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Feds tighten rules on new community development financial institutions

Suzanne Potter

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(California News Service) The federal government is increasing oversight on Community Development Financial Institutions, making the application process more rigorous to weed out bad actors in California and elsewhere around the United States.

In the past, shady financial institutions like predatory lenders have been able to get CDFI status.

Andrew Kushner, senior policy counsel at the Center for Responsible Lending, said he has seen CDFIs offer loans with annual percentage rates as high as 190 percent.

"Now, the CDFI rules will restrict them from offering loans over 36 percent APR, which we think of as the cutoff for safe and responsible loans," Kushner explained. "You won't be seeing the predatory practices from CDFIs."

President Bill Clinton signed legislation creating the CDFI Fund 30 years ago, with a mission to provide home and business loans to borrowers, often women or people of color, who may not have assets to use as collateral but are still creditworthy.

David Beck, policy director for Self-Help Credit Union, said conventional banks generally serve borrowers without significant credit blemishes. CDFIs are built to serve credit-blemished borrowers and to take the additional time needed to evaluate their loan applications.

"Mission-driven lenders provide access to credit to those who generally have not been able to get conventional credit, in order to help families and small companies grow their economic viability," Beck pointed out.

According to the Opportunity Finance Network -- a national association of CDFIs -- 1,300 institutions manage $222 billion nationwide, with 61 percent of their clients people of color and 83 percent qualifying as low-income.