Community Development Financial Institutions Program

DEPARTMENT OF THE TREASURY

Community Development Financial Institutions Fund

12 CFR Part 1805

RIN 1505-AA71

Community Development Financial Institutions Program

AGENCY: Community Development Financial Institutions Fund, Department

of the Treasury.

ACTION: Revised interim rule with request for comment.

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SUMMARY: The Department of the Treasury is issuing a revised interim

rule implementing the Community Development Financial Institutions

Program (CDFI Program) administered by the Community Development

Financial Institutions Fund (Fund). The purpose of the CDFI Program is

to promote economic revitalization and community development through

investment in and assistance to Community Development Financial

Institutions (CDFIs). Under the CDFI Program, the Fund provides

financial and technical assistance in the form of grants, loans, equity

investments and deposits to competitively selected CDFIs. The Fund

provides such assistance to CDFIs to enhance their ability to make

loans and investments, and to provide services for the benefit of

designated investment areas, targeted populations, or both. After

selection for such assistance, each CDFI will enter into an assistance

agreement with the Fund that will include performance goals, matching

funds requirements and reporting requirements. This revised interim

rule: Revises, clarifies and streamlines CDFI certification and funding

eligibility requirements; affords CDFIs greater flexibility in meeting

matching funds requirements; clarifies the funding and certification

applications' content requirements and evaluation criteria; reduces the

frequency of previously approved collections of information by

replacing some of the quarterly reporting requirements with semi-annual

reporting requirements and other quarterly reporting requirements with

annual reporting requirements; and makes other technical and clarifying

changes that the Fund believes will inure to the benefit of CDFIs and

entities proposing to become CDFIs.

DATES: Revised interim rule effective November 1, 1999; comments must

be received in the offices of the Fund on or before January 14, 2000.

ADDRESSES: All comments concerning this interim rule should be

addressed to the Deputy Director for Policy and Programs, Community

Development Financial Institutions Fund, Department of the Treasury,

601 13th Street, NW., Suite 200 South, Washington, DC 20005. Comments

may be inspected at the above address weekdays between 9:30 a.m. and

4:30 p.m. Other information regarding the Fund and its programs may be

obtained through the Fund's web site at http://www.treas.gov/cdfi.

FOR FURTHER INFORMATION CONTACT: Maurice A. Jones, Deputy Director for

Policy and Programs, Community Development Financial Institutions Fund,

at (202) 622-8662. (This is not a toll free number.)

SUPPLEMENTARY INFORMATION:

I. Background

The Community Development Financial Institutions Fund (Fund) was

established as a wholly owned government corporation by the Community

Development Banking and Financial Institutions Act of 1994 (the Act).

Subsequent legislation placed the Fund within the Department of the

Treasury and gave the Secretary of the Treasury all powers and rights

of the Administrator of the Fund as set forth in the authorizing

statute.

The Fund's programs are designed to facilitate the flow of lending

and investment capital to distressed communities and to individuals who

have been unable to take full advantage of the financial services

industry. The initiative is an important step in rebuilding poverty-

stricken and transitional communities and creating economic opportunity

for people often left out of the economic mainstream.

Access to credit and investment capital is an essential ingredient

for creating and retaining jobs, developing affordable housing,

revitalizing neighborhoods, unleashing the economic potential of small

businesses, and empowering people. Over the past several decades,

community-based financial institutions have proven that strategic

lending and investment activities tailored to the unique

characteristics of underserved markets are highly effective in

improving the economic well being of communities and the people who

live there.

The Fund was established to promote economic revitalization and

community development through, among other things, investment in and

assistance to community development financial institutions (CDFIs),

which specialize in serving underserved markets and the people who live

there. CDFIs--while highly effective--are typically small in scale and

often have difficulty raising the capital needed to meet the demands

for their products and services. Under the CDFI Program, the Fund

provides CDFIs with financial and technical assistance in the form of

grants, loans, equity investments, and deposits in order to enhance

their ability to make loans and investments, and provide services for

the benefit of designated investment areas, targeted populations or

both. Applicants participate in the CDFI Program through a competitive

application and selection process in which the Fund makes funding

decisions based on pre-established evaluation criteria. Program

participants generally receive monies from the Fund only after being

certified as a CDFI and entering into an assistance agreement with the

Fund. These assistance agreements include performance goals, matching

funds requirements and reporting requirements.

This issue of the Federal Register contains two separate Notices of

Funds Availability (NOFAs) for the CDFI Program, one for the fifth

round of the Core Component of the CDFI Program and another for the

fourth round of the Intermediary Component of the CDFI Program. Under

the Core Component, the Fund provides financial and technical

assistance to CDFIs that directly serve their Target Markets through

loans, investments and other activities, rather than primarily through

the financing of other CDFIs. Under the Intermediary Component, the

Fund provides financial and technical assistance to CDFIs that

primarily provide assistance to other CDFIs and/or support the

formation of CDFIs. In January 2000, the Fund expects to issue a NOFA

for the third round of the Technical Assistance Component of the CDFI

Program. Under the Technical Assistance Component, the Fund provides

CDFIs with technical assistance in the form of grants that may be used

to enhance the capacity of CDFIs through the acquisition of training

services, consulting services, and/or technology. Since these

regulations were last amended, the Fund has identified a number of

provisions that need to be updated, clarified, expanded, and

simplified.

II. Summary of Changes

Authorities

The current rule contains a list of authorities. This interim rule

updates the list by adding 31 U.S.C. 321, which governs the

promulgation of regulations. The current rule lists 12 U.S.C. 4703 note

with a reference to Public Law

[[Page 59077]]

104-19. The Fund is deleting the reference to this public law, for

purposes of regulatory economy and because there is more than one

public law underlying the Sec. 4703 note.

Relationship to Other Fund Programs

Section 1805.102(a) of the current rule prohibits, under certain

circumstances, an Insured CDFI from receiving funding under both the

Bank Enterprise Award (BEA) Program and the CDFI Program. This interim

rule revises Sec. 1805.102(a) to conform more closely with the

counterpart provision contained in the BEA Program regulations (12 CFR

1806.102(a)) and the Bank Enterprise Act of 1991, as amended, (12

U.S.C. 1834a(g)).

Definitions

Section 1805.104 of the current rule contains a list of

definitions. This interim rule revises Sec. 1805.104 by amending

several definitions and adding new definitions. First, Sec. 1805.104(h)

adds a new definition for ``Community Development Financial Institution

Intermediary'' in recognition of the CDFI Program's Intermediary

Component.

Second, Sec. 1805.104(p) of the current rule contains a definition

of ``Development Investment.'' In Sec. 1805.104(r) of this interim

rule, the Fund is renaming ``Development Investment'' as ``Equity

Investment'' and is adding an inclusive list of items that comprise

``Equity Investments.'' This inclusive list is largely derived from the

BEA Program regulation definition of equity investment at 12 CFR

1806.103(t). Under this interim rule, Equity Investments can comprise

loans made on such terms that they have sufficient characteristics of

equity and are considered as such by the Fund. Specifically, the Fund

will generally consider a loan to be equity-like where: (1) the

repayment of loan principal and/or interest is payable only out of

available cash flow, so nonpayment of principal and/or interest will

not automatically result in a default; (2) the maturity date of the

loan is indeterminate in that the debtor is required to repay the

principal on the maturity date only if it has sufficient resources; and

(3) the loan is subordinated to payment obligations due all other

creditors of the debtor, except other holders of similar type loans.

The Fund also interprets ``Equity Investment'' to comprise secondary

capital accounts established with low-income designated credit unions

under 12 CFR 701.34. In order to distinguish ``equity investments''

made by the Fund from ``Equity Investments'' made by CDFIs, this

interim rule distinguishes the two by capitalizing ``Equity

Investments'' made by CDFIs.

Third, Sec. 1805.104(q) of the current rule defines ``Development

Services'' as activities that promote community development and are

integral to lending and Development Investment activities and which

prepare potential borrowers or investees to utilize the lending or

investment products of the Awardee, its Affiliates, or its Community

Partners. Section 1805.104(q) of this interim rule defines

``Development Services'' as activities that promote community

development and are integral to the Applicant's provision of Financial

Products and which prepare current or potential borrowers or investees

to utilize the Financial Products of the Applicant. This interim rule

replaces ``Awardee'' with ``Applicant'' because the provision of

Development Services is necessary, as a threshold matter, for an

institution to be eligible to apply for and receive assistance under

the CDFI Program. This interim rule deletes references to the Awardee's

Affiliates, or its Community Partners, because the Fund believes that

the provision of Development Services must prepare the Awardee's

current or potential borrowers or investees to utilize the Financial

Products of the Awardee itself and not those of its Affiliates or its

Community Partners. ``Financial Products'' is a new term defined in

Sec. 1805.104(s) of this interim rule, and is discussed below.

Fourth, Sec. 1805.104(s) of this interim rule adds a definition of

``Financial Products.'' This interim rule defines ``Financial

Products'' as loans and Equity Investments and, in the case of CDFI

Intermediaries, grants to CDFIs and/or emerging CDFIs and deposits in

insured credit union CDFIs and/or emerging insured credit union CDFIs.

The Fund is adding this definition as a shorthand definition for loans

and Equity Investments made by CDFIs. The rationale for the Fund's

expansion of the definition for CDFI Intermediaries is explained below

under Applicant Eligibility.

Fifth, Sec. 1805.104(ii) of this interim rule adds a definition of

``Target Market'' as comprising an Investment Area(s) and/or Targeted

Population(s). The Fund is adding this definition to clarify the

meaning of such term, which is contained throughout this interim rule.

Applicant Eligibility

Section 1805.200 of the current rule contains eligibility

requirements for an entity to qualify as a CDFI and apply for

assistance under the CDFI Program. Section 1805.200(a)(2) of the

current rule provides that an entity that proposes to become a CDFI is

eligible to apply for assistance if the Fund determines that such

entity will meet the CDFI eligibility requirements 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 believes that the time frame contained in

the current rule is too indeterminate and is a frequent source of

confusion for Applicants. The Fund believes that a clearer and more

measurable time frame for determining eligibility is appropriate and

will better serve the interests of the affected community. As a result,

Sec. 1805.200(a)(2) of this interim rule requires an entity to meet the

CDFI eligibility requirements within 24 months from September 30 of the

calendar year in which the applicable NOFA application deadline falls

or such other period as may be set forth in the applicable NOFA. Under

this interim rule, such other period can be a period lesser or greater

than the 24 months described above.

Sections 1805.200(b)-(g) of the current rule contains six criteria

that an entity must meet to qualify as a CDFI. In addition,

Secs. 1805.701(b)(1)-(8) of the current rule contains the application

content requirements governing how an entity applying for assistance

under the CDFI Program is to demonstrate that it meets the CDFI

eligibility requirements described in Sec. 1805.200 of the current

rule. The Fund believes that the segregation of these two sections is

too diffuse and too confusing for Applicants. The Fund also believes

that Secs. 1805.200(b)-(g) and 1805.701(b)(1)-(8) of the current rule

should be consolidated for purposes of regulatory economy and

efficiency. As a result, the Fund has decided to consolidate these

sections into Sec. 1805.201(b) of this interim rule.

Section 1805.200(b) of the current rule provides that in order to

qualify as a CDFI, an entity must have a primary mission of community

development. Section 1805.701(b)(1) of the current rule provides that

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 toward serving an Investment

Area(s), a Targeted Population(s), or a combination of the two. The

Fund has decided to revise the primary mission test, because the Fund

believes the current test to be: (1) partially duplicative of the

Target Market eligibility test under Secs. 1805.200(c) and

1805.701(b)(2) of the current rule, which

[[Page 59078]]

requires an Applicant to establish that its total activities (excluding

information on any Affiliates) are principally directed toward serving

an Investment Area(s), Targeted Population(s), or both; and (2) unduly

burdensome on Applicants in terms of providing the requisite level of

data. As a result, Sec. 1805.201(b)(1) of this interim rule provides

that in determining whether an Applicant meets the primary mission

eligibility test, the Fund will consider whether the activities of the

Applicant and its Affiliates, when viewed collectively (as a whole),

are purposefully directed toward improving the social and/or economic

conditions of underserved people (which may include Low-Income persons

and persons who lack adequate access to capital and/or Financial

Services) and/or residents of distressed communities (which may include

Investment Areas). The Fund believes that Sec. 1805.201(b)(1) of this

interim rule will reduce burdens associated with meeting the primary

mission eligibility test, because the market that an Applicant (and its

Affiliates) must serve in order to meet this test is no longer

restricted to Investment Areas or Targeted Populations. However, the

Fund is still requiring Applicants to meet the same Target Market

eligibility test of the current rule as described in

Sec. 1805.201(b)(3) of this interim rule.

The Fund intends to implement the primary mission eligibility test

as follows. The Fund will review the incorporating documents, bylaws,

annual reports, and/or other organizational documents of an Applicant

and its Affiliates to determine whether the activities of the Applicant

and its Affiliates, as a whole, are purposefully directed toward

improving the social and/or economic conditions of underserved people

and/or residents of distressed communities. In circumstances where the

organizational documents do not, in the judgment of the Fund,

demonstrate such a primary mission, the Fund will examine whether the

actual activities of the Applicant and its Affiliates, combined,

demonstrates such a primary mission.

Sections 1805.200(d) and 1805.701(b)(4) of the current rule contain

the Financing entity eligibility test, which provides that in order for

an entity to qualify as a CDFI, such entity's predominant business

activity must be, through arms-length transactions, the provision of

loans, Development Investments, and/or other similar financing. Because

the Act provides that a CDFI must provide Development Services in

conjunction with loans and Equity Investments (12 U.S.C.

4702(5)(A)(iii)) and because Development Services support an

Applicant's financing activities, Sec. 1805.201(b)(2) of this interim

rule provides that an entity's predominant business activity must be

the provision, in arms-length transactions, of Financial Products,

Development Services and/or other similar financing. The Fund

interprets ``other similar financing'' as including: (1) pre-

development grants, provided that, in the opinion of the Fund, they are

offered to the entity's borrowers or potential borrowers; and (2) loan

packaging, provided that, in the opinion of the Fund, the entity

finances more than a nominal portion of the loan that is being packaged

for another entity.

The Fund intends to implement the Financing entity eligibility test

in Sec. 1805.201(b)(2) of this interim rule as follows. First, the Fund

will determine whether an entity's provision of Financial Products and

Development Services, combined, comprise a simple majority of its

activities (i.e., greater than 50 percent). If so, the entity will be

deemed to have met the Financing entity eligibility test. If not, the

Fund will then consider the extent to which the entity engages in other

similar financing activities. If an entity's provision of Financial

Products, Development Services and other similar financing activities,

combined, comprises a simple majority of its activities, the entity

will be deemed to have met the Financing entity eligibility test. If

not, the Fund will then consider whether an entity's provision of

Financial Products, Development Services and other similar financing

activities, combined, comprise a plurality (the largest component) of

the entity's activities. If an entity's provision of Financial

Products, Development Services, and other similar financing activities,

combined, comprise a plurality of its activities, the entity will be

deemed to have met the Financing entity eligibility test.

Section 1805.701(b)(4)(ii)(C) of the current rule requires a Non-

Regulated Applicant to demonstrate that it meets the Financing entity

eligibility test by submitting, among other things, as many as three

years of year-end financial statements. The Fund believes that this

requirement is unduly burdensome on Applicants. Accordingly,

Sec. 1805.201(b)(2)(ii)(C) of this interim rule requires each Applicant

to submit only its most recent year-end financial statements. However,

the Fund reserves the right, consistent with Sec. 1805.600 of this

interim rule, to require Applicants to submit prior years' financial

statements, if the Fund deems it appropriate. Furthermore, the Fund

believes that in order to more effectively and accurately determine

whether an Applicant's predominant business activity is the provision

of Financial Products, Development Services, and/or other similar

financing, the Fund needs to examine an Applicant's allocation of staff

resources. Accordingly, Sec. 1805.201(b)(2)(ii)(C) requires an

Applicant to provide qualitative and quantitative information on the

percentage of Applicant staff time dedicated to the provision of

Financial Products, Development Services and/or other similar

financing.

As discussed above, Financial Products comprise loans and Equity

Investments and, in the case of CDFI Intermediaries, grants to CDFIs

and/or emerging CDFIs and deposits in insured credit union CDFIs and/or

emerging insured credit union CDFIs. The Fund's rationale for including

the aforementioned grants and deposits of CDFI Intermediaries is that

said grants and deposits will, consistent with Sec. 1805.100 of this

interim rule, facilitate the creation of a national network of

financial institutions dedicated to community development. In some

cases, grants and deposits constitute the primary means by which a CDFI

Intermediary fulfills its role of supporting the creation and

development of CDFIs. Further, grants constitute the most attractive

form of capital to enable CDFIs to expand or to facilitate the start-up

of new or emerging CDFIs. Deposits in insured credit union CDFIs in the

form of Share Certificates constitute one of the most effective ways to

provide capital to a credit union CDFI. The Fund believes that

encouraging CDFI Intermediaries to provide capital to CDFIs and CDFIs

in formation in the most effective and attractive forms possible

furthers the purposes of the Act by enhancing the liquidity of CDFIs so

that they may pursue economic revitalization in communities throughout

the United States.

Section 1805.200(e) of the current rule contains the Development

Services eligibility test, which provides that in order for an entity

to qualify as a CDFI, the entity must directly, or through an

Affiliate, provide Development Services. The Fund believes that this

language should be expanded to reflect the fact that an entity may

provide Development Services through a contractual agent. Accordingly,

Sec. 1805.201(b)(4) of this interim rule provides that the entity must

directly, through an Affiliate or through a contract with another

provider, provide Development Services.

[[Page 59079]]

Certification as a Community Development Financial Institution

Section 1805.201 of the current rule provides that an entity may

apply for certification as a CDFI and also provides that the Fund may

decertify a certified entity after a determination that it no longer

meets the eligibility requirements of Secs. 1805.200(b) through (h).

The Fund believes that this language should be expanded to include the

additional eligibility requirements that the Fund may impose in

accordance with Sec. 1805.200(a)(3) of the current rule. Accordingly,

Sec. 1805.201(a) of this interim rule provides that the Fund may

decertify a certified CDFI after a determination that it no longer

meets the eligibility requirements of Sec. 1805.201(b),

Sec. 1805.200(b), or Sec. 1805.200(a)(3).

Sections 1805.300 through 1805.302 of the current rule discuss in

greater detail the Target Market eligibility test contained in

Sec. 1805.200(c) of the current rule. The Fund has decided to

consolidate these sections into Sec. 1805.201(b) of this interim rule

for purposes of regulatory economy and efficiency. The Fund also has

made numbering changes to the subsequent sections to conform with this

consolidation.

Section 1805.301(d) of the current rule contains a listing of

objective criteria of economic distress necessary for geographic

unit(s) to qualify as an eligible Investment Area. These criteria

include the percentage of the population living in poverty, the

percentage of Low-Income households, the unemployment rate, the

percentage of occupied distressed housing, and the county population

loss. These criteria conform with the Act (12 U.S.C. 4702(16)(A)(i)),

which confers upon the Fund the authority to expand these distress

criteria to include rural population outmigration. Accordingly, the

Fund has decided to add rural population net migration loss to the list

of objective criteria of economic distress. This new objective

criterion is found in Sec. 1805.201(b)(3)(ii)(D)(5)(ii) of this interim

rule, and provides that for areas located outside of a Metropolitan

Area, the county net migration loss (outmigration less immigration)

over the five year period preceding the most recent decennial census is

at least 5 percent.

Section 1805.302(c) of the current rule provides that an Applicant

shall provide its products and services in a manner consistent with the

Equal Credit Opportunity Act, to the extent that the Applicant is

subject to such Act. The Fund is deleting this language from this

interim rule for purposes of regulatory economy and efficiency inasmuch

as this requirement is already reflected in Sec. 1805.905 of the

current rule (Sec. 1805.805 of this interim rule), which provides that

an Awardee shall comply with all applicable Federal laws.

Section 1805.302(a) of the current rule provides that a Targeted

Population may include an identifiable group of individuals that lack

adequate access to loans or equity investments. Section

1805.701(b)(3)(ii)(B) of the current rule provides that in order for

such an identifiable group to meet the Target Market/Targeted

Population eligibility test, an Applicant must submit to the Fund

studies or analyses that evidence lack of adequate access to loans or

equity investments. The Fund believes that the current rule needs to be

clarified to reflect that the identifiable group of individuals must be

drawn from the Applicant's service area, and to more accurately reflect

the information the Fund needs in determining whether an identifiable

group of individuals lacks adequate access to loans or Equity

Investments. Accordingly, Sec. 1805.201(b)(3)(iii)(B)(2) of this

interim rule provides that an Applicant must submit: (1) A description

of the Applicant's service area from which the Targeted Population is

drawn; (2) studies, analyses or other information demonstrating that

the identifiable group of individuals, either on a national basis or on

a localized basis in the Applicant's service area, lacks adequate

access to loans and Equity Investments; and (3) studies, analyses or

other information demonstrating that the Applicant's clients, who

comprise the identifiable group of individuals, lack adequate access to

loans or Equity Investments.

Technical Assistance

Section 1805.403(d) of the current rule provides that applications

for technical assistance will be evaluated pursuant to the competitive

review criteria contained in the evaluation provisions of the current

rule (Sec. 1805.802(b)). The Fund believes that, in the interest of

economy and efficiency, it needs the flexibility to streamline the

competitive review and evaluation of applications for technical

assistance, particularly those received under the CDFI Program

Technical Assistance Component in which the maximum amount of technical

assistance typically awarded is $50,000. Section 1805.303(d) of this

interim rule accomplishes this by providing that applications for

technical assistance will be evaluated pursuant to the competitive

review criteria contained in the evaluation provisions of this interim

rule (Sec. 1805.701(b)), except as otherwise may be provided in the

applicable NOFA. Section 1805.303(d) of this interim rule confers upon

the Fund the discretion to select the specific evaluation criteria

contained in Sec. 1805.701(b) of this interim rule that it intends to

utilize in evaluating applications for technical assistance. However,

this discretion is constrained by the Act, which expressly prescribes

specific evaluation criteria that also are contained in

Sec. 1805.701(b) of this interim rule. As a result, the Fund's

selection of evaluation criteria for applications for technical

assistance will, without exception, include all statutorily prescribed

evaluation criteria.

Matching Funds Requirements

Section 1805.600 of the current rule provides that funds used to

satisfy a legal requirement for obtaining funds under another Federal

grant or award program cannot be used to satisfy the matching

requirements set forth in this section of the current rule. The Fund

has decided to clarify this section by providing that in the case of an

applicant that is a previous Awardee under the CDFI Program, such

applicant cannot reuse matching funds used to satisfy the matching

funds requirements for its prior CDFI Program award. Accordingly,

Sec. 1805.500 of this interim rule provides that funds used to satisfy

a legal requirement for obtaining funds under either the CDFI Program

or another Federal grant or award program may not be used to satisfy

the matching requirements.

Section 1805.600 of the current rule provides that funds spent by

an Applicant for operating expenses prior to the calendar year in which

the applicable application deadline falls cannot be used to meet the

matching funds requirements. The Fund has decided to eliminate this

provision from Sec. 1805.500 of this interim rule to ease the burden on

Applicants of substantiating that such matching funds were not used for

operating expenses. However, the Fund will continue to determine, under

Sec. 1805.500 of this interim rule, whether matching funds expended

prior to the execution of an Assistance Agreement promoted the purposes

of the Comprehensive Business Plan that the Fund is supporting through

its assistance.

Section 1805.602 of the current rule contains a ``severe

constraints waiver'' in which Applicants with severe constraints on

available sources of matching funds may seek a reduction in the

matching funds requirements.

[[Page 59080]]

Section 1805.602(b) of the current rule limits the Fund's availability

to grant severe constraints waivers to not more than 25 percent of the

total funds available for ``obligation'' in any fiscal year. The Fund

is adding an additional sentence to this section, in conformance with

the Act, which specifically provides that not more than 25 percent of

the total funds ``disbursed'' in any fiscal year may receive a severe

constraints waiver (12 U.S.C. 4707(e)(3)). Accordingly, the second

sentence of Sec. 1805.502(b) of this interim rule provides that not

more than 25 percent of the total funds disbursed in any fiscal year

may be matched under a severe constraints waiver.

Section 1805.603 of the current rule provides that Applicants may

use as matching funds 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. The current rule also provides that an Applicant shall

raise the balance of its matching funds within the period set forth in

the applicable NOFA. For purposes of regulatory economy and efficiency,

the Fund has decided to streamline this section. As a result,

Sec. 1805.503 of this interim rule provides that Applicants shall

satisfy matching funds requirements within the period set forth in the

applicable NOFA.

Section 1805.604 of the current rule authorizes Applicants to

utilize retained earnings as matching funds. Section 1805.604(d) of the

current rule describes how retained earnings may be used by Insured

Credit Unions to meet matching funds requirements. Insured Credit

Unions are credit unions in which the member accounts are insured by

the National Credit Union Share Insurance Fund (NCUSIF). When the Fund

originally promulgated the current rule it did not intend to exclude

those credit unions whose member accounts are insured but not by the

NCUSIF from Sec. 1805.604(d) of the current rule. As a result, the Fund

has revised Sec. 1805.504(d) of this interim rule to cover all credit

unions whose member accounts are insured and not just Insured Credit

Unions.

Section 1805.604(d)(4)(i)(B) of the current rule requires Insured

Credit Unions seeking to meet their matching funds requirements by

utilizing retained earnings in the form of net capital accumulated

since inception to increase their shares fourfold ``within 18 months of

the last day of the month prior to the month in which the Applicant is

selected to receive assistance.'' The Fund believes that the time frame

contained in the current rule is too indeterminate, too short and a

frequent source of confusion for Applicants. The Fund believes that a

longer, clearer and more measurable time frame is appropriate and would

better serve the interests of the affected community. As a result,

Sec. 1805.504(d)(4)(i)(B) of this interim rule provides that the

fourfold increase in shares must be achieved ``within 24 months from

September 30 of the calendar year in which the applicable application

deadline falls.''

Section 1805.604(d)(4)(i)(C) of the current rule requires that the

fourfold increase in shares be maintained for the period of time

covered by the Comprehensive Business Plan. The Fund is deleting this

requirement in recognition of periodic fluctuations in share levels.

Section 1805.604(d)(4)(iii) of the current rule prescribes a

bifurcated methodology for determining the appropriate baseline from

which the fourfold increase in shares is measured. The Fund believes

that the current bifurcated methodology is a frequent cause of

confusion for Applicants. As a result, the Fund has decided to simplify

this methodology through a fixed and more easily determinable baseline.

Specifically, Sec. 1805.504(d)(4)(iii) of this interim rule provides

that the baseline will be as of September 30 of the calendar year in

which the applicable application deadline falls.

Section 1805.604(e) of the current rule provides that an Applicant

may only use retained earnings to meet matching funds requirements if

it has liquidity (as determined by the Fund) in amounts equal to or

greater than the amount of retained earnings that is proposed to be

used to meet matching funds requirements. For purposes of regulatory

economy and efficiency, the Fund has decided to eliminate this

requirement.

Applications for Assistance

Section 1805.701 of the current rule provides that an Applicant may

present its application in an order and format that it believes to be

the most appropriate. The Fund has found that affording Applicants such

flexibility makes it considerably more difficult for the Fund to

evaluate applications. The Fund also believes that requiring all

applications to be in the same order and format will inure to the

benefit of all Applicants by ensuring a more efficient evaluation

process. As a result, Sec. 1805.601 of this interim rule deletes this

provision.

Section 1805.701 of the current rule contains the application

content requirements. The Fund has decided to revise this section

(Sec. 1805.601 of this interim rule) to reduce burdens on Applicants.

For example, Sec. 1805.701(d)(2)(iii)(B) of the current rule

requires an Applicant to submit financial statements that utilize

accrual based accounting methods. Section 1805.601(d)(4) of this

interim rule continues to require the submission of financial

statements but eliminates the requirement that such financial

statements reflect accrual based accounting methods. The Fund believes

that the elimination of this requirement will reduce burdens on those

Applicants that currently utilize cash-based accounting methods. In

addition, Sec. 1805.701(e)(2) of the current rule requires an Applicant

to submit a description of matching funds previously obtained or

legally committed and related matching funds documentation in the form

of agreements, letters of intent, and memoranda of understanding.

Section 1805.601(d)(8)(ii) of this interim rule continues to require an

Applicant to submit a description of matching funds previously obtained

or legally committed, but deletes the requirement that an Applicant

submit with its application related matching funds documentation. The

Fund will only request such matching funds documentation from those

Applicants that advance to the second phase of the Fund's substantive

review process.

The Fund also has decided to reformat Sec. 1805.601 of this interim

rule to conform more closely with the Fund's new application packet.

The new application packet contains several changes that also are

intended to reduce burdens on Applicants. For example, the new

application packet is a stand-alone document that identifies all

application content requirements. Previous application packets directed

Applicants to the current rule to ascertain the application content

requirements. Applicants thus had to refer to two discrete documents in

order to complete their applications. Such process has proven to be

burdensome for Applicants in that it increased the amount of time it

took them to complete the applications. The new application packet also

contains clearer instructions, and identifies for each component part

of the application the evaluation criteria and the points allocated for

each evaluation criteria.

Furthermore, in accordance with the authority conferred to the Fund

under the Act (12 U.S.C. 4704(b)(6)), the Fund is adding a new

application content requirement to better ensure that the Fund's

resources promote economic revitalization and community development.

Specifically,

[[Page 59081]]

Sec. 1805.601(d)(13) of this interim rule requires each Applicant to

describe the extent of need for the Fund's assistance, as demonstrated

by the extent of economic distress in the Applicant's Target Market and

the extent to which the Applicant needs the Fund's assistance to carry

out its Comprehensive Business Plan.

Evaluation and Selection of Applications

Section 1805.800 of the current rule provides that part of the

Fund's evaluation process may include an interview(s). In the past two

funding rounds of the CDFI Program, the Fund has conducted interviews

telephonically and in the offices of the Applicant. Section 1805.700 of

this interim rule clarifies that the Fund may conduct not only

telephonic interviews but also interviews in the form of site visits to

an Applicant's and/or an Applicant's clients', borrowers', or

investees' places of business.

Section 1805.802(b) of the current rule contains an inclusive

listing of application evaluation factors. The Fund has reformatted and

revised these factors to better reflect the Fund's intention to achieve

maximum community impact under the CDFI Program and to conform with the

Fund's new application packet. Section 1805.802(b)(1) of the current

rule includes as an evaluation factor the quality of an Applicant's

Comprehensive Business Plan. The Fund is deleting this specific

evaluation factor from Sec. 1805.701(b) of this interim rule, because

the Fund believes this factor is already captured in other evaluation

factors. The deletion of this factor is not intended by the Fund to

have any substantive effect.

Consistent with its authority under the Act (12 U.S.C.

4706(a)(14)), the Fund has decided to add a new evaluation factor.

Specifically, Sec. 1805.701(b)(9) of this interim rule provides that

the Fund will consider the extent of need for its assistance, as

demonstrated by the extent of economic distress in the Applicant's

Target Market, and the extent to which the Applicant needs the Fund's

assistance to carry out its Comprehensive Business Plan. In the case of

an Applicant that has previously received assistance under the CDFI

Program, the Fund also will consider the Applicant's level of success

in meeting its performance goals, financial soundness covenants (if

applicable), and other requirements contained in the previously

negotiated and executed Assistance Agreement(s) between the Fund and

the Applicant, and whether the Applicant will expand the scope and

volume of its activities with the help of additional assistance from

the Fund. In the case of an Applicant that previously received funding

under the CDFI Program, the Fund reserves the right to consider the

extent to which the Applicant timely delivered its required reports to

the Fund.

Notwithstanding these changes to Sec. 1805.701(b) of this interim

rule, the Fund reserves the right per Sec. 1805.701(b)(10) of this

interim rule to consider other evaluation factors in evaluating

applications. The Fund anticipates that it will publish such other

evaluation factors in the applicable NOFA and/or the applicable

application packet.

Data Collection and Reporting

Section 1805.903(b) of the current rule requires Awardees to

compile user profile information to assist the Fund in determining

whether the Awardee's Target Market is adequately served. Section

1805.803(b) of this interim rule adds a provision that the Awardee's

compilation of user profile information will assist the Fund in

evaluating the impact of the CDFI Program. Specifically, the Fund will

request that the Awardee report user profile information as part of the

reporting requirement that will assist the Fund in evaluating the

impact of the CDFI Program. This impact reporting requirement is

contained in Sec. 1805.903(c) of the current rule (Secs. 1805.803(c)

and 1805.803(e)(5) of this interim rule), and has been previously

reviewed and approved by OMB in accordance with the Paperwork Reduction

Act of 1995 and assigned OMB Control Number 1505-0154.

Section 1805.903(e)(2) of the current rule requires each Awardee to

submit a quarterly report with information on the performance of its

loans, Development Investments, Development Services, and Financial

Services, unaudited financial statements, and information on portfolio

performance. The Fund believes that these quarterly reporting

requirements are unduly burdensome, and has decided to reduce the

frequency of such reporting. In addition, the Fund has decided to

narrow the scope of such reports. Specifically, Sec. 1805.803(e)(2) of

this interim rule requires each Awardee to submit a semi-annual report

(i.e., two per year) consisting of its internal (unaudited) financial

statements and information on compliance with its financial soundness

covenants. The Fund is adding to the semi-annual report a requirement

that the Awardee report on its compliance with its financial soundness

covenants. This requirement is similar to an existing requirement

contained in each Assistance Agreement and does not impose any

additional burdens on Awardees. Awardees will still be required to

report on the performance of their Financial Products, Development

Services, Financial Services, and portfolio performance; however, such

reporting requirements will be added to the impact reporting

requirement described in Sec. 1805.803(c) of this interim rule.

Section 1805.903(e)(3) of the current rule requires each Awardee to

submit an annual report consisting of: (1) information on the Awardee's

customer profile and the performance of its products and services; (2)

information on its portfolio performance; (3) qualitative and

quantitative information on the Awardee's performance goals; (4)

information describing the manner in which Fund assistance and any

corresponding matching funds were used; (5) certification that the

Awardee continues to meet the eligibility requirements described in

Sec. 1805.200; and (6) its most recent audited financial statements

prepared by an independent certified public accountant. The Fund has

decided to remove several of the reporting requirements from the annual

report and add them to the impact reporting requirement. In addition,

the Fund is adding to the annual report a requirement that the Awardee

provide a narrative description of the Awardee's activities in support

of its Comprehensive Business Plan. This requirement is similar to an

existing requirement contained in each Assistance Agreement, and does

not impose any additional reporting burdens on Awardees. As a result,

Sec. 1805.803(e)(3) of this interim rule requires each Awardee to

submit an annual report consisting of: (1) a narrative description of

an Awardee's activities in support of its Comprehensive Business Plan;

(2) qualitative and quantitative information on an Awardee's compliance

with its performance goals; (3) information describing the manner in

which Fund assistance and any corresponding matching funds were used;

and (4) certification that the Awardee continues to meet the

eligibility requirements described in Sec. 1805.200.

In addition, the Fund has decided to bifurcate the due dates for

submission of the audited statements of financial condition and the

other reporting requirements contained in the annual report. The Fund

understands that a longer period of time is required for an Awardee's

independent certified public accountant to conduct and complete an

[[Page 59082]]

audit of the Awardee than is required for an Awardee to prepare and

submit to the Fund the other reporting requirements contained in the

annual report. As a result, Sec. 1805.803(e)(4) of this interim rule

generally affords an Awardee 120 days after the end of its fiscal year

to submit its audited financial statements to the Fund, as opposed to

Sec. 1805.803(e)(3) of this interim rule which generally affords an

Awardee 60 days to submit its annual report to the Fund.

III. Rulemaking Analysis

Executive Order (E.O.) 12866

It has been determined that this regulation is not a significant

regulatory action as defined in Executive Order 12866. Therefore, a

Regulatory Assessment is not required.

Regulatory Flexibility Act

Because no notice of proposed rule making is required for this

revised interim rule, the provisions of the Regulatory Flexibility Act

(5 U.S.C. 601 et seq.) do not apply.

Paperwork Reduction Act

The collections of information contained in this interim rule have

been previously reviewed and approved by the Office of Management and

Budget (OMB) in accordance with the Paperwork Reduction Act of 1995 and

assigned OMB Control Number 1505-0154. An agency may not conduct or

sponsor, and a person is not required to respond to, a collection of

information unless it displays a valid control number assigned by OMB.

This document restates the collections of information without

substantive change.

Comments concerning suggestions for reducing the burden of

collections of information should be directed to the Deputy Director

for Policy and Programs, Community Development Financial Institutions

Fund, 601 13th Street, NW., Suite 200 South, Washington, DC 20005.

National Environmental Policy Act

Pursuant to Treasury Directive 75-02 (Department of the Treasury

Environmental Quality Program), the Department has determined that

these interim regulations are categorically excluded from the National

Environmental Policy Act and do not require an environmental review.

Administrative Procedure Act

Because the revisions to this interim rule relate to loans and

grants, notice and public procedure and a delayed effective date are

not required pursuant to the Administrative Procedure Act found at 5

U.S.C. 553(a)(2).

Comment

Public comment is solicited on all aspects of this interim

regulation. The Fund will consider all comments made on the substance

of this interim regulation, but does not intend to hold hearings.

Catalog of Federal Domestic Assistance Number

Community Development Financial Institutions Program--21.020.

List of Subjects in 12 CFR Part 1805

Community development, Grant programs--housing and community

development, Loan programs--housing and community development,

Reporting and recordkeeping requirements, Small businesses.

For the reasons set forth in the preamble, 12 CFR part 1805 is

revised to read as follows:

PART 1805--COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS PROGRAM

Subpart A--General Provisions

Sec.

1805.100 Purpose.

1805.101 Summary.

1805.102 Relationship to other Fund programs.

1805.103 Awardee not instrumentality.

1805.104 Definitions.

1805.105 Waiver authority.

1805.106 OMB control number.

Subpart B--Eligibility

1805.200 Applicant eligibility.

1805.201 Certification as a Community Development Financial

Institution.

Subpart C--Use of Funds/Eligible Activities

1805.300 Purposes of financial assistance.

1805.301 Eligible activities.

1805.302 Restrictions on use of assistance.

1805.303 Technical assistance.

Subpart D--Investment Instruments

1805.400 Investment instruments--general.

1805.401 Forms of investment instruments.

1805.402 Assistance limits.

1805.403 Authority to sell.

Subpart E--Matching Funds Requirements

1805.500 Matching funds--general.

1805.501 Comparability of form and value.

1805.502 Severe constraints waiver.

1805.503 Time frame for raising match.

1805.504 Retained earnings.

Subpart F--Applications for Assistance

1805.600 Notice of Funds Availability.

1805.601 Application contents.

Subpart G--Evaluation and Selection of Applications

1805.700 Evaluation and selection--general.

1805.701 Evaluation of Applications.

Subpart H--Terms and Conditions of Assistance

1805.800 Safety and soundness.

1805.801 Assistance Agreement; sanctions.

1805.802 Disbursement of funds.

1805.803 Data collection and reporting.

1805.804 Information.

1805.805 Compliance with government requirements.

1805.806 Conflict of interest requirements.

1805.807 Lobbying restrictions.

1805.808 Criminal provisions.

1805.809 Fund deemed not to control.

1805.810 Limitation on liability.

1805.811 Fraud, waste and abuse.

Authority: 12 U.S.C. 4703, 4703 note, 4717; and 31 U.S.C. 321.

Subpart A--General Provisions

Sec. 1805.100 Purpose.

The purpose of the Community Development Financial Institutions

Program is to facilitate the creation of a national network of

financial institutions that is dedicated to community development.

Sec. 1805.101 Summary.

Under the Community Development Financial Institutions Program, the

Fund will provide financial and technical assistance to Applicants

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

and investments and provide services. An Awardee must serve an

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

select Awardees to receive financial and technical assistance through a

competitive application process. Each Awardee will enter into an

Assistance Agreement which will require it to achieve performance goals

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

and conditions pertinent to any assistance received under this part.

Sec. 1805.102 Relationship to other Fund programs.

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

Financial Institution may receive a Bank Enterprise Award under the

Bank Enterprise Award Program (part 1806 of this chapter) if it has:

(i) An application pending for assistance under the Community

Development Financial Institutions Program;

(ii) Directly received assistance in the form of a disbursement

under the Community Development Financial Institutions Program within

the preceding 12-month period; or

[[Page 59083]]

(iii) Ever directly received assistance under the Community

Development Financial Institutions Program for the same activities for

which it is seeking a Bank Enterprise Award.

(2) An equity investment (as defined in part 1806 of this chapter)

in, or a loan to, a Community Development Financial Institution, or

deposits in an Insured Community Development Financial Institution,

made by a Bank Enterprise Award Program Awardee may be used to meet the

matching funds requirements described in subpart E of this part.

Receipt of such equity investment, loan, or deposit does not disqualify

a Community Development Financial Institution from receiving assistance

under this part.

(b) Liquidity enhancement program. No entity that receives

assistance through the liquidity enhancement program authorized under

section 113 (12 U.S.C. 4712) of the Act may receive assistance under

the Community Development Financial Institutions Program.

Sec. 1805.103 Awardee not instrumentality.

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

agency, department, or instrumentality of the United States.

Sec. 1805.104 Definitions.

For the purpose of this part:

(a) Act means the Community Development Banking and Financial

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

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

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

(c) Applicant means any entity submitting an application for

assistance under this part;

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

section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)), and

also includes the National Credit Union Administration with respect to

Insured Credit Unions;

(e) Assistance Agreement means a formal agreement between the Fund

and an Awardee which specifies the terms and conditions of assistance

under this part;

(f) Awardee means an Applicant selected by the Fund to receive

assistance pursuant to this part;

(g) Community Development Financial Institution (or CDFI) means an

entity currently meeting the eligibility requirements described in

Sec. 1805.200;

(h) Community Development Financial Institution Intermediary (or

CDFI Intermediary) means an entity that meets the CDFI Program

eligibility requirements described in Sec. 1805.200 and whose primary

business activity is the provision of Financial Products to CDFIs and/

or emerging CDFIs;

(i) Community Development Financial Institutions Program (or CDFI

Program) means the program authorized by sections 105-108 of the Act

(12 U.S.C. 4704-4707) and implemented under this part;

(j) Community Facility means a facility where health care, child

care, educational, cultural, or social services are provided;

(k) Community-Governed means an entity in which the residents of an

Investment Area(s) or members of a Targeted Population(s) represent

greater than 50 percent of the governing body;

(l) Community-Owned means an entity in which the residents of an

Investment Area(s) or members of a Targeted Population(s) have an

ownership interest of greater than 50 percent;

(m) Community Partner means a person (other than an individual)

that provides loans, Equity Investments, or Development Services and

enters into a Community Partnership with an Applicant. A Community

Partner may include a Depository Institution Holding Company, an

Insured Depository Institution, an Insured Credit Union, a not-for-

profit or for-profit organization, a State or local government entity,

a quasi-government entity, or an investment company authorized pursuant

to the Small Business Investment Act of 1958 (15 U.S.C. 661 et seq.);

(n) Community Partnership means an agreement between an Applicant

and a Community Partner to collaboratively provide loans, Equity

Investments, or Development Services to an Investment Area(s) or a

Targeted Population(s);

(o) Comprehensive Business Plan means a document covering not less

than the next five years which meets the requirements described under

Sec. 1805.601(d);

(p) Depository Institution Holding Company means a bank holding

company or a savings and loan holding company as defined in section 3

of the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(1));

(q) Development Services means activities that promote community

development and are integral to the Applicant's provision of Financial

Products. Such services shall prepare or assist current or potential

borrowers or investees to utilize the Financial Products of the

Applicant. Such services include, for example: financial or credit

counseling to individuals for the purpose of facilitating home

ownership, promoting self-employment, or enhancing consumer financial

management skills; or technical assistance to borrowers or investees

for the purpose of enhancing business planning, marketing, management,

and financial management skills;

(r) Equity Investment means an investment made by an Applicant

which, in the judgment of the Fund, directly supports or enhances

activities that serve an Investment Area(s) or a Targeted

Population(s). Such investments must be made through an arms-length

transaction with a third party that does not have a relationship with

the Applicant as an Affiliate. Equity Investments comprise a stock

purchase, a purchase of a partnership interest, a purchase of a limited

liability company membership interest, a loan made on such terms that

it has sufficient characteristics of equity (and is considered as such

by the Fund), or any other investment deemed to be an Equity Investment

by the Fund;

(s) Financial Products means loans, Equity Investments and, in the

case of CDFI Intermediaries, grants to CDFIs and/or emerging CDFIs and

deposits in insured credit union CDFIs and/or emerging insured credit

union CDFIs;

(t) Financial Services means checking, savings accounts, check-

cashing, money orders, certified checks, automated teller machines,

deposit-taking, and safe deposit box services;

(u) Fund means the Community Development Financial Institutions

Fund established under section 104(a) (12 U.S.C. 4703(a)) of the Act;

(v) Indian Reservation means any geographic area that meets the

requirements of section 4(10) of the Indian Child Welfare Act of 1978

(25 U.S.C. 1903(10)), and shall include land held by incorporated

Native groups, regional corporations, and village corporations, as

defined in and pursuant to the Alaska Native Claims Settlement Act (43

U.S.C. 1602), public domain Indian allotments, and former Indian

reservations in the State of Oklahoma;

(w) Indian Tribe means any Indian Tribe, band, pueblo, nation, or

other organized group or community, including any Alaska Native village

or regional or village corporation, as defined in or established

pursuant to the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et

seq.), which is recognized as eligible for special programs and

services provided by the United States to Indians because of their

status as Indians;

(x) Insider means any director, officer, employee, principal

shareholder (owning, individually or in combination

[[Page 59084]]

with family members, five percent or more of any class of stock), or

agent (or any family member or business partner of any of the above) of

any Applicant, Affiliate or Community Partner;

(y) Insured CDFI means a CDFI that is an Insured Depository

Institution or an Insured Credit Union;

(z) Insured Credit Union means any credit union, the member

accounts of which are insured by the National Credit Union Share

Insurance Fund;

(aa) Insured Depository Institution means any bank or thrift, the

deposits of which are insured by the Federal Deposit Insurance

Corporation;

(bb) Investment Area means a geographic area meeting the

requirements of Sec. 1805.201(b)(3);

(cc) Low-Income means an income, adjusted for family size, of not

more than:

(1) For Metropolitan Areas, 80 percent of the area median family

income; and (2) For non-Metropolitan Areas, the greater of:

(i) 80 percent of the area median family income; or

(ii) 80 percent of the statewide non-Metropolitan Area median

family income;

(dd) Metropolitan Area means an area designated as such by the

Office of Management and Budget pursuant to 44 U.S.C. 3504(e) and 31

U.S.C. 1104(d) and Executive Order 10253 (3 CFR, 1949-1953 Comp., p.

758), as amended;

(ee) Non-Regulated CDFI means any entity meeting the eligibility

requirements described in Sec. 1805.200 which is not a Depository

Institution Holding Company, Insured Depository Institution, or Insured

Credit Union;

(ff) State means any State of the United States, the District of

Columbia or any territory of the United States, Puerto Rico, Guam,

American Samoa, the Trust Territories of the Pacific Islands, the

Virgin Islands, and the Northern Mariana Islands;

(gg) Subsidiary means any company which is owned or controlled

directly or indirectly by another company and includes any service

corporation owned in whole or part by an Insured Depository Institution

or any Subsidiary of such a service corporation, except as provided in

Sec. 1805.200(b)(4);

(hh) Targeted Population means individuals or an identifiable group

meeting the requirements of Sec. 1805.201(b)(3); and

(ii) Target Market means an Investment Area(s) and/or a Targeted

Population(s).

Sec. 1805.105 Waiver authority.

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

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

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

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

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

waived would adversely affect the achievement of the purposes of the

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

notification of granted waivers in the Federal Register.

Sec. 1805.106 OMB control number.

The collection of information requirements in this part have been

approved by the Office of Management and Budget and assigned OMB

control number 1505-0154.

Subpart B--Eligibility

Sec. 1805.200 Applicant eligibility.

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

described in Sec. 1805.201(b) and paragraph (b) of this section will be

considered a CDFI and, subject to paragraph (a)(3) of this section,

will be eligible to apply for assistance under this part.

(2) An entity that proposes to become a CDFI is eligible to apply

for assistance under this part if the Fund determines that such

entity's application materials provide a realistic course of action to

ensure that it will meet the requirements described in Sec. 1805.201(b)

and paragraph (b) of this section within 24 months from September 30 of

the calendar year in which the applicable application deadline falls or

such other period as may be set forth in an applicable NOFA. The Fund

will not, however, disburse any financial assistance to such an entity

before it meets the requirements described in this section.

(3) The Fund shall require an entity to meet any additional

eligibility requirements that the Fund deems appropriate.

(4) The Fund, in its sole discretion, shall determine whether an

Applicant fulfills the requirements set forth in this section and

Sec. 1805.201(b).

(b) Provisions applicable to Depository Institution Holding

Companies and Insured Depository Institutions. (1) A Depository

Institution Holding Company may qualify as a CDFI only if it and its

Affiliates collectively satisfy the requirements described in this

section.

(2) No Affiliate of a Depository Institution Holding Company may

qualify as a CDFI unless the holding company and all of its Affiliates

collectively meet the requirements described in this section.

(3) No Subsidiary of an Insured Depository Institution may qualify

as a CDFI if the Insured Depository Institution and its Subsidiaries do

not collectively meet the requirements described in this section.

(4) For the purposes of paragraphs (b)(1), (2) and (3) of this

section, an Applicant will be considered to be a Subsidiary of any

Insured Depository Institution or Depository Institution Holding

Company that controls 25 percent or more of any class of the

Applicant's voting shares, or otherwise controls, in any manner, the

election of a majority of directors of the Applicant.

Sec. 1805.201 Certification as a Community Development Financial

Institution.

(a) General. An entity may apply to the Fund for certification that

it meets the CDFI eligibility requirements regardless of whether it is

seeking financial or technical assistance from the Fund. Entities

seeking such certification shall provide the information set forth in

paragraph (b) of this section. Certification by the Fund will verify

that the entity meets the CDFI eligibility requirements. However, such

certification shall not constitute an opinion by the Fund as to the

financial viability of the CDFI or that the CDFI will be selected to

receive an award from the Fund. The Fund, in its sole discretion, shall

have the right to decertify a certified entity after a determination

that the eligibility requirements of paragraph (b) of this section,

Sec. 1805.200(b), or Sec. 1805.200(a)(3) (if applicable) are no longer

met.

(b) Eligibility verification. An Applicant shall provide

information necessary to establish that it is, or will be, a CDFI. An

Applicant shall demonstrate whether it meets the eligibility

requirements described in this paragraph (b) and Sec. 1805.200 by

providing the information requested in paragraphs (b)(1) through (b)(7)

of this section. The Fund, in its sole discretion, shall determine

whether an Applicant has satisfied the requirements of this paragraph

(b) and Sec. 1805.200.

(1) Primary mission. A CDFI shall have a primary mission of

promoting community development. In determining whether an Applicant

has such a primary mission, the Fund will consider whether the

activities of the Applicant and its Affiliates, when viewed

collectively (as a whole), are purposefully directed toward improving

the social and/or economic conditions of underserved people (which may

include Low-Income persons and

[[Page 59085]]

persons who lack adequate access to capital and/or Financial Services)

and/or residents of distressed communities (which may include

Investment Areas).

(2) Financing entity. (i) A CDFI shall be an entity whose

predominant business activity is the provision, in arms-length

transactions, of Financial Products, Development Services, and/or other

similar financing. An Applicant may demonstrate that it is such an

entity if it is a(n):

(A) Depository Institution Holding Company;

(B) Insured Depository Institution or Insured Credit Union; or

(C) Organization that is deemed by the Fund to have such a

predominant business activity as a result of analysis of its financial

statements, organizing documents, and any other information required to

be submitted as part of its application. In conducting such analysis,

the Fund may take into consideration an Applicant's total assets and

its use of personnel.

(ii) An Applicant described under:

(A) Paragraph (b)(2)(i)(A) of this section shall submit a copy of

its organizing documents that indicate that it is a Depository

Institution Holding Company;

(B) Paragraph (b)(2)(i)(B) of this section shall submit a copy of

its current certificate of insurance issued by the Federal Deposit

Insurance Corporation or the National Credit Union Administration; and

(C) Paragraph (b)(2)(i)(C) of this section shall submit a copy of

its most recent year-end financial statements (and any notes or other

supplemental information to its financial statements) documenting its

assets dedicated to Financial Products, Development Services and/or

other similar financing, and an explanation of how such assets support

these activities. An Applicant also shall provide qualitative and

quantitative information on the percentage of Applicant staff time

dedicated to the provision of Financial Products, Development Services,

and/or other similar financing.

(3) Target Market. (i) General. An Applicant shall provide a

description of one or more Investment Areas and/or Targeted Populations

that it serves, and shall demonstrate that its total activities are

principally directed to serving the Investment Areas, Targeted

Populations, or both. An Investment Area shall meet specific geographic

and other criteria described in paragraph (b)(3)(ii) of this section,

and a Targeted Population shall meet the criteria described in

paragraph (b)(3)(iii) of this section.

(ii) Investment Area. (A) General. A geographic area will be

considered eligible for designation as an Investment Area if it:

(1) Is entirely located within the geographic boundaries of the

United States (which shall encompass any State of the United States,

the District of Columbia or any territory of the United States, Puerto

Rico, Guam, American Samoa, the Trust Territories of the Pacific

Islands, the Virgin Islands, and the Northern Mariana Islands); and

either

(2) Meets at least one of the objective criteria of economic

distress as set forth in paragraph (b)(3)(ii)(D) of this section and

has significant unmet needs for loans or Equity Investments as

described in paragraph (b)(3)(ii)(E) of this section; or

(3) Encompasses or is located in an Empowerment Zone or Enterprise

Community designated under Sec. 1391 of the Internal Revenue Code of

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

(B) Geographic units. Subject to the remainder of this paragraph

(b)(3)(ii)(B), an Investment Area shall consist of a geographic unit(s)

that is a county (or equivalent area), minor civil division that is a

unit of local government, incorporated place, census tract, block

numbering area, block group, or American Indian or Alaska Native area

(as such units are defined or reported by the U.S. Bureau of the

Census). However, geographic units in Metropolitan Areas that are used

to comprise an Investment Area shall be limited to census tracts, block

groups and American Indian or Alaskan Native areas. An Applicant may

designate one or more Investment Areas as part of a single application.

(C) Designation. An Applicant may designate an Investment Area by

selecting:

(1) A geographic unit(s) which individually meets one of the

criteria in paragraph (b)(3)(ii)(D) of this section; or

(2) A group of contiguous geographic units which together meet one

of the criteria in paragraph (b)(3)(ii)(D) of this section, provided

that the combined population residing within individual geographic

units not meeting any such criteria does not exceed 15 percent of the

total population of the entire Investment Area.

(D) Distress criteria. An Investment Area (or the units that

comprise an area) must meet at least one of the following objective

criteria of economic distress (as reported in the most recently

completed decennial census published by the U.S. Bureau of the Census):

(1) The percentage of the population living in poverty is at least

20 percent;

(2) In the case of an Investment Area located:

(i) Within a Metropolitan Area, the median family income shall be

at or below 80 percent of the Metropolitan Area median family income or

the national Metropolitan Area median family income, whichever is

greater; or

(ii) Outside of a Metropolitan Area, the median family income shall

be at or below 80 percent of the statewide non-Metropolitan Area median

family income or the national non-Metropolitan Area median family

income, whichever is greater;

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

average;

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

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

room) is at least 20 percent; or

(5) In areas located outside of a Metropolitan Area:

(i) The county population loss in the period between the most

recent decennial census and the previous decennial census is at least

10 percent; or

(ii) The county net migration loss (outmigration minus immigration)

over the five year period preceding the most recent decennial census is

at least 5 percent.

(E) Unmet needs. An Investment Area will be deemed to have

significant unmet needs for loans or Equity Investments if studies or

other analyses provided by the Applicant adequately demonstrate a

pattern of unmet needs for loans or Equity Investments within such

area(s).

(F) Serving Investment Areas. An Applicant may serve an Investment

Area directly or through borrowers or investees that serve the

Investment Area or provide significant benefits to its residents. To

demonstrate that it is serving an Investment Area, an Applicant shall

submit:

(1) A completed Investment Area Designation worksheet referenced in

the application packet;

(2) A map of the designated area(s); and

(3) Studies or other analyses as described in paragraph

(b)(3)(ii)(E) of this section.

(iii) Targeted Population. (A) General. Targeted Population shall

mean individuals, or an identifiable group of individuals, who are Low-

Income persons or lack adequate access to loans or Equity Investments

in the Applicant's service area. The members of a Targeted Population

shall reside within the boundaries of the United States (which shall

encompass any State of the United States, the District of Columbia or

any territory of the United States, Puerto Rico, Guam, American Samoa,

the Trust

[[Page 59086]]

Territories of the Pacific Islands, the Virgin Islands, and the

Northern Mariana Islands).

(B) Serving A Targeted Population. An Applicant may serve the

members of a Targeted Population directly or indirectly or through

borrowers or investees that directly serve or provide significant

benefits to such members. To demonstrate that it is serving a Targeted

Population, an Applicant shall submit:

(1) In the case of a Low-Income Targeted Population, a description

of the service area from which the Low-Income Targeted Population is

drawn (which could be, for example, a local, regional or national

service area); or

(2) In the case of a Targeted Population defined other than on the

basis of Low-Income--

(i) A description of the service area from which the Targeted

Population is drawn;

(ii) Studies, analyses or other information demonstrating that the

identifiable group of individuals, either on a national basis or on a

localized basis in the Applicant's service area, lacks adequate access

to loans or Equity Investments; and

(iii) Studies, analyses or other information demonstrating that the

Applicant's clients, who comprise the identifiable group of

individuals, lack adequate access to loans or Equity Investments.

(4) Development Services. A CDFI directly, through an Affiliate, or

through a contract with another provider, shall provide Development

Services in conjunction with its Financial Products. An Applicant shall

submit a description of the Development Services to be offered, the

expected provider of such services, and information on the persons

expected to use such services.

(5) Accountability. A CDFI must maintain accountability to

residents of its Investment Area(s) or Targeted Population(s) through

representation on its governing board or otherwise. An Applicant shall

describe how it has and will maintain accountability to the residents

of the Investment Area(s) or Targeted Population(s) it serves.

(6) Non-government. A CDFI shall not be an agency or

instrumentality of the United States, or any State or political

subdivision thereof. An entity that is created by, or that receives

substantial assistance from, one or more government entities may be a

CDFI provided it is not controlled by such entities and maintains

independent decision-making power over its activities. An Applicant

shall submit copies of its articles of incorporation (or comparable

organizing documents), charter, bylaws, or other legal documentation or

opinions sufficient to verify that it is not a government entity.

(7) Ownership. An Applicant shall submit information indicating the

portion of shares of all classes of voting stock that are held by each

Insured Depository Institution or Depository Institution Holding

Company investor (if any).

Subpart C--Use of Funds/Eligible Activities

Sec. 1805.300 Purposes of financial assistance.

The Fund may provide financial assistance through investment

instruments described under subpart D of this part. Such financial

assistance is intended to strengthen the capital position and enhance

the ability of an Awardee to provide Financial Products and Financial

Services.

Sec. 1805.301 Eligible activities.

Financial assistance provided under this part may be used by an

Awardee to serve Investment Area(s) or Targeted Population(s) by

developing or supporting:

(a) Commercial facilities that promote revitalization, community

stability or job creation or retention;

(b) Businesses that:

(1) Provide jobs for Low-Income persons;

(2) Are owned by Low-Income persons; or

(3) Enhance the availability of products and services to Low-Income

persons;

(c) Community Facilities;

(d) The provision of Financial Services;

(e) Housing that is principally affordable to Low-Income persons,

except that assistance used to facilitate home ownership shall only be

used for services and lending products that serve Low-Income persons

and that:

(1) Are not provided by other lenders in the area; or

(2) Complement the services and lending products provided by other

lenders that serve the Investment Area(s) or Targeted Population(s);

(f) The provision of Consumer Loans (a loan to one or more

individuals for household, family, or other personal expenditures); or

(g) Other businesses or activities as requested by the Applicant

and deemed appropriate by the Fund.

Sec. 1805.302 Restrictions on use of assistance.

(a) An Awardee shall use assistance provided by the Fund and its

corresponding matching funds only for the eligible activities approved

by the Fund and described in the Assistance Agreement.

(b) An Awardee may not distribute assistance to an Affiliate

without the Fund's consent.

(c) Assistance provided upon approval of an application involving a

Community Partnership shall only be distributed to the Awardee and

shall not be used to fund any activities carried out by a Community

Partner or an Affiliate of a Community Partner.

Sec. 1805.303 Technical assistance.

(a) General. The Fund may provide technical assistance to build the

capacity of a CDFI or an entity that proposes to become a CDFI. Such

technical assistance may include training for management and other

personnel; development of programs, products and services; improving

financial management and internal operations; enhancing a CDFI's

community impact; or other activities deemed appropriate by the Fund.

The Fund, in its sole discretion, may provide technical assistance in

amounts, or under terms and conditions that are different from those

requested by an Applicant. The Fund may not provide any technical

assistance to an Applicant for the purpose of assisting in the

preparation of an application. The Fund may provide technical

assistance to a CDFI directly, through grants, or by contracting with

organizations that possess the appropriate expertise.

(b) The Fund may provide technical assistance regardless of whether

the recipient also receives financial assistance under this part.

Technical assistance provided pursuant to this part is subject to the

assistance limits described in Sec. 1805.402.

(c) An Applicant seeking technical assistance must meet the

eligibility requirements described in Sec. 1805.200 and submit an

application as described in Sec. 1805.601.

(d) Applicants for technical assistance pursuant to this part will

be evaluated pursuant to the competitive review criteria in subpart G

of this part, except as otherwise may be provided in the applicable

NOFA. In addition, the requirements for matching funds are not

applicable to technical assistance requests.

Subpart D--Investment Instruments

Sec. 1805.400 Investment instruments--general.

The Fund's primary objective in awarding financial assistance is to

enhance the stability, performance and capacity of an Awardee. The Fund

will provide financial assistance to an

[[Page 59087]]

Awardee through one or more of the investment instruments described in

Sec. 1805.401, and under such terms and conditions as described in this

subpart D. The Fund, in its sole discretion, may provide financial

assistance in amounts, through investment instruments, or under rates,

terms and conditions that are different from those requested by an

Applicant.

Sec. 1805.401 Forms of investment instruments.

(a) Equity. The Fund may make nonvoting equity investments in an

Awardee, including, without limitation, the purchase of nonvoting

stock. Such stock shall be transferable and, in the discretion of the

Fund, may provide for convertibility to voting stock upon transfer. The

Fund shall not own more than 50 percent of the equity of an Awardee and

shall not control its operations.

(b) Capital grants. The Fund may award grants.

(c) Loans. The Fund may make loans, if permitted by applicable law.

(d) Deposits and credit union shares. The Fund may make deposits

(which shall include credit union shares) in Insured CDFIs. Deposits in

an Insured CDFI shall not be subject to any requirement for collateral

or security.

Sec. 1805.402 Assistance limits.

(a) General. Except as provided in paragraph (b) of this section,

the Fund may not provide, pursuant to this part, more than $5 million,

in the aggregate, in financial and technical assistance to an Awardee

and its Affiliates during any three-year period.

(b) Additional amounts. If an Awardee proposes to establish a new

Affiliate to serve an Investment Area(s) or Targeted Population(s)

outside of any State, and outside of any Metropolitan Area, currently

served by the Awardee or its Affiliates, the Awardee may receive

additional assistance pursuant to this part up to a maximum of $3.75

million during the same three-year period. Such additional assistance:

(1) Shall be used only to finance activities in the new or expanded

Investment Area(s) or Targeted Population(s); and

(2) Must be distributed to a new Affiliate that meets the

eligibility requirements described in Sec. 1805.200 and is selected for

assistance pursuant to subpart G of this part.

(c) An Awardee may receive the assistance described in paragraph

(b) of this section only if no other application to serve substantially

the same Investment Area(s) or Targeted Population(s) that meets the

requirements of Sec. 1805.701(a) was submitted to the Fund prior to the

receipt of the application of said Awardee and within the current

funding round.

Sec. 1805.403 Authority to sell.

The Fund may, at any time, sell its equity investments and loans,

provided the Fund shall retain the authority to enforce the provisions

of the Assistance Agreement until the performance goals specified

therein have been met.

Subpart E--Matching Funds Requirements

Sec. 1805.500 Matching funds--general.

All financial assistance awarded under this part shall be matched

with funds from sources other than the Federal government. Except as

provided in Sec. 1805.502, such matching funds shall be provided on the

basis of not less than one dollar for each dollar provided by the Fund.

Funds that have been used to satisfy a legal requirement for obtaining

funds under either the CDFI Program or another Federal grant or award

program may not be used to satisfy the matching requirements described

in this section. Community Development Block Grant Program and other

funds provided pursuant to the Housing and Community Development Act of

1974, as amended (42 U.S.C. 5301 et seq.), shall be considered Federal

government funds and shall not be used to meet the matching

requirements. Matching funds shall be used as provided in the

Assistance Agreement. Funds that are used prior to the execution of the

Assistance Agreement may nevertheless qualify as matching funds

provided the Fund determines in its reasonable discretion that such use

promoted the purpose of the Comprehensive Business Plan that the Fund

is supporting through its assistance.

Sec. 1805.501 Comparability of form and value.

(a) Matching funds shall be at least comparable in form (e.g.,

equity investments, deposits, credit union shares, loans and grants)

and value to financial assistance provided by the Fund (except as

provided in Sec. 1805.502). The Fund shall have the discretion to

determine whether matching funds pledged are comparable in form and

value to the financial assistance requested.

(b) In the case of an Awardee that raises matching funds from more

than one source, through different investment instruments, or under

varying terms and conditions, the Fund may provide financial assistance

in a manner that represents the combined characteristics of such

instruments.

(c) An Awardee may meet all or part of its matching requirements by

committing available earnings retained from its operations.

Sec. 1805.502 Severe constraints waiver.

(a) In the case of an Applicant with severe constraints on

available sources of matching funds, the Fund, in its sole discretion,

may permit such Applicant to comply with the matching requirements by:

(1) Reducing such requirements by up to 50 percent; or

(2) Permitting an Applicant to provide matching funds in a form to

be determined at the discretion of the Fund, if such an Applicant:

(i) Has total assets of less than $100,000;

(ii) Serves an area that is not a Metropolitan Area; and

(iii) Is not requesting more than $25,000 in assistance.

(b) Not more than 25 percent of the total funds available for

obligation under this part in any fiscal year may be matched as

described in paragraph (a) of this section. Additionally, not more than

25 percent of the total funds disbursed under this part in any fiscal

year may be matched as described in paragraph (a) of this section.

(c) An Applicant may request a ``severe constraints waiver'' as

part of its application for assistance. An Applicant shall provide a

narrative justification for its request, indicating:

(1) The cause and extent of the constraints on raising matching

funds;

(2) Efforts to date, results, and projections for raising matching

funds;

(3) A description of the matching funds expected to be raised; and

(4) Any additional information requested by the Fund.

(d) The Fund will grant a ``severe constraints waiver'' only in

exceptional circumstances when it has been demonstrated, to the

satisfaction of the Fund, that an Investment Area(s) or Targeted

Population(s) would not be adequately served without the waiver.

Sec. 1805.503 Time frame for raising match.

Applicants shall satisfy matching funds requirements within the

period set forth in the applicable NOFA.

Sec. 1805.504 Retained earnings.

(a) An Applicant that proposes to meet all or a portion of its

matching funds requirements as set forth in this part by committing

available earnings retained from its operations pursuant to

Sec. 1805.501(c) shall be subject to the restrictions described in this

section.

[[Page 59088]]

(b)(1) In the case of a for-profit Applicant, retained earnings

that may be used for matching funds purposes shall consist of:

(i) The increase in retained earnings (excluding the after-tax

value to an Applicant of any grants and other donated assets) that has

occurred over the Applicant's most recent fiscal year (e.g., retained

earnings at the end of fiscal year 1999 less retained earnings at the

end of fiscal year 1998); or

(ii) The annual average of such increases that have occurred over

the Applicant's three most recent fiscal years.

(2) Such retained earnings may be used to match a request for an

equity investment. The terms and conditions of financial assistance

will be determined by the Fund.

(c)(1) In the case of a non-profit Applicant (other than a Credit

Union), retained earnings that may be used for matching funds purposes

shall consist of:

(i) The increase in an Applicant's net assets (excluding the amount

of any grants and value of other donated assets) that has occurred over

the Applicant's most recent fiscal year; or

(ii) The annual average of such increases that has occurred over

the Applicant's three most recent fiscal years.

(2) Such retained earnings may be used to match a request for a

capital grant. The terms and conditions of financial assistance will be

determined by the Fund.

(d)(1) In the case of an insured credit union Applicant, retained

earnings that may be used for matching funds purposes shall consist of:

(i) The increase in retained earnings that 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 retained earnings 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, retained

earnings shall be comprised of ``Regular Reserves'', ``Other Reserves''

(excluding reserves specifically dedicated for losses), and ``Undivided

Earnings'' as such terms are used in the National Credit Union

Administration's accounting manual.

(3) Such retained earnings may be used to match a request for a

capital grant. The terms and conditions of financial assistance will be

determined by the Fund.

(4) If the option described in paragraph (d)(1)(iii) of this

section is used:

(i) The Assistance Agreement shall require that:

(A) An Awardee increase its member and/or non-member shares by an

amount that is at least equal to four times the amount of retained

earnings that is committed as matching funds; and

(B) Such increase be achieved within 24 months from September 30 of

the calendar year in which the applicable application deadline falls;

(ii) The Applicant's Comprehensive Business Plan shall discuss its

strategy for raising the required shares and the activities associated

with such increased shares;

(iii) The level from which the increases in shares described in

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

September 30 of the calendar year in which the applicable application

deadline falls; and

(iv) Financial assistance shall be disbursed by the Fund only as

the amount of increased shares described in paragraph (d)(4)(i)(A) of

this section is achieved.

(5) The Fund will allow an Applicant to utilize the option

described in paragraph (d)(1)(iii) of this section for matching funds

only if it determines, in its sole discretion, that the Applicant will

have a high probability of success in increasing its shares to the

specified amounts.

(e) Retained earnings accumulated after the end of the Applicant's

most recent fiscal year ending prior to the appropriate application

deadline may not be used as matching funds.

Subpart F--Applications for Assistance

Sec. 1805.600 Notice of Funds Availability.

Each Applicant shall submit an application for financial or

technical assistance under this part in accordance with the regulations

in this subpart and the applicable NOFA published in the Federal

Register. The NOFA will advise potential Applicants on how to obtain an

application packet and will establish deadlines and other requirements.

The NOFA may specify any limitations, special rules, procedures, and

restrictions for a particular funding round. After receipt of an

application, the Fund may request clarifying or technical information

on the materials submitted as part of such application.

Sec. 1805.601 Application contents.

An Applicant shall provide information necessary to establish that

it is, or will be, a CDFI. Unless otherwise specified in an applicable

NOFA, each application must contain the information specified in the

application packet including the items specified in this section.

(a) Award request. An Applicant shall indicate:

(1) The dollar amount, form, rates, terms and conditions of

financial assistance requested; and

(2) Any technical assistance needs for which it is requesting

assistance.

(b) Previous Awardees. In the case of an Applicant that has

previously received assistance under this part, the Applicant shall

demonstrate that it:

(1) Has substantially met its performance goals and other

requirements described in its previous Assistance Agreement(s); and

(2) Will expand its operations into a new Investment Area(s), serve

a new Targeted Population(s), offer more products or services, or

increase the volume of its activities.

(c) Time of operation. At the time of submission of an application,

an Applicant that has been in operation for:

(1) Three years or more shall submit information on its activities

(as described in Sec. 1805.201(b)(1) and (2) and paragraphs (d)(2) and

(d)(9)(v) of this section) and financial statements (as described in

paragraph (d)(4) of this section) for the three most recent fiscal

years;

(2) For more than one year, but less than three years, shall submit

information on its activities (as described in Sec. 1805.201(b)(1) and

(2) and paragraphs (d)(2) and (d)(9)(vi) of this section) and financial

statements (as described in paragraph (d)(4) of this section) for each

full fiscal year since its inception; or

(3) For less than one year, shall submit information on its

activities and financial statements as described in paragraph (d) of

this section.

(d) Comprehensive Business Plan. An Applicant shall submit a five-

year Comprehensive Business Plan that addresses the items described in

this paragraph (d). The Comprehensive Business Plan shall demonstrate

that the Applicant shall have the capacity to operate as a CDFI upon

receiving financial assistance from the Fund pursuant to this part.

(1) Executive summary. The executive summary shall include a

description of the institution, products and services, markets served

or to be served, accomplishments to date and key points of the

Applicant's five year strategy, and other pertinent information.

(2) Community development track record. The Applicant shall

describe its

[[Page 59089]]

community development impact over the past three years, or for its

period of operation if less than three years. In addition, an Applicant

with a prior history of serving Investment Area(s) or Targeted

Population(s) shall describe its activities, operations and community

benefits created for residents of the Investment Area(s) or Targeted

Population(s) for such periods as described in paragraph (c) of this

section.

(3) Operational capacity and risk mitigation strategies. An

Applicant shall submit information on its policies and procedures for

underwriting and approving loans and investments, monitoring its

portfolio and internal controls and operations. An Applicant shall also

submit a copy of its conflict of interest policies that are consistent

with the requirements of Sec. 1805.806.

(4) Financial track record and strength. An Applicant shall submit

historic financial statements for such periods as specified in

paragraph (c) of this section. An Applicant shall submit:

(i) Audited financial statements;

(ii) Financial statements that have been reviewed by a certified

public accountant; or

(iii) Financial statements that have been reviewed by the

Applicant's Appropriate Federal Banking Agency. Such statements should

include balance sheets or statements of financial position, income and

expense statements or statements of activities, and cash flow

statements. The Applicant shall also provide information necessary to

assess trends in financial and operating performance.

(5) Capacity, skills and experience of the management team. An

Applicant shall provide information on the background and capacity of

its management team, including key personnel and governing board

members. The Applicant shall also provide information on any training

or technical assistance needed to enhance the capacity of the

organization to successfully carry out its Comprehensive Business Plan.

(6) Market analysis. An Applicant shall provide an analysis of its

Target Market, including a description of the Target Market, and the

extent of economic distress, an analysis of the needs of the Target

Market for Financial Products, Financial Services and Development

Services, and an analysis of the extent of demand within such Target

Market for the Applicant's products and services. The Applicant also

shall provide an assessment of any factors or trends that may affect

the Applicant's ability to deliver its products and services within its

Target Market.

(7) Program design and implementation plan. An Applicant shall:

(i) Describe the products and services it proposes to provide and

analyze the competitiveness of such products and services in the Target

Market;

(ii) Describe its strategy for delivering its products and services

to its Target Market;

(iii) Describe how its proposed activities are consistent with

existing economic, community and housing development plans adopted for

an Investment Area(s) or Targeted Population(s);

(iv) Describe its plan to coordinate use of assistance from the

Fund with existing government assistance programs and private sector

resources;

(v) Describe how it will coordinate with community organizations,

financial institutions, and Community Partners (if applicable) which

will provide Equity Investments, loans, secondary markets, or other

services in the Target Market; and

(vi) Discuss the extent of community support (if any) within the

Target Market for its activities.

(8) Financial projections and resources. An Applicant shall provide

:

(i) Financial projections. (A) Projections for each of the next

five years which include pro forma balance sheets or statements of

financial position, income and expense statements or statements of

activities, and a description of any assumptions that underlie its

projections; and

(B) Information to demonstrate that it has a plan for achieving or

maintaining sustainability within the five-year period;

(ii) Matching funds. (A) A detailed description of its plans for

raising matching funds, including funds previously obtained or legally

committed to match the amount of financial assistance requested from

the Fund; and

(B) An indication of the extent to which such matching funds will

be derived from private, nongovernment sources. Such description shall

include the name of the source, total amount of such match, the date

the matching funds were obtained or legally committed, if applicable,

the extent to which, and for what purpose, such matching funds have

been used to date, and terms and restrictions on use for each matching

source, including any restriction that might reasonably be construed as

a limitation on the ability of the Applicant to use the funds for

matching purposes; and

(iii) Severe constraints waiver. If the Applicant is requesting a

``severe constraints waiver'' of any matching requirements, it shall

submit the information requested in Sec. 1805.502.

(9) Projected community impact. An Applicant shall provide:

(i) Estimates of the volume of new activity to be achieved within

its Target Market assuming that assistance is provided by the Fund;

(ii) A description of the anticipated incremental increases in

activity to be achieved with assistance provided by the Fund and

matching funds within the Target Market;

(iii) An estimate of the benefits expected to be created within its

Target Market over the next five years;

(iv) The extent to which the Applicant will concentrate its

activities within its Target Market;

(v) A description of how the Applicant will measure the benefits

created as a result of its activities within its Target Market; and

(vi) In the case of an Applicant with a prior history of serving a

Target Market, an explanation of how the Applicant will expand its

operations into a new Investment Area(s), serve a new Targeted

Population(s), offer more products or services, or increase the volume

of its activities.

(10) Risks and assumptions. An Applicant shall identify and discuss

critical risks (including strategies to mitigate risk) and assumptions

contained in its Comprehensive Business Plan, and any significant

impediments to the Plan's implementation.

(11) Schedule. An Applicant shall provide a schedule indicating the

timing of major events necessary to realize the objectives of its

Comprehensive Business Plan.

(12) Community Partnership. In the case of an Applicant submitting

an application with a Community Partner, the Applicant shall:

(i) Describe how the Applicant and the Community Partner will

participate in carrying out the Community Partnership and how the

partnership will enhance activities serving the Investment Area(s) or

Targeted Population(s);

(ii) Demonstrate that the Community Partnership activities are

consistent with the Comprehensive Business Plan;

(iii) Provide information necessary to evaluate such an application

as described under Sec. 1805.701(b)(6);

(iv) Include a copy of any written agreement between the Applicant

and the Community Partner related to the Community Partnership; and

[[Page 59090]]

(v) Provide information to demonstrate that the Applicant meets the

eligibility requirements described in Sec. 1805.200 and satisfies the

selection criteria described in subpart G of this part. (A Community

Partner shall not be required to meet the eligibility requirements

described in Sec. 1805.200.)

(13) Effective use of Fund resources. An Applicant shall describe

the extent of need for the Fund's assistance, as demonstrated by the

extent of economic distress in the Applicant's Target Market and the

extent to which the Applicant needs the Fund's assistance to carry out

its Comprehensive Business Plan.

(e) Community ownership and governance. An Applicant shall provide

information to demonstrate the extent to which the Applicant is, or

will be, Community-Owned or Community-Governed.

(f) Environmental information. The Applicant shall provide

sufficient information regarding the potential environmental impact of

its proposed activities in order for the Fund to complete its

environmental review requirements pursuant to part 1815 of this

chapter.

(g) Applicant certification. The Applicant and Community Partner

(if applicable) shall certify that:

(1) It possesses the legal authority to apply for assistance from

the Fund;

(2) The application has been duly authorized by its governing body

and duly executed;

(3) It will not use any Fund resources for lobbying activities as

set forth in Sec. 1805.807; and

(4) It will comply with all relevant provisions of this chapter and

all applicable Federal, State, and local laws, ordinances, regulations,

policies, guidelines, and requirements.

Subpart G--Evaluation and Selection of Applications

Sec. 1805.700 Evaluation and selection--general.

Applicants will be evaluated and selected, at the sole discretion

of the Fund, to receive assistance based on a review process, that

could include an interview(s) and/or site visit(s), that is intended

to:

(a) Ensure that Applicants are evaluated on a competitive basis in

a fair and consistent manner;

(b) Take into consideration the unique characteristics of

Applicants that vary by institution type, total asset size, stage of

organizational development, markets served, products and services

provided, and location;

(c) Ensure that each Awardee can successfully meet the goals of its

Comprehensive Business Plan and achieve community development impact;

and

(d) Ensure that Awardees represent a geographically diverse group

of Applicants serving Metropolitan Areas, non-Metropolitan Areas, and

Indian Reservations from different regions of the United States.

Sec. 1805.701 Evaluation of applications.

(a) Eligibility and completeness. An Applicant will not be eligible

to receive assistance pursuant to this part if it fails to meet the

eligibility requirements described in Sec. 1805.200 or if it has not

submitted complete application materials. For the purposes of this

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

information from the Applicant, if the Fund deems it appropriate.

(b) Substantive review. In evaluating and selecting applications to

receive assistance, the Fund will evaluate the Applicant's likelihood

of success in meeting the goals of the Comprehensive Business Plan and

achieving community development impact, by considering factors such as:

(1) Community development track record (e.g., in the case of an

Applicant with a prior history of serving a Target Market, the extent

of success in serving such Target Market);

(2) Operational capacity and risk mitigation strategies;

(3) Financial track record and strength;

(4) Capacity, skills and experience of the management team;

(5) Solid understanding of its market context, including its

analysis of current and prospective customers, the extent of economic

distress within the designated Investment Area(s) or the extent of need

within the designated Targeted Population(s), as those factors are

measured by objective criteria, the extent of need for Equity

Investments, loans, Development Services, and Financial Services within

the designated Target Market, and the extent of demand within the

Target Market for the Applicant's products and services;

(6) Quality program design and implementation plan, including an

assessment of its products and services, marketing and outreach

efforts, delivery strategy, and coordination with other institutions

and/or a Community Partner, or participation in a secondary market for

purposes of increasing the Applicant's resources. In the case of an

applicant submitting an application with a Community Partner, the Fund

will evaluate the extent to which the Community Partner will

participate in carrying out the activities of the Community

Partnership; the extent to which the Community Partner will enhance the

likelihood of success of the Comprehensive Business Plan; and the

extent to which service to the designated Target Market will be better

performed by a Community Partnership than by the Applicant alone;

(7) Projections for financial performance, capitalization and

raising needed external resources, including the amount of firm

commitments and matching funds in hand to meet or exceed the matching

funds requirements and, if applicable, the likely success of the plan

for raising the balance of the matching funds in a timely manner, the

extent to which the matching funds are, or will be, derived from

private sources, and whether an Applicant is, or will become, an

Insured CDFI;

(8) Projections for community development impact, including the

extent to which an Applicant will concentrate its activities on serving

its Target Market(s), the extent of support from the designated Target

Market, the extent to which an Applicant is, or will be, Community-

Owned or Community-Governed, and the extent to which the activities

proposed in the Comprehensive Business Plan will expand economic

opportunities or promote community development within the designated

Target Market;

(9) The extent of need for the Fund's assistance, as demonstrated

by the extent of economic distress in the Applicant's Target Market and

the extent to which the Applicant needs the Fund's assistance to carry

out its Comprehensive Business Plan. In the case of an Applicant that

has previously received assistance under the CDFI Program, the Fund

also will consider the Applicant's level of success in meeting its

performance goals, financial soundness covenants (if applicable), and

other requirements contained in the previously negotiated and executed

Assistance Agreement(s) with the Fund, and whether the Applicant will,

with additional assistance from the Fund, expand its operations into a

new Target Market, offer more products or services, and/or increase the

volume of its activities;

(10) The Fund may consider any other factors, as it deems

appropriate, in reviewing an application.

(c) Consultation with Appropriate Federal Banking Agencies. The

Fund will consult with, and consider the views of, the Appropriate

Federal Banking Agency prior to providing assistance to:

(1) An Insured CDFI;

[[Page 59091]]

(2) A CDFI that is examined by or subject to the reporting

requirements of an Appropriate Federal Banking Agency; or

(3) A CDFI that has as its Community Partner an institution that is

examined by, or subject to, the reporting requirements of an

Appropriate Federal Banking Agency.

(d) Awardee selection. The Fund will select Awardees based on the

criteria described in paragraph (b) of this section and any other

criteria set forth in this part or the applicable NOFA.

Subpart H--Terms and Conditions of Assistance

Sec. 1805.800 Safety and soundness.

(a) Regulated institutions. Nothing in this part, or in an

Assistance Agreement, shall affect any authority of an Appropriate

Federal Banking Agency to supervise and regulate any institution or

company.

(b) Non-Regulated CDFIs. The Fund will, to the maximum extent

practicable, ensure that Awardees that are Non-Regulated CDFIs are

financially and managerially sound and maintain appropriate internal

controls.

Sec. 1805.801 Assistance Agreement; sanctions.

(a) Prior to providing any assistance, the Fund and an Awardee

shall execute an Assistance Agreement that requires an Awardee to

comply with performance goals and abide by other terms and conditions

of assistance. Such performance goals may be modified at any time by

mutual consent of the Fund and an Awardee or as provided in paragraph

(c) of this section. If a Community Partner is part of an application

that is selected for assistance, such partner must be a party to the

Assistance Agreement if deemed appropriate by the Fund.

(b) An Awardee shall comply with performance goals that have been

negotiated with the Fund and which are based upon the Comprehensive

Business Plan submitted as part of the Awardees application.

Performance goals for Insured CDFIs shall be determined in consultation

with the Appropriate Federal Banking Agency. Such goals shall be

incorporated in, and enforced under, the Awardee's Assistance

Agreement.

(c) The Assistance Agreement shall provide that, in the event of

fraud, mismanagement, noncompliance with the Fund's regulations or

noncompliance with the terms and conditions of the Assistance Agreement

on the part of the Awardee (or the Community Partner, if applicable),

the Fund, in its discretion, may:

(1) Require changes in the performance goals set forth in the

Assistance Agreement;

(2) Require changes in the Awardee's Comprehensive Business Plan;

(3) Revoke approval of the Awardee's application;

(4) Reduce or terminate the Awardee's assistance;

(5) Require repayment of any assistance that has been distributed

to the Awardee;

(6) Bar the Awardee (and the Community Partner, if applicable) from

reapplying for any assistance from the Fund; or

(7) Take any other action as permitted by the terms of the

Assistance Agreement.

(d) In the case of an Insured Depository Institution, the

Assistance Agreement shall provide that the provisions of the Act, this

part, and the Assistance Agreement shall be enforceable under section 8

of the Federal Deposit Insurance Act (12 U.S.C. 1818) 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. 1805.802 Disbursement of funds.

Assistance provided pursuant to this part may be provided in a lump

sum or over a period of time, as determined appropriate by the Fund.

The Fund shall not provide any assistance (other than technical

assistance) under this part until an Awardee has satisfied any

conditions set forth in its Assistance Agreement and has secured firm

commitments for the matching funds required for such assistance. At a

minimum, a firm commitment must consist of a binding written agreement

between an Awardee and the source of the matching funds that is

conditioned only upon the availability of the Fund's assistance and

such other conditions as the Fund, in its sole discretion, may deem

appropriate. Such agreement must provide for disbursal of the matching

funds to an Awardee prior to, or simultaneously with, receipt by an

Awardee of the Federal funds.

Sec. 1805.803 Data collection and reporting.

(a) Data--General. An Awardee (and a Community Partner, if

appropriate) shall maintain such records as may be prescribed by the

Fund which are necessary to:

(1) Disclose the manner in which Fund assistance is used;

(2) Demonstrate compliance with the requirements of this part and

an Assistance Agreement; and

(3) Evaluate the impact of the CDFI Program.

(b) Customer profiles. An Awardee (and a Community Partner, if

appropriate) shall compile such data on the gender, race, ethnicity,

national origin, or other information on individuals that utilize its

products and services as the Fund shall prescribe in an Assistance

Agreement. Such data will be used to determine whether residents of

Investment Area(s) or

[[Page 59092]]

members of Targeted Population(s) are adequately served and to evaluate

the impact of the CDFI Program.

(c) Access to records. An Awardee (and a Community Partner, if

appropriate) must submit such financial and activity reports, records,

statements, and documents at such times, in such forms, and accompanied

by such reporting data, as required by the Fund or the U.S. Department

of Treasury to ensure compliance with the requirements of this part and

to evaluate the impact of the CDFI Program. The United States

Government, including the U.S. Department of Treasury, the Comptroller

General, and their duly authorized representatives, shall have full and

free access to the Awardee's offices and facilities and all books,

documents, records, and financial statements relating to use of Federal

funds and may copy such documents as they deem appropriate. The Fund,

if it deems appropriate, may prescribe access to record requirements

for entities that are borrowers of, or that receive investments from,

an Awardee.

(d) Retention of records. An Awardee shall comply with all record

retention requirements as set forth in OMB Circular A-110 (as

applicable).

(e) Review. (1) At least annually, the Fund will review the

progress of an Awardee (and a Community Partner, if appropriate) in

implementing its Comprehensive Business Plan and satisfying the terms

and conditions of its Assistance Agreement.

(2) An Awardee shall submit within 60 days after the end of each

semi-annual period, or within some other period as may be agreed to in

the Assistance Agreement, internal financial statements covering the

semi-annual reporting period (i.e., two periods per year) and

information on its compliance with its financial soundness covenants.

(3) An Awardee shall submit a report within 60 days after the end

of its fiscal year, or by such alternative deadline as may be agreed to

in the Assistance Agreement containing, unless otherwise determined by

mutual agreement between the Awardee and the Fund, the following:

(i) A narrative description of an Awardee's activities in support

of its Comprehensive Business Plan;

(ii) Qualitative and quantitative information on an Awardee's

compliance with its performance goals and (if appropriate) an analysis

of factors contributing to any failure to meet such goals;

(iii) Information describing the manner in which Fund assistance

and any corresponding matching funds were used. The Fund will use such

information to verify that assistance was used in a manner consistent

with the Assistance Agreement; and certification that an Awardee

continues to meet the eligibility requirements described in

Sec. 1805.200.

(4) An Awardee shall submit within 120 days after the end of its

fiscal year, or within some other period as may be agreed to in the

Assistance Agreement, fiscal year end statements of financial condition

audited by an independent certified public accountant. The audit shall

be conducted in accordance with generally accepted Government Auditing

Standards set forth in the General Accounting Offices Government

Auditing Standards (1994 Revision) issued by the Comptroller General

and OMB Circular A-133 (Audits of States, Local Governments, and Non-

Profit Organizations), as applicable.

(5) An Awardee shall submit a report within 120 days after the end

of its fiscal year, or by such alternative deadline as may be agreed to

in the Assistance Agreement containing, unless otherwise determined by

mutual agreement between the Awardee and the Fund, the following

information:

(i) The Awardee's customer profile;

(ii) Awardee activities including Financial Products and

Development Services;

(iii) Awardee portfolio quality;

(iv) The Awardee's financial condition; and

(v) The Awardee's community development impact.

(6) The Fund shall make reports described in paragraphs (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 institutions

implementation of its Comprehensive Business Plan or compliance with

the terms of its Assistance Agreement, after providing notice to the

Appropriate Federal Banking Agency.

(5) Nothing in this part shall be construed to permit the Fund to

require an Insured CDFI or other institution that is examined by or

subject to the reporting requirements of 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) 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:

[[Page 59093]]

(1) OMB Circulars may be obtained from the Office of

Administration, Publications Office, 725 17th Street, NW., Room 2200,

New Executive Office Building, Washington, DC 20503 or on the Internet

(http://www.whitehouse.gov/OMB/grants/index.html); and

(2) General Accounting Office materials may be obtained from GAO

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

Sec. 1805.804 Information.

The Fund and each Appropriate Federal Banking Agency shall

cooperate and respond to requests from each other and from other

Appropriate Federal Banking Agencies in a manner that ensures the

safety and soundness of the Insured CDFIs or other institution that is

examined by or subject to the reporting requirements of an Appropriate

Federal Banking Agency.

Sec. 1805.805 Compliance with government requirements.

In carrying out its responsibilities pursuant to an Assistance

Agreement, the Awardee shall comply with all applicable Federal, State,

and local laws, regulations, and ordinances, OMB Circulars, and

Executive Orders.

Sec. 1805.806 Conflict of interest requirements.

(a) Provision of credit to Insiders. (1) An Awardee that is a Non-

Regulated CDFI may not use any monies provided to it by the Fund to

make any credit (including loans and Equity Investments) available to

an Insider unless it meets the following restrictions:

(i) The credit must be provided pursuant to standard underwriting

procedures, terms and conditions;

(ii) The Insider receiving the credit, and any family member or

business partner thereof, shall not participate in any way in the

decision making regarding such credit;

(iii) The Board of Directors or other governing body of the Awardee

shall approve the extension of the credit; and

(iv) The credit must be provided in accordance with a policy

regarding credit to Insiders that has been approved in advance by the

Fund.

(2) An Awardee that is an Insured CDFI or a Depository Institution

Holding Company shall comply with the restrictions on Insider

activities and any comparable restrictions established by its

Appropriate Federal Banking Agency.

(b) Awardee standards of conduct. An Awardee that is a Non-

Regulated CDFI shall maintain a code or standards of conduct acceptable

to the Fund that shall govern the performance of its Insiders engaged

in the awarding and administration of any credit (including loans and

Equity Investments) and contracts using monies from the Fund. No

Insider of an Awardee shall solicit or accept gratuities, favors or

anything of monetary value from any actual or potential borrowers,

owners or contractors for such credit or contracts. Such policies shall

provide for disciplinary actions to be applied for violation of the

standards by the Awardee's Insiders.

Sec. 1805.807 Lobbying restrictions.

No assistance made available under this part may be expended by an

Awardee to pay any person to influence or attempt to influence any

agency, elected official, officer or employee of a State or local

government in connection with the making, award, extension,

continuation, renewal, amendment, or modification of any State or local

government contract, grant, loan or cooperative agreement as such terms

are defined in 31 U.S.C. 1352.

Sec. 1805.808 Criminal provisions.

The criminal provisions of 18 U.S.C. 657 regarding embezzlement or

misappropriation of funds are applicable to all Awardees and Insiders.

Sec. 1805.809 Fund deemed not to control.

The Fund shall not be deemed to control an Awardee by reason of any

assistance provided under the Act for the purpose of any applicable

law.

Sec. 1805.810 Limitation on liability.

The liability of the Fund and the United States Government arising

out of any assistance to a CDFI in accordance with this part shall be

limited to the amount of the investment in the CDFI. The Fund shall be

exempt from any assessments and other liabilities that may be imposed

on controlling or principal shareholders by any Federal law or the law

of any State. Nothing in this section shall affect the application of

any Federal tax law.

Sec. 1805.811 Fraud, waste and abuse.

Any person who becomes aware of the existence or apparent existence

of fraud, waste or abuse of assistance provided under this part should

report such incidences to the Office of Inspector General of the U.S.

Department of the Treasury.

Dated: October 25, 1999.

Maurice A. Jones,

Deputy Director for Policy and Programs, Community Development

Financial Institutions Fund.

[FR Doc. 99-28281 Filed 10-29-99; 8:45 am]

BILLING CODE 4810-70-P