committed for

up to one year prior to the publication

of a NOFA, or such earlier date or

period specified in the NOFA, for an

applicable funding round to meet the

matching requirements. An Applicant

shall raise the balance of its matching

requirements within the period set forth

in the applicable NOFA.

§ 1805.604 Retained earnings.

(a) An Applicant that proposes to

meet all or a portion of its matching

funds requirements as set forth in this

part by committing available earnings

retained from its operations pursuant to

§ 1805.601(c) shall be subject to the

restrictions described in this section.

(b)(1) In the case of a for-profit

Applicant, retained earnings that can be

used for matching funds purposes shall

consist of:

(i) The increase in retained earnings

(excluding the after-tax value to an

Applicant of any grants and other

donated assets) that has occurred over

the Applicant’s most recent fiscal year

(e.g., retained earnings at the end of

fiscal year 1996 less retained earnings at

the end of fiscal year 1995); or

(ii) The annual average of such

increases that have occurred over the

Applicant’s three most recent fiscal

years.

(2) Such retained earnings can be

used to match a request for an equity

investment. The terms and conditions of

financial assistance will be determined

by the Fund.

(c)(1) In the case of a non-profit

Applicant (other than an Insured Credit

Union), retained earnings that can be

used for matching funds purposes shall

consist of:

(i) The increase in an Applicant’s net

assets (excluding the amount of any

grants and value of other donated assets)

that has occurred over the Applicant’s

most recent fiscal year; or

(ii) The annual average of such

increases that has occurred over the

Applicant’s three most recent fiscal

years.

(2) Such retained earnings can be

used to match a request for a capital

grant. The terms and conditions of

financial assistance will be determined

by the Fund.

(d)(1) In the case of an Insured Credit

Union Applicant, retained earnings that

can be used for matching funds

purposes shall consist of:

(i) The increase in net capital that has

occurred over the Applicant’s most

recent fiscal year;

(ii) The annual average of such

increases that has occurred over the

Applicant’s three most recent fiscal

years; or

(iii) The entire net capital that has

been accumulated since the inception of

the Applicant provided that the

conditions described in paragraph (d)(4)

of this section are satisfied.

(2) For the purpose of paragraph (d)(4)

of this section, net capital shall be

comprised of ‘‘Regular Reserves’’,

‘‘Other Reserves’’ (excluding reserves

specifically dedicated for losses), and

‘‘Undivided Earnings’’ as such terms are

used in the National Credit Union

Administration’s accounting manual.

(3) Such retained earnings can be

used to match a request for a capital

grant. The terms and conditions of

financial assistance will be determined

by the Fund.

(4) If the option described in

paragraph (d)(1)(iii) of this section is

used:

(i) The Assistance Agreement shall

require that:

(A) An Awardee increase its member

and/or non-member shares by an

amount that is at least equal to four

times the amount of net capital that is

committed as matching funds;

(B) Such increase be achieved within

18 months of the last day of the month

prior to the month in which the

Applicant is selected to receive

assistance; and

(C) Such increase be maintained for

the period of time covered by the

Comprehensive Business Plan;

(ii) The Applicant’s Comprehensive

Business Plan shall discuss its strategy

for raising the required shares and the

activities associated with such increased

shares; (iii) The level from which the
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations 16453

increases in shares described in

paragraph (d)(4)(i) of this section will be

measured shall be the greater of the

level of shares as of:

(A) The end of the calendar year

immediately preceding the applicable

application deadline; or

(B) The last day of the month prior to

the month in which an Applicant is

selected to receive assistance; and

(iv) Financial assistance shall be

disbursed by the Fund only as the

amount of increased shares described in

paragraph (d)(4)(i)(A) of this section is

achieved.

(5) The Fund will allow an Applicant

to utilize the option described in

paragraph (d)(1)(iii) for matching funds

only if it determines, in its sole

discretion, that the Applicant will have

a high probability of success in

increasing its shares to the specified

amounts.

(e) An Applicant may only use

retained earnings to meet the matching

funds requirements if it has liquidity (as

determined by the Fund) in amounts

that are equal to or greater than the

amount of retained earnings that is

proposed for use as matching funds. In

assessing an Applicant’s liquidity for

the purposes of this paragraph (e), the

Fund may exclude any amounts that it

determines are not available to promote

an Awardee’s performance goals and the

purposes of the CDFI Program.

(f) Retained earnings accumulated

after the end of the Applicant’s most

recent fiscal year ending prior to the

appropriate application deadline may

not be used as matching funds.

Subpart G—Applications for

Assistance

§ 1805.700 Notice of Funds Availability.

Each Applicant shall submit an

application for financial or technical

assistance under this part in accordance

with these regulations and the

applicable NOFA published in the

Federal Register. The NOFA will advise

potential Applicants on how to obtain

an application packet and will establish

deadlines and other requirements. The

NOFA may specify any limitations,

special rules, procedures, and

restrictions for a particular funding

round. After receipt of an application,

the Fund may request clarifying or

technical information on the materials

submitted as part of such application.

§ 1805.701 Application contents.

Unless otherwise specified in an

applicable NOFA, each application

must contain the information specified

in the application packet including the

items specified in this section. To

facilitate coherence and avoid

duplication, an Applicant may present

its application in an order and format

that it believes to be the most

appropriate, provided that the requested

information is included and that an

index is included to assist the Fund in

locating the items requested in this

section.

(a) Award request. An Applicant shall

indicate:

(1) The dollar amount, form, rates,

terms and conditions of financial

assistance requested; and

(2) Any technical assistance needs for

which it is requesting assistance.

(b) Eligibility verification. An

Applicant shall provide information

necessary to establish that it is, or will

be, a CDFI. An Applicant shall

demonstrate whether it meets the

eligibility requirements described in

§ 1805.200 by providing the information

requested in this paragraph (b). The

Fund, in its sole discretion, shall

determine whether an Applicant has

satisfied the requirements of this

paragraph (b).

(1) Primary mission. (i) A CDFI shall

have a primary mission of promoting

community development. In

determining whether an Applicant has

such a primary mission, the Fund will

consider whether the activities of the

Applicant and its Affiliates are

principally directed:

(A) Within the geographic boundaries

of an Investment Area(s);

(B) To members of a Targeted

Population(s);

(C) To projects that provide

significant benefits to residents of an

Investment Area(s) or members of a

Targeted Population(s); or

(D) To any combination of the above.

The Fund may consider other factors,

either in the alternative or in addition

to those mentioned above, as it deems

appropriate.

(ii) Using indicators selected by the

Applicant that are appropriate given the

nature of the products and services it

(and its Affiliates) offers, an Applicant

shall provide information pertinent to

an evaluation of whether the activities

of the Applicant and each Affiliate,

when viewed collectively (as a whole),

are principally directed in the manner

described in paragraph (b)(1)(i) of this

section.

(iii) An Applicant shall provide the

information requested in paragraph

(b)(1)(ii) of this section in accordance

with paragraph (c) of this section.

(2) Target markets. Using the

information in paragraph (b)(1) of this

section that is submitted for the

Applicant (excluding information on

any Affiliates), an Applicant shall

demonstrate that its total activities are

principally directed to serving

Investment Area(s), Targeted

Population(s) or both.

(3) Designation. An Applicant shall

provide a description of the Investment

Area(s) or Targeted Population(s) to be

served. If an Applicant is serving:

(i) An Investment Area(s), it shall

submit:

(A) A completed Investment Area

Designation worksheet contained in the

application packet;

(B) A map of the designated area(s);

and

(C) Studies or other analyses as

described in § 1805.301(e);

(ii) A Targeted Population(s), it shall

submit:

(A) In the case of a Low Income

Targeted Population, a description of

the service area from which the Low

Income Targeted Population is drawn

(which could be, for example, a local,

regional or national service area); or

(B) In the case of a Targeted

Population defined other than on the

basis of Low Income, studies or other

analyses that provide adequate evidence

of lack of adequate access to loans or

equity investments.

(4) Financing entity. (i) A CDFI shall

be an entity whose predominant

business activity is the provision, in

arms-length transactions, of loans,

Development Investments, and/or

similar financing. An Applicant can

demonstrate that it is such an entity if

it is a(n):

(A) Depository Institution Holding

Company;

(B) Insured Depository Institution or

Insured Credit Union; or

(C) Organization which is deemed by

the Fund to have such a predominant

business activity as a result of analysis

of its financial statements, annual

reports, organizing documents, and any

other information submitted as part of

its application. In conducting such

analysis, the Fund may take into

consideration an Applicant’s

institutional type, total asset size, and

stage of organizational development.

(ii) An Applicant described under:

(A) Paragraph (b)(4)(i)(A) of this

section shall submit a copy of its

organizing documents that indicate that

it is a Depository Institution Holding

Company;

(B) Paragraph (b)(4)(i)(B) of this

section shall submit a copy of its current

certificate of insurance issued by the

Federal Deposit Insurance Corporation

or the National Credit Union

Administration; and

(C) Paragraph (b)(4)(i)(C) of this

section shall submit a copy of its

balance sheets and income and expense
16454 Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations

statements (and any notes or other

supplemental information to its

financial statements) as described in

paragraph (d)(2)(i) of this section which

clearly document its assets, liabilities,

and net worth that are dedicated to

lending and Development Investments

and an explanation of how such assets,

liabilities and net worth support these

activities. An Applicant shall provide

the information specified in this

paragraph (b)(4)(ii)(C) for such periods

as specified in paragraph (c) of this

section.

(5) Development Services. An

Applicant shall submit a summary

description of the Development Services

to be offered, the expected provider of

such services, and information on the

persons expected to use such services.

(6) Accountability. An Applicant shall

describe how it has and will maintain

accountability to the residents of the

Investment Area(s) or Targeted

Population(s) it serves.

(7) Non-government. An Applicant

shall submit articles of incorporation (or

comparable organizing documents),

charter, bylaws, or other legal

documentation or opinions sufficient to

verify that it is not a government entity.

(8) Ownership. An Applicant shall

submit information indicating the

portion of shares of all classes of voting

stock that are held by each Insured

Depository Institution or Depository

Institution Holding Company investor

(if any).

(9) Previous Awardees. In the case of

an Applicant that has previously

received assistance under this part, the

Applicant shall demonstrate that it:

(i) Has substantially met its

performance goals and other

requirements described in its previous

Assistance Agreement(s); and

(ii) Will expand its operations into a

new Investment Area(s), serve a new

Targeted Population(s), offer more

products or services, or increase the

volume of its activities.

(10) Previous history. An Applicant

with a prior history of serving

Investment Area(s) or Targeted

Population(s) shall:

(i) Describe its activities, operations

and community benefits created for

residents of the Investment Area(s) or

Targeted Population(s) for such periods

as described in paragraph (c) of this

section; and

(ii) Demonstrate that the Applicant

will expand its operations into a new

Investment Area(s), serve a new Target

Population(s), offer more products or

services, or increase the volume of its

activities.

(c) Time of operation. At the time of

submission of an application, an

Applicant that has been in operation for:

(1) Three years or more shall submit

information on its activities (as

described in paragraphs (b)(1), (2) and

(10) of this section) and financial

statements (as described in paragraph

(d)(2)(i) of this section) for the three

most recent fiscal years;

(2) For more than one year, but less

than three years, shall submit

information on its activities (as

described in paragraphs (b)(1), (2) and

(10) of this section) and financial

statements (as described in paragraph

(d)(2)(i) of this section) for each full

fiscal year since its inception; or

(3) For less than one year (including

a start-up organization), shall submit

information on its activities and

financial statements as described in

paragraph (d) of this section.

(d) Comprehensive Business Plan. An

Applicant shall submit a five-year

Comprehensive Business Plan that

addresses the items described in this

paragraph (d). The Comprehensive

Business Plan shall demonstrate that the

Applicant shall have the capacity to

operate as a CDFI upon receiving

financial assistance from the Fund

pursuant to this part. The Plan should

include projections that are appropriate

given an Applicant’s current and

anticipated organizational type, total

asset size, and stage of organizational

development.

(1) Executive summary. An Applicant

shall provide an executive summary of

the Comprehensive Business Plan

which includes a description of the

institution (including relationships to

any Affiliates), markets served or to be

served, community needs, and other

pertinent information.

(2) Financial performance.—(i)

Historic performance. An Applicant

shall submit historic financial

statements for such periods as specified

in paragraph (c) of this section. Such

statements should include balance

sheets, income and expense statements,

and a capitalization statement (which

includes information on changes in

capital structure and funding from

outside sources) for the Applicant. The

Applicant shall provide information

necessary to assess trends in financial

and operating performance (e.g.,

portfolio delinquencies, defaults and

charge-offs, origination volume and

volume of loans closed, annual or

cumulative operating ratios).

(ii) Future projections. An Applicant

shall submit projections for each of the

next five years which includes balance

sheet projections, income and expense

projections, operating budgets,

capitalization projections, estimates of

the volume of new activity to be

achieved assuming that assistance is

provided by the Fund, and a description

of any assumptions that underlie its

projections.

(iii) Financial statements. (A) An

Applicant shall submit:

(1) Audited financial statements;

(2) Financial statements that have

been reviewed by a certified public

accountant; or

(3) Financial statements that have

been reviewed by the Applicant’s

Appropriate Federal Banking Agency.

(B) All financial statements must

utilize accrual based accounting

methods. All historic financial

statements shall be reported on the basis

of the Applicant’s fiscal year.

(iv) Financial management policies.

An Applicant shall submit information

on its financial management policies

that describe its methodologies for

underwriting and approving loans and

investments and managing and

monitoring its portfolio, internal

operations, and capitalization needs.

(3) Management capacity. An

Applicant shall provide information on

the background and capacity of its

management team, including the

relevant background and expertise of

management (such as resumes or

statements of personal history), key

personnel and governing board

members, if appropriate. The Applicant

shall also provide information on any

training or technical assistance needed

to enhance the capacity of the

organization to successfully carry out its

Comprehensive Business Plan.

(4) Market analysis. An Applicant

shall provide an analysis of its target

markets. An Applicant must:

(i) Describe its proposed target

market(s), including a description of the

characteristics of the Investment Area(s)

(e.g., location, boundaries, economic

characteristics, relationships to

Metropolitan, non-Metropolitan, or

regional markets) or Targeted

Population(s) (e.g., number of persons,

income, and other socio-economic

characteristics), its methodology for

selecting such target market(s), the size

of the market(s), and any relevant

market trends;

(ii) Describe the products and services

(and corresponding pricing) it proposes

to provide and analyze the

competitiveness of such products and

services in the target market(s); and

(iii) Identify and analyze any

characteristics of the target market(s)

that will create opportunities or present

impediments for its products, services

and overall market strategy (e.g.,

economic conditions, perceived or
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations 16455

documented credit needs or Financial

Service needs, market activity,

neighborhood perceptions, government

services or delivery systems, community

institutions, or strength of the

employment base).

(5) Strategy. An Applicant shall

describe its strategy for delivering its

products and services to its target

market(s). An Applicant may also

describe any product or service

development activities that are

necessary before undertaking its strategy

including the nature, scope, cost,

timing, and risks of such activities. An

Applicant shall also describe

anticipated incremental increases in

activity to be achieved with assistance

provided by the Fund and matching

funds.

(6) Coordination strategy. An

Applicant shall describe:

(i) Its plan to coordinate use of

assistance from the Fund with existing

Federal, State, local, and tribal

government assistance programs and

private sector resources;

(ii) How its proposed activities are

consistent with existing economic,

community and housing development

plans adopted for an Investment Area(s)

or Targeted Population(s); and

(iii) How it will coordinate with

community organizations, financial

institutions, and Community Partners (if

applicable) which will provide loans,

equity investments, secondary markets,

or other services to an Investment

Area(s) or a Targeted Population(s).

(7) Projected community impact. An

Applicant shall provide an estimate of

the benefits expected to be created

within its Investment Area(s) or

Targeted Population(s) over the next

five years, as indicated by the extent to

which:

(i) The Applicant will concentrate its

activities within an Investment Area(s)

or among Targeted Population(s);

(ii) The Applicant’s activities will

expand economic opportunity (e.g.,

number of jobs created, jobs retained,

businesses financed, business

ownership opportunities facilitated,

residents of Investment Area(s) or

members of Targeted Population(s)

employed, number or dollar amount of

business loans and investment

originations);

(iii) The Applicant’s activities will

facilitate revitalization (e.g., number of

square feet of commercial space

financed, dollar amount of commercial

real estate loan originations, indicators

of demand for such commercial space

(e.g., market vacancy rates, pre-leased

tenants, number of long term leases),

number and square feet of Community

Facility space financed, number of long

term leases, and dollar amount of

Community Facility loan originations);

(iv) The Applicant’s activities will

promote affordable housing (e.g.,

number of affordable rental units, dollar

amount of affordable rental housing

loans originated, information on the

demand for such housing (e.g., market

vacancy rates, number of people on

public and assisted housing waiting

lists), information on the type of size of

units and the people who will reside in

such units (e.g., families, special needs

populations), number of homes

purchased and dollar amount of home

ownership loan originations));

(v) The Applicant will provide

Development Services (as measured by

the number of individuals that will

receive Development Services); and

(vi) The Applicant will provide

Financial Services (as measured by the

number of new customers of Financial

Services (e.g., individuals opening

checking and savings accounts). In

addition, the Applicant shall provide

such other indicators as deemed

appropriate by the Applicant or the

Fund.

(8) Community need. An Applicant

may provide information on the extent

of economic distress within its

Investment Area(s) or needs of its

Targeted Population(s) to supplement

the data required pursuant to subpart C

of this part and paragraph (b)(3) of this

section. Such information may be from

sources other than the 1990 decennial

census.

(9) Funding sources. An Applicant

shall provide information:

(i) On its current and projected

sources of capital and other financial

support;

(ii) To demonstrate that it has a plan

for achieving or maintaining financial

viability within the five-year period;

and

(iii) To demonstrate that it will, to the

maximum extent appropriate, increase

self-sufficiency. Such information shall

demonstrate that the Applicant will not

be dependent upon future awards from

the Fund for continued viability.

(10) Risks and assumptions. An

Applicant shall identify and discuss

critical risks (including strategies to

mitigate risk) and assumptions

contained in its Comprehensive

Business Plan, and any significant

impediments to the Plan’s

implementation.

(11) Schedule. An Applicant shall

provide a schedule indicating the timing

of major events necessary to realize the

objectives of its Comprehensive

Business Plan.

(12) Community Partnership. In the

case of an Applicant submitting an

application with a Community Partner,

the Applicant shall:

(i) Describe how the Applicant and

the Community Partner will participate

in carrying out the Community

Partnership and how the partnership

will enhance activities serving the

Investment Area(s) or Targeted

Population(s);

(ii) Demonstrate that the Community

Partnership activities are consistent

with the Comprehensive Business Plan;

(iii) Provide information necessary to

evaluate such an application as

described under § 1805.802(b)(4);

(iv) Include a copy of any written

agreement between the Applicant and

the Community Partner related to the

Community Partnership; and

(v) Provide information to

demonstrate that the Applicant meets

the eligibility requirements described in

§ 1805.200 and satisfies the selection

criteria described in subpart H of this

part. (A Community Partner shall not be

required to meet the eligibility

requirements described in § 1805.200.)

(e) Matching funds. (1) An Applicant

shall submit a detailed description of its

plans for raising matching funds and

likely or committed sources of funds to

match the amount of financial

assistance requested from the Fund. An

Applicant shall indicate the extent to

which such matching funds will be

derived from private, nongovernment

sources.

(2) An Applicant shall submit a

description of any matching funds

previously obtained or legally

committed. Such description shall

include the name of the source, total

amount of such match, the date the

matching funds were obtained or legally

committed, if applicable, the extent to

which, and for what purpose, such

matching funds have been used to date,

and terms and restrictions on use for

each matching source, including any

restriction that might reasonably be

construed as a limitation on the ability

of the Applicant to use the funds for

matching purposes. The application

shall include copies of any agreements,

memoranda of understanding, letters of

intent, or similar documents pertaining

to matching funds.

(3) If an Applicant intends to use

retained earnings to meet the matching

funds requirements, it shall provide the

information described in paragraph

(d)(2)(iii) of this section and a copy of

its tax returns for the same period, or,

in the case of an Insured Credit Union,

a copy of its most recent Form 5300 that

has been submitted to the National

Credit Union Administration. The

Applicant shall submit a certification

from its governing body:
16456 Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations

(i) As to the amount and form of

retained earnings available as matching

funds; and

(ii) That such earnings will be used

for the purposes described in its

application.

(4) If the Applicant is requesting a

‘‘severe constraints waiver’’ of any

matching requirements, it shall submit

the information requested in § 1805.602.

(f) Support. An Applicant shall

provide information to demonstrate the

extent of support (if any) within the

Investment Area(s) or Targeted

Population(s) for its activities.

(g) Community Ownership and

Governance. An Applicant shall provide

information to demonstrate whether it is

Community-Owned or CommunityGoverned.

(h) Conflict of interest. An Applicant

shall submit a copy of its conflict of

interest policies that are consistent with

the requirements of § 1805.906.

(i) Environmental information. The

Applicant shall provide sufficient

information regarding the potential

environmental impact of its proposed

activities in order for the Fund to

complete its environmental review

requirements pursuant to part 1815 of

this chapter.

(j) Applicant certification. The

Applicant and Community Partner (if

applicable) shall certify that:

(1) It possesses the legal authority to

apply for assistance from the Fund;

(2) The application has been duly

authorized by its governing body and

duly executed;

(3) It will not use any Fund resources

for lobbying activities as set forth in

§ 1805.907; and

(4) It will comply with all relevant

provisions of this chapter and all

applicable Federal, State, and local

laws, ordinances, regulations, policies,

guidelines, and requirements.

Subpart H—Evaluation and Selection

of Applications

§ 1805.800 Evaluation and selection—

general.

Applicants will be evaluated and

selected, at the sole discretion of the

Fund, to receive assistance based on a

review process, that could include an

interview(s), that is intended to:

(a) Ensure that Applicants are

evaluated on a competitive basis in a

fair and consistent manner;

(b) Ensure that all Awardees satisfy

quality standards; and

(c) Take into consideration the unique

characteristics of institutions that vary

by institution type, total asset sizes,

stage of organizational development,

markets served, products and services

provided, and location.

§ 1805.801 Geographic diversity.

In selecting Awardees, the Fund shall

seek to fund a geographically diverse

group of Applicants serving

Metropolitan Areas, non-Metropolitan

Areas, and Indian Reservations from

different regions of the United States.

§ 1805.802 Evaluation of Applications.

(a) Eligibility and Completeness. An

Applicant will not be eligible to receive

assistance pursuant to this part if it fails

to meet the eligibility requirements

described under § 1805.200 or if it has

not submitted complete application

materials. For the purposes of this

paragraph (a), the Fund reserves the

right to request additional or

supplemental information from the

Applicant, if it deems it appropriate.

(b) Substantive Review. In evaluating

and selecting Applicants, the Fund will

evaluate factors including the following:

(1) Financial Strength and

Organizational Capacity. The Fund will

examine several criteria in evaluating

financial and organizational capacity

and an Applicant’s likelihood of success

in meeting the goals of its

Comprehensive Business Plan. These

criteria will include the experience,

strength and background of an

Applicant’s management team and other

key personnel, the quality of its

financial management policies and

practices, the breadth and depth of its

financial resources, the quality of its

Comprehensive Business Plan, and

trends in financial and operating

performance.

(2) External resources. The Fund will

evaluate the extent of external resources

available to an Applicant based on:

(i) The amount of firm commitments

to meet or exceed the matching

requirements and the likely success of

the plan for raising the balance of the

matching funds in a timely manner;

(ii) The extent to which the matching

funds are, or will be, derived from

private sources or new investments;

(iii) Whether an Applicant is, or will

become, an Insured CDFI; and

(iv) The extent to which an Awardee

will use assistance to expand the funds

available for lending and equity

investments beyond the sum of the

award and the matching funds.

(3) Community impact. The Fund will

evaluate an application’s community

impact based on:

(i) The extent of economic distress

within the designated Investment

Area(s) or the extent of need within the

designated Targeted Population(s), as

those factors are measured by objective

criteria;

(ii) The extent to which an Applicant

will concentrate its activities on serving

Investment Area(s) or Targeted

Population(s);

(iii) The extent of need for loans,

equity investments, Development

Services, and Financial Services within

the designated Investment Area(s) or

Targeted Population(s);

(iv) The extent to which the activities

proposed in the Comprehensive

Business Plan will expand economic

opportunities or promote community

development within the designated

Investment Area(s) or Targeted

Population(s);

(v) The extent of support from the

designated Investment Area(s) or

Targeted Population(s);

(vi) The extent to which an Applicant

is, or will be, Community-Owned or

Community-Governed;

(vii) The extent to which an Applicant

will increase its resources through such

means as a Community Partnership,

participation in the secondary market,

and coordination with other institutions

(e.g., a local Empowerment Zone or

Enterprise Community coordinating

entity);

(viii) The extent and nature of the

potential community development

impact that will be catalyzed by the

Fund’s assistance, relative to the

amount of such assistance to be

provided; and

(ix) In the case of an Applicant with

a prior history of serving Investment

Area(s) or Targeted Population(s), the

extent of success in serving them.

(4) Community Partnerships.

Community Partnerships will be

evaluated based on the extent to which

the Applicant and Community Partner

meet the factors described in paragraphs

(b)(1), (2) and (3) of this section and

giving consideration to the extent to

which:

(i) The Community Partner will

participate in carrying out the activities

of the Community Partnership;

(ii) The Community Partnership will

enhance the likelihood of success of the

Comprehensive Business Plan; and

(iii) Service to an Investment Area(s)

or Targeted Population(s) will be better

performed by a Community Partnership

than by an Applicant alone.

(5) Other factors. The Fund may

consider any other factors with respect

to any application as it deems

appropriate.

(c) Consultation with Appropriate

Federal Banking Agencies. The Fund

shall consult with, and consider the

views of, the Appropriate Federal

Banking Agency prior to providing

assistance to:

(1) An Insured CDFI;

(2) A CDFI that is examined by or

subject to the reporting requirements of
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations 16457

an Appropriate Federal Banking

Agency; or

(3) A CDFI that has as its Community

Partner an institution that is examined

by, or subject to, the reporting

requirements of an Appropriate Federal

Banking Agency.

(d) Awardee selection. The Fund will

select Awardees based on the criteria

described in paragraph (b) of this

section and any other criteria set forth

in this part or the applicable NOFA.

Subpart I—Terms and Conditions of

Assistance

§ 1805.900 Safety and soundness.

(a) Regulated institutions. Nothing in

this part, or in an Assistance Agreement,

shall affect any authority of an

Appropriate Federal Banking Agency to

supervise and regulate any institution or

company.

(b) Non-Regulated CDFIs. The Fund

will, to the maximum extent practicable,

ensure that Awardees that are NonRegulated CDFIs are financially and

managerially sound and maintain

appropriate internal controls.

§ 1805.901 Assistance Agreement;

sanctions.

(a) Prior to providing any assistance,

the Fund and an Awardee shall execute

an Assistance Agreement that requires

an Awardee to comply with

performance goals and abide by other

terms and conditions of assistance. Such

performance goals may be modified at

any time by mutual consent of the Fund

and an Awardee or as provided in

paragraph (c) of this section. If a

Community Partner is part of an

application that is selected for

assistance, such partner must be a party

to the Assistance Agreement if deemed

appropriate by the Fund.

(b) An Awardee shall comply with

performance goals that have been

negotiated with the Fund and which are

based upon the Comprehensive

Business Plan submitted as part of the

Awardee’s application. Performance

goals for Insured CDFIs shall be

determined in consultation with the

Appropriate Federal Banking Agency.

Such goals shall be incorporated in, and

enforced under, the Awardee’s

Assistance Agreement.

(c) The Assistance Agreement shall

provide that, in the event of fraud,

mismanagement, noncompliance with

the Fund’s regulations or

noncompliance with the terms and

conditions of the Assistance Agreement

on the part of the Awardee (or the

Community Partner, if applicable), the

Fund, in its discretion, may:

(1) Require changes in the

performance goals set forth in the

Assistance Agreement;

(2) Require changes in the Awardee’s

Comprehensive Business Plan;

(3) Revoke approval of the Awardee’s

application;

(4) Reduce or terminate the Awardee’s

assistance;

(5) Require repayment of any

assistance that has been distributed to

the Awardee;

(6) Bar the Awardee (and the

Community Partner, if applicable) from

reapplying for any assistance from the

Fund; or

(7) Take any other action as permitted

by the terms of the Assistance

Agreement.

(d) In the case of an Insured

Depository Institution, the Assistance

Agreement shall provide that the

provisions of the Act, this part, and the

Assistance Agreement shall be

enforceable under section 8 of the

Federal Deposit Insurance Act by the

Appropriate Federal Banking Agency

and that any violation of such

provisions shall be treated as a violation

of the Federal Deposit Insurance Act.

Nothing in this paragraph (d) precludes

the Fund from directly enforcing the

Assistance Agreement as provided for

under the terms of the Act.

(e) The Fund shall notify the

Appropriate Federal Banking Agency

before imposing any sanctions on an

Insured CDFI or other institution that is

examined by or subject to the reporting

requirements of that agency. The Fund

shall not impose a sanction described in

paragraph (c) of this section if the

Appropriate Federal Banking Agency, in

writing, not later than 30 calendar days

after receiving notice from the Fund:

(1) Objects to the proposed sanction;

(2) Determines that the sanction

would:

(i) Have a material adverse effect on

the safety and soundness of the

institution; or

(ii) Impede or interfere with an

enforcement action against that

institution by that agency;

(3) Proposes a comparable alternative

action; and

(4) Specifically explains:

(i) The basis for the determination

under paragraph (e)(2) of this section

and, if appropriate, provides

documentation to support the

determination; and

(ii) How the alternative action

suggested pursuant to paragraph (e)(3)

of this section would be as effective as

the sanction proposed by the Fund in

securing compliance and deterring

future noncompliance.

(f) In reviewing the performance of an

Awardee in which its Investment

Area(s) includes an Indian Reservation

or Targeted Population(s) includes an

Indian Tribe, the Fund shall consult

with, and seek input from, the

appropriate tribal government.

(g) Prior to imposing any sanctions

pursuant to this section or an Assistance

Agreement, the Fund shall, to the

maximum extent practicable, provide

the Awardee (or the Community

Partner, if applicable) with written

notice of the proposed sanction and an

opportunity to comment. Nothing in

this section, however, shall provide an

Awardee or Community Partner with

the right to any formal or informal

hearing or comparable proceeding not

otherwise required by law.

§ 1805.902 Disbursement of funds.

Assistance provided pursuant to this

part may be provided in a lump sum or

over a period of time, as determined

appropriate by the Fund. The Fund

shall not provide any assistance (other

than technical assistance) under this

part until an Awardee has satisfied any

conditions set forth in its Assistance

Agreement and has secured firm

commitments for the matching funds

required for such assistance. At a

minimum, a firm commitment must

consist of a binding written agreement

between an Awardee and the source of

the matching funds that is conditioned

only upon the availability of the Fund’s

assistance and such other conditions as

the Fund, in its sole discretion, may

deem appropriate. Such agreement must

provide for disbursal of the matching

funds to an Awardee prior to, or

simultaneously with, receipt by an

Awardee of the Federal funds.

§ 1805.903 Data collection and reporting.

(a) Data—general. An Awardee (and a

Community Partner, if appropriate)

shall maintain such records as may be

prescribed by the Fund which are

necessary to:

(1) Disclose the manner in which

Fund assistance is used;

(2) Demonstrate compliance with the

requirements of this part and an

Assistance Agreement; and

(3) Evaluate the impact of the CDFI

Program.

(b) Customer profiles. An Awardee

(and a Community Partner, if

appropriate) shall compile such data on

the gender, race, ethnicity, national

origin, or other information on

individuals that utilize its products and

services as the Fund shall prescribe in

an Assistance Agreement. Such data

will be used to determine whether

residents of Investment Area(s) or

members of Targeted Population(s) are

adequately served.
16458 Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations

(c) Access to records. An Awardee

(and a Community Partner, if

appropriate) must submit such financial

and activity reports, records, statements,

and documents at such times, in such

forms, and accompanied by such

reporting data, as required by the Fund

or the U.S. Department of Treasury to

ensure compliance with the

requirements of this part and to evaluate

the impact of the CDFI Program. The

United States Government, including

the U.S. Department of Treasury, the

Comptroller General, and their duly

authorized representatives, shall have

full and free access to the Awardee’s

offices and facilities and all books,

documents, records, and financial

statements relating to use of Federal

funds and may copy such documents as

they deem appropriate. The Fund, if it

deems appropriate, may prescribe

access to record requirements for

entities that are borrowers of, or that

receive investments from, an Awardee.

(d) Retention of records. An Awardee

shall comply with all record retention

requirements as set forth in OMB

Circular A–110 (as applicable).

(e) Review. (1) At least annually, the

Fund will review the progress of an

Awardee (and a Community Partner, if

appropriate) in implementing its

Comprehensive Business Plan and

satisfying the terms and conditions of its

Assistance Agreement.

(2) An Awardee shall submit a report

within 45 days after the end of each

calendar quarter, or within some other

period after the end of each calendar

quarter as may be agreed to in the

Assistance Agreement, with information

on, unless otherwise determined by

mutual agreement between the Awardee

and the Fund, the performance of its

loans, Development Investments,

Development Services, and Financial

Services in the previous quarter, and

unaudited financial statements. Such

report shall include key indicators of

portfolio performance, including

volume of originations, delinquencies,

and defaults, and charge-offs for the

previous quarter.

(3) An Awardee shall submit a report

within 60 days after the end of each

Federal fiscal year, or by such

alternative deadline as may be agreed to

in the Assistance Agreement, with:

(i) Information on its customer profile

and the performance of its loans,

Development Investments, Development

Services, and Financial Services for the

previous year;

(ii) Information on its portfolio

performance, including volume of

originations, delinquencies, and

defaults and charge-offs for the previous

year;

(iii) Qualitative and quantitative

information on an Awardee’s

compliance with its performance goals

and (if appropriate) an analysis of

factors contributing to any failure to

meet such goals;

(iv) Information describing the

manner in which Fund assistance and

any corresponding matching funds were

used. The Fund will use such

information to verify that assistance was

used in a manner consistent with the

Assistance Agreement;

(v) Certification that an Awardee

continues to meet the eligibility

requirements described in § 1805.200;

and

(vi) Its most recent audited financial

statements prepared by an independent

certified public accountant. Such

statements shall cover the operations of

the Awardee’s most recently completed

fiscal year. The audit shall be conducted

in accordance with generally accepted

Government Auditing Standards set

forth in the General Accounting Office’s

Government Auditing Standards (1994

Revision) issued by the Comptroller

General and OMB Circular A–133

(‘‘Audits of Institutions of Higher

Education and Other Nonprofit

Institutions’’), as applicable.

(4) The Fund shall make reports

described in paragraph (e)(2) and (e)(3)

of this section available for public

inspection after deleting any materials

necessary to protect privacy or

proprietary interests.

(f) Exchange of information with

Appropriate Federal Banking Agencies.

(1) Except as provided in paragraph

(f)(4) of this section, prior to directly

requesting information from or

imposing reporting or record keeping

requirements on an Insured CDFI or

other institution that is examined by or

subject to the reporting requirements of

an Appropriate Federal Banking

Agency, the Fund shall consult with the

Appropriate Federal Banking Agency to

determine if the information requested

is available from or may be obtained by

such agency in the form, format, and

detail required by the Fund.

(2) If the information, reports, or

records requested by the Fund pursuant

to paragraph (f)(1) of this section are not

provided by the Appropriate Federal

Banking Agency within 15 calendar

days after the date on which the

material is requested, the Fund may

request the information from or impose

the record keeping or reporting

requirements directly on such

institutions with notice to the

Appropriate Federal Banking Agency.

(3) The Fund shall use any

information provided by the

Appropriate Federal Banking Agency

under this section to the extent

practicable to eliminate duplicative

requests for information and reports

from, and record keeping by, an Insured

CDFI or other institution that is

examined by or subject to the reporting

requirements of an Appropriate Federal

Banking Agency.

(4) Notwithstanding paragraphs (f)(1)

and (2) of this section, the Fund may

require an Insured CDFI or other

institution that is examined by or

subject to the reporting requirements of

an Appropriate Federal Banking Agency

to provide information with respect to

the institution’s implementation of its

Comprehensive Business Plan or

compliance with the terms of its

Assistance Agreement, after providing

notice to the Appropriate Federal

Banking Agency.

(5) Nothing in this part shall be

construed to permit the Fund to require

an Insured CDFI or other institution that

is examined by or subject to the

reporting requirements of a Appropriate

Federal Banking Agency to obtain,

maintain, or furnish an examination

report of any Appropriate Federal

Banking Agency or records contained in

or related to such report.

(6) The Fund and the Appropriate

Federal Banking Agency shall promptly

notify each other of material concerns

about an Awardee that is an Insured

CDFI or that is examined by or subject

to the reporting requirements of an

Appropriate Federal Banking Agency,

and share appropriate information

relating to such concerns.

(7) Neither the Fund nor the

Appropriate Federal Banking Agency

shall disclose confidential information

obtained pursuant to this section from

any party without the written consent of

that party.

(8) The Fund, the Appropriate Federal

Banking Agency, and any other party

providing information under this

paragraph (f) of this section shall not be

deemed to have waived any privilege

applicable to the any information or

data, or any portion thereof, by

providing such information or data to

the other party or by permitting such

data or information, or any copies or

portions thereof, to be used by the other

party.

(g) Availability of referenced

publications. The publications

referenced in this section are available

as follows:

(1) OMB Circulars may be obtained

from the Office of Administration,

Publications Office, 725 17th Street,

NW., Room 2200, New Executive Office

Building, Washington, DC 20503; and

(2) General Accounting Office

materials may be obtained from GAO
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations 16459

Distribution, 700 4th Street, NW., Suite

1100, Washington, DC 20548.

§ 1805.904 Information.

The Fund and each Appropriate

Federal Banking Agency shall cooperate

and respond to requests from each other

and from other Appropriate Federal

Banking Agencies in a manner that

ensures the safety and soundness of the

Insured CDFIs or other institution that

is examined by or subject to the

reporting requirements of an

Appropriate Federal Banking Agency.

§ 1805.905 Compliance with government

requirements.

In carrying out its responsibilities

pursuant to an Assistance Agreement,

the Awardee shall comply with all

applicable Federal, State, and local

laws, regulations, and ordinances, OMB

Circulars, and Executive Orders.

§ 1805.906 Conflict of interest

requirements.

(a) Provision of credit to Insiders. (1)

An Awardee that is a Non-Regulated

CDFI may not use any monies provided

to it by the Fund to make any credit

(including loans and Development

Investments) available to an Insider

unless it meets the following

restrictions:

(i) The credit must be provided

pursuant to standard underwriting

procedures, terms and conditions;

(ii) The Insider receiving the credit,

and any family member or business

partner thereof, shall not participate in

any way in the decision making

regarding such credit;

(iii) The Board of Directors or other

governing body of the Awardee shall

approve the extension of the credit; and

(iv) The credit must be provided in

accordance with a policy regarding

credit to Insiders that has been

approved in advance by the Fund.

(2) An Awardee that is an Insured

CDFI or a Depository Institution

Holding Company shall comply with

the restrictions on Insider activities and

any comparable restrictions established

by its Appropriate Federal Banking

Agency.

(b) Awardee standards of conduct. An

Awardee that is a Non-Regulated CDFI

shall maintain a code or standards of

conduct acceptable to the Fund that

shall govern the performance of its

Insiders engaged in the awarding and

administration of any credit (including

loans and Development Investments)

and contracts using monies from the

Fund. No Insider of an Awardee shall

solicit or accept gratuities, favors or

anything of monetary value from any

actual or potential borrowers, owners or

contractors for such credit or contracts.

Such policies shall provide for

disciplinary actions to be applied for

violation of the standards by the

Awardee’s Insiders.

§ 1805.907 Lobbying restrictions.

No assistance made available under

this part may be expended by an

Awardee to pay any person to influence

or attempt to influence any agency,

elected official, officer or employee of a

State or local government in connection

with the making, award, extension,

continuation, renewal, amendment, or

modification of any State or local

government contract, grant, loan or

cooperative agreement as such terms are

defined in 31 U.S.C. 1352.

§ 1805.908 Criminal provisions.

The criminal provisions of 18 U.S.C.

657 regarding embezzlement or

misappropriation of funds are

applicable to all Awardees and Insiders.

§ 1805.909 Fund deemed not to control.

The Fund shall not be deemed to

control an Awardee by reason of any

assistance provided under the Act for

the purpose of any applicable law.

§ 1805.910 Limitation on liability.

The liability of the Fund and the

United States Government arising out of

any assistance to a CDFI in accordance

with this part shall be limited to the

amount of the investment in the CDFI.

The Fund shall be exempt from any

assessments and other liabilities that

may be imposed on controlling or

principal shareholders by any Federal

law or the law of any State. Nothing in

this section shall affect the application

of any Federal tax law.

§ 1805.911 Fraud, waste and abuse.

Any person who becomes aware of

the existence or apparent existence of

fraud, waste or abuse of assistance

provided under this part should report

such incidences to the Office of

Inspector General of the U.S.

Department of the Treasury.

[FR Doc. 97–8783 Filed 4–2–97; 1:09 pm]

BILLING CODE 4810–70–P