Community Development Financial Institutions Program

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

Secs. 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

[[Page 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 much-needed 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 (Sec. 1805.100), a summary (Sec. 1805.101), its relationship to

other Fund programs (Sec. 1805.102) and definitions (Sec. 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

[[Page 16446]]

(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 Sec. 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 three-year 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 Sec. 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 Sec. 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.

[[Page 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 Sec. 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

Sec. 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 Sec. 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).

[[Page 16448]]

Subpart A--General Provisions

Sec. 1805.100 Purpose.

The purpose of the Community Development Financial Institutions

Program is to facilitate the creation of a national network of

financial institutions that is dedicated to community development.

Sec. 1805.101 Summary.

Under the Community Development Financial Institutions Program, the

Fund will provide financial and technical assistance to Applicants

selected by the Fund in order to enhance their ability to make loans

and investments and provide services. An Awardee must serve an

Investment Area(s), Targeted Population(s), or both. The Fund will

select Awardees to receive financial and technical assistance through a

competitive application process. Each Awardee will enter into an

Assistance Agreement which will require it to achieve performance goals

negotiated between the Fund and the Awardee and abide by other terms

and conditions pertinent to any assistance received under this part.

Sec. 1805.102 Relationship to other Fund programs.

(a) Bank Enterprise Award Program. (1) No Community Development

Financial Institution may receive 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.

Sec. 1805.103 Awardee not instrumentality.

No Awardee (or its Community Partner) shall be deemed to be an

agency, department, or instrumentality of the United States.

Sec. 1805.104 Definitions.

For the purpose of this part:

(a) Act means the Community Development Banking and Financial

Institutions Act of 1994, as amended (12 U.S.C. 4701 et seq.);

(b) Affiliate means any company or entity that controls, is

controlled by, or is under common control with another company;

(c) Applicant means any entity submitting an application for

assistance under this part;

(d) Appropriate Federal Banking Agency has the same meaning as in

section 3 of the Federal Deposit Insurance Act (12 U.S.C. 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

Sec. 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

Sec. 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;

[[Page 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 Sec. 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 non-Metropolitan 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 Sec. 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

Sec. 1805.200(h)(4); and

(ff) Targeted Population means individuals or an identifiable group

meeting the requirements of Sec. 1805.302.

Sec. 1805.105 Waiver authority.

The Fund may waive any requirement of this part that is not

required by law upon a determination of good cause. Each such waiver

shall be in writing and supported by a statement of the facts and the

grounds forming the basis of the waiver. For a waiver in an individual

case, the Fund must determine that application of the requirement to be

waived would adversely affect the achievement of the purposes of the

Act. For waivers of general applicability, the Fund will publish

notification of granted waivers in the Federal Register.

Sec. 1805.106 OMB control number.

The collection of information requirements in this part have been

approved by the Office of Management and Budget and assigned OMB

control number 1505-0154.

Subpart B-Eligibility

Sec. 1805.200 Applicant eligibility.

(a) General requirements. (1) An entity that meets the requirements

described in 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

Sec. 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

Sec. 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.

[[Page 16450]]

(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.

Sec. 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 Sec. 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 Sec. 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 Sec. 1805.200

are no longer met.

Subpart C--Target Markets

Sec. 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 Sec. 1805.301. A Targeted Population shall

consist of Low-Income persons or those who otherwise lack adequate

access to loans or equity investments.

Sec. 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 non-Metropolitan Area median

family income or the national non-Metropolitan Area median family

income, whichever is greater;

(3) The unemployment rate is at least 1.5 times the national

average;

(4) The percentage of occupied distressed housing (as indicated by

lack of complete plumbing and occupancy of more than one person per

room) is at least 20 percent; or

(5) In areas located outside of a Metropolitan Area, 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.

Sec. 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

Sec. 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.

Sec. 1805.401 Eligible activities.

Financial assistance provided under this part may be used by an

Awardee to serve Investment Area(s) or Targeted

[[Page 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.

Sec. 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.

Sec. 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 Sec. 1805.502.

(c) An Applicant seeking technical assistance must meet the

eligibility requirements of Sec. 1805.200 and submit an application as

described in Sec. 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

Sec. 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 Sec. 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.

Sec. 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.

Sec. 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 Sec. 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 Sec. 1805.802(a) was submitted to the

Fund prior to the receipt of the application of said Awardee and within

the current funding round.

Sec. 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

Sec. 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 Sec. 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

[[Page 16452]]

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.

Sec. 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 Sec. 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.

Sec. 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.

Sec. 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.

Sec. 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

Sec. 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

[[Page 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

Sec. 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.

Sec. 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 Sec. 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 Sec. 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

[[Page 16454]]

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

[[Page 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 Sec. 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 Sec. 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 Sec. 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:

[[Page 16456]]

(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 Sec. 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 Community-

Governed.

(h) Conflict of interest. An Applicant shall submit a copy of its

conflict of interest policies that are consistent with the requirements

of Sec. 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 Sec. 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

Sec. 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.

Sec. 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.

Sec. 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 Sec. 1805.200 or if it has not

submitted complete application materials. For the purposes of this

paragraph (a), the Fund reserves the right to request additional 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

[[Page 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

Sec. 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 Non-Regulated CDFIs are

financially and managerially sound and maintain appropriate internal

controls.

Sec. 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.

Sec. 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.

Sec. 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.

[[Page 16458]]

(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 Sec. 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

[[Page 16459]]

Distribution, 700 4th Street, NW., Suite 1100, Washington, DC 20548.

Sec. 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.

Sec. 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.

Sec. 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.

Sec. 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.

Sec. 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.

Sec. 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.

Sec. 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.

Sec. 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