Small Dollar Loan Program, 45298-45301 [2020-16213]

Agencies

• Community Development Financial Institutions Fund
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 85, Number 144 (Monday, July 27, 2020)]
[Notices]
[Pages 45298-45301]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16213]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Community Development Financial Institutions Fund


Small Dollar Loan Program

ACTION: Notice and request for information.

-----------------------------------------------------------------------

SUMMARY: The Community Development Financial Institutions Fund (CDFI 
Fund), U.S. Department of the Treasury, is soliciting comments 
concerning the Small Dollar Loan Program (SDLP).

DATES: Written comments must be received on or before September 10, 
2020 to be assured of consideration.

ADDRESSES: Submit your comments via email to Mia Sowell, Acting Program 
Manager, Small Dollar Loan Program, CDFI Fund, at 
[email protected] or Service Request (SR) in the Awards 
Management Information System (AMIS). For the SR, select ``Small Dollar 
Loan Program'' for the record type.

FOR FURTHER INFORMATION CONTACT: Mia Sowell, Acting Program Manager, 
Small Dollar Loan Program, CDFI Fund, U.S. Department of the Treasury, 
1500 Pennsylvania Avenue NW, Washington, DC 20220, by phone at (202) 
653-0300 or email to [email protected].

SUPPLEMENTARY INFORMATION: 
    Title: Small Dollar Loan Program (SDLP)
    Background: The SDLP is a new program, authorized by the Dodd-Frank 
Wall Street Reform and Consumer Protection Act, to be administered by 
the CDFI Fund. The CDFI Fund received $5 million for the SDLP under the 
Consolidated Appropriations Act, 2020 (Pub. L. 116-93). The first 
Notice for Funding Availability (NOFA) and Application are anticipated 
to be released in FY 2021. Eligible applicants, per the SDLP statute 
(12 U.S.C. 4719), will be limited to Certified Community Development 
Financial Institutions (CDFIs) and partnerships between such Certified 
CDFIs and any other Federally Insured Depository Institution with a 
primary mission to serve targeted Investment Areas. A ``Federally 
Insured Depository Institution'' means any insured depository 
institution as that term is defined in section 3 of the Federal Deposit 
Insurance Act (12 U.S.C. 1813).
    The purpose of the SDLP is to provide grants for Loan Loss Reserves 
(LLRs) and Technical Assistance (TA) to enable Certified CDFIs to 
establish and maintain small dollar loan programs. An applicant can 
request SDLP grants for LLRs, TA, or both. SDLP grants cannot be used 
to provide direct loans to consumers. The SDLP statute defines small 
dollar loans as those that do not exceed $2,500. This funding is 
intended to help Certified CDFIs address the issues of expanding 
consumer access to mainstream financial institutions and providing 
alternatives to high cost small dollar loans. It is also intended to 
help unbanked and underbanked populations build credit, access 
affordable capital, and allow greater access into the mainstream 
financial system.
    It is anticipated that award Recipients with demonstrated track 
records of providing small dollar loan products may have two years to 
expend their award dollars and a two year Period of Performance, while 
those with a limited track record (or those who plan to establish a 
small dollar loan product shortly after receiving an award) may have 
three years to expend award dollars and a three year Period of 
Performance. Applicants should keep in mind there is a distinction 
between expending award funds and meeting all performance goals set 
forth in the Assistance Agreements during the Period of Performance. 
For LLR grants, it is anticipated that SDLP awards will be considered 
expended upon being allocated by the Recipient as loan loss reserves 
for an SDLP, after execution of the Assistance Agreement. However, 
Recipients must meet additional, to-be-determined performance goals, 
beyond just expending award dollars, during the Period of Performance 
that will be set forth in their Assistance Agreements. This RFI seeks 
input on performance goals.
    The CDFI Fund will make SDLP awards to qualified Certified CDFIs 
based upon criteria to be set forth in a forthcoming NOFA and 
Application.
    Type of Review: Regular
    Affected Public: Businesses or other for-profit institutions, non-
profit entities, and State, local, and Tribal entities participating in 
CDFI Fund programs.
    Proposed Definitions of Key Terms: This section contains proposed 
definitions of key terms to assist in the review of this document and 
is not a comprehensive list of all defined terms relevant to the SDLP. 
Please see the SDLP statute (12 U.S.C. 4719) for other defined terms 
related to the SDLP.
    (a) Federally Insured Depository Institution means any insured 
depository institution as that term is defined in section 3 of the 
Federal Deposit Insurance Act (12 U.S.C. 1813).
    (b) Investment Area means as that term is defined in 12 CFR 
1805.201(b)(3)(ii).
    (c) Loan Loss Reserve (LLR) means funds set aside in the form of 
cash reserves, or through accounting-based accrual reserves, to cover 
losses on loans, accounts, and notes receivable or for related purposes 
that the CDFI Fund deems appropriate. SDLP grants can be used to 
establish LLRs in order to defray the costs of offering small dollar 
loan products.
    (d) Small Dollar Loan Program means a loan program wherein a 
Certified CDFI or partnership offers loans to consumers that:
     Are made in amounts not exceeding $2,500;
     must be repaid in installments;
     have no pre-payment penalty;
     have payments reported to at least one of the three 
nationwide consumer reporting agencies; and
     meet any other affordability requirements as may be 
established by the CDFI Fund.
    (e) Technical Assistance (TA) means technology, staff support, and 
other activities associated with establishing a small dollar loan 
program. SDLP grants can be used for TA costs.
    Requests for Information: Prior to releasing the initial NOFA and 
Application for the SDLP, the CDFI Fund is seeking input from the 
public on various aspects of the SDLP through this Request for 
Information (RFI), to ensure that the program addresses the needs of 
Certified CDFIs to establish and maintain a small dollar loan program 
that maximizes benefits to their beneficiaries.
    Through this RFI, the CDFI Fund seeks input from the public on 
certain aspects of the SDLP, as listed in

[[Page 45299]]

Sections I through IX. The CDFI Fund also seeks any additional 
information beyond these questions that members of the public believe 
would assist in developing the new SDLP. The CDFI Fund intends to 
consider the feedback received through this RFI as it develops the 
SDLP, including program criteria, award characteristics, application 
requirements, evaluation criteria, compliance and reporting, and other 
areas of input.
    Commentators are encouraged to consider, at a minimum, the 
following topics:

I. SDLP Application

    The SDLP Application will solicit information that will enable the 
CDFI Fund to evaluate an Applicant's eligibility to participate in the 
SDLP and ability to implement proposed activities for an SDLP award. It 
is anticipated that the Application will obtain information on the 
Applicant's financial health and capacity, track record (e.g., offering 
small dollar loan products, or other products with similar risks, 
lending in low income/distressed communities, lending to low- and 
moderate-individuals, etc.), organization and management capacity, 
business plan, projected outcomes, and other information to be 
determined, including appropriate supporting documentation.
    The CDFI Fund requests comments in response to the following 
general questions about a forthcoming Application for the SDLP:
    A. Consumer Need: The CDFI Fund anticipates it will ask questions 
to assess consumer need and environment for small dollar loans in the 
Applicant's market.
    1. What market characteristics of lenders and lending products 
should the CDFI Fund prioritize in order to maximize the impact of its 
SDLP awards, including both need and environment?
    2. How should such characteristics be measured?
    B. Track Record: It is anticipated that the Application will 
include questions related to the Applicant's track record (offering 
small dollar loan products or other products with similar risks, 
lending in low-income or distressed communities, lending to low-and 
moderate-income individuals, etc.). Further, the CDFI Fund understands 
that currently there are varying levels of participation by financial 
institutions that offer a small dollar loan product, which could be for 
a variety of reasons, including certain barriers to entry (e.g., high 
transaction costs). Participation may range from no experience to 
limited experience, to multiple years of offering the product. As a 
result, separate questions in the application may be directed to those 
organizations that have a track record of offering the product and for 
those that do not.
    1. What characteristics should determine whether an Applicant has a 
limited track record with small dollar loans? For example:
    a. Less than ``x'' number of years of offering small dollar loans 
or similar type of loan product.
    b. less than ``x'' percent of loan portfolio outstanding in small 
dollar loans or similar type of loan product.
    c. less than ``x'' dollar of small dollar loans closed or similar 
type of loan product closed.
    2. What questions should the CDFI Fund ask Applicants with no track 
record or limited track record with small dollar loans?
    3. What questions should the CDFI Fund ask Applicants with a 
demonstrated track record with small dollar loans?
    4. What questions should the CDFI Fund ask Applicants with a 
demonstrated track record with loans that have similar characteristics 
to small dollar loans as defined by the SDLP, but may not meet the 
definition of small dollar loans for the SDLP?
    5. The CDFI Fund would like to gain a better understanding of 
diversity of experience with small dollar loan products. If you are a 
trade organization, what percentage of your membership currently offers 
a small dollar loan product? On average, how many years have your 
members offered this product?
    C. Technical Assistance Strategy: The CDFI Fund will provide TA 
grants and/or LLR grants to Recipients through the SDLP awards. TA 
grants may be used for technology, staff support, and other costs 
associated with establishing a small dollar loan program. It is 
anticipated that the CDFI Fund will ask about an Applicant's TA 
strategy if the Applicant requests a TA grant through the SDLP.
    1. What types of TA services do organizations need when developing 
a small dollar loan program?
    2. What questions should the CDFI Fund ask Applicants to assess 
their TA strategy for implementing an SDLP award?
    D. Other Application information: What data fields, questions or 
tables should be included in the Application to ensure collection of 
relevant information that supports the Applicant's track record, 
business strategy, or TA strategy?

II. Minimum and Maximum Award Sizes

    The CDFI Fund has the discretion to set a minimum and maximum award 
amount to ensure award utility, and also to make funds available to 
multiple organizations that qualify for an award. The CDFI Fund is 
contemplating taking the following into consideration when setting the 
minimum and maximum award amounts: an organization's business plan 
regarding its ability to offer a small dollar loan product if it 
receives an award; demonstrated track record offering small dollar loan 
products, or other products with similar risks; activity type (e.g., 
LLRs or TA); organizational capacity; length of time given to expend 
award dollars and meet all performance goals (i.e., Period of 
Performance); etc.
    1. If your organization already offers small dollar loans (or other 
products with similar risk), what percentage and dollar amount of the 
portfolio is reserved for LLRs for small dollar loans?
    2. What other information or data should the CDFI Fund take into 
consideration when determining the minimum and maximum award amount for 
grants for LLRs and/or TA?
    3. What should the CDFI Fund take into consideration when 
determining the minimum and maximum award amount for a Recipient with:
    a. A demonstrated track record, if the reporting period is two 
years?
    b. A limited track record (or plans to enter the small dollar loan 
line of business shortly after receiving an award) if the reporting 
period is three years?

III. Small Dollar Loan Characteristics, Policies, and Practices

    The SDLP statute defines small dollar loans as those that do not 
exceed $2,500. The CDFI Fund is seeking additional input on small 
dollar loan characteristics. Per the statute, Recipients must report 
payments regarding the loan to at least one of the nationwide consumer 
reporting agencies that compiles and maintains files on consumers on a 
nationwide basis, and a purpose of the SDLP is to help give consumers 
access to mainstream financial institutions. What characteristics of a 
Recipient's small dollar loan program could help achieve this 
objective?

IV. Regulatory Requirements and Restrictions

    The CDFI Fund is seeking input on how regulatory requirements, such 
as current expected credit losses (CECL), and restrictions may impact 
the SDLP.

[[Page 45300]]

For example, there is an expectation that adopting an unsecured small 
dollar loan product may result in increased LLRs, in part due to the 
higher historical loss rates associated with such portfolios. This may 
impact entities that are subject to the upcoming required CECL 
methodology. In addition, there may be other costs associated with 
adopting a new small dollar loan product, particularly if the CDFI does 
not have existing infrastructure or experience around similar loan 
products.
    1. Is there an expectation the regulatory costs associated with 
implementing a small dollar loan product will vary widely depending 
upon the type of CDFI, asset size, anticipated product volume, loan 
terms, and intended customers? If so, how should this be addressed in 
the SDLP NOFA and Application?
    2. Will the cost burden for those CDFIs with a previous track 
record of implementing a similar loan product vary considerably when 
compared to CDFIs developing a new small dollar loan product without 
prior experience? If so, how?
    3. Is there an anticipation that the cost burden for implementing a 
new small dollar loan program will vary significantly between CDFIs of 
varying size and complexity? How should this be addressed in the SDLP 
NOFA and Application?
    4. For those CDFIs that decide to implement a homogenous small 
dollar loan product (e.g., standard rate, term, amount, etc.), is there 
an expectation this approach will result in lower regulatory and/or 
financial costs? If so, how? How should this be addressed in the SDLP 
NOFA and Application?

V. Financial Institution Type

    Entities eligible to apply for an SDLP award may be either: (1) 
Certified CDFIs or (2) partnerships between such Certified CDFIs and 
any other Federally Insured Depository Institution with a primary 
mission to serve targeted Investment Areas. As a result, Applicants may 
represent a variety of organization types or a combination of 
organization types. It is anticipated that the Application will consist 
of questions related to the Applicant's track record (for example, 
offering small dollar loan products, or other products with similar 
risks, lending in low income/distressed communities, lending to low- 
and moderate-income individuals, etc.), organization and management 
capacity, business plan, and projected outcomes.
    1. Are there specific topics that are unique to various 
organization types that the CDFI Fund should consider when drafting the 
application questions? (Yes/No).
    2. If yes, please describe the topics that are unique to the 
following organization types, based on the information that could be 
provided in the Applicant's track record, business plan, projected 
outcomes, and management capacity:
    a. Certified CDFI banks/thrifts.
    b. Certified CDFI credit unions.
    c. Certified CDFI cooperativas.
    d. Certified CDFI unregulated loan funds.
    e. Certified CDFI bank/thrift partnership with a non-CDFI Federally 
Insured Depository Institution.
    f. Certified CDFI credit union partnership with a non-CDFI 
Federally Insured Depository Institution.
    g. Certified CDFI unregulated loan fund partnership with a non-CDFI 
Federally Insured Depository Institution.
    h. Certified CDFI cooperativa partnership with a non-CDFI Federally 
Insured Depository Institution.

VI. Community Partnerships

    Per the SDLP statute, a Certified CDFI may partner with a Federally 
Insured Depository Institution (e.g., bank/thrift) with a primary 
mission to serve targeted Investment Areas to apply for an SDLP award.
    1. Please describe or provide examples of partnerships that may 
wish to apply for an SDLP award.
    2. What are the benefits to end users if the Recipient of the SDLP 
award is a partnership?
    3. What additional or specific criteria should the CDFI Fund use to 
evaluate Applicants that apply as a partnership?
    4. Which responsibilities should be conducted solely by the CDFI 
entity and not the partner organization during the Period of 
Performance of the SDLP award?
    5. How can the CDFI Fund determine if a non-CDFI partner has ``a 
primary mission to serve targeted Investment Areas?''

VII. Evaluation Criteria for Measuring Success

    The CDFI Fund will evaluate the track record and outcomes to 
evaluate Applications and measure success (e.g., outcomes and outputs) 
of SDLP Recipients. Small dollar loans offered by CDFIs are intended to 
serve as an alternative to high cost small dollar loan products. Some 
financial institutions have a demonstrated track record of providing a 
small dollar loan product for multiple years and have self-evaluated 
the outputs and outcomes of offering such a product.
    1. Please describe some of the outcomes associated with offering a 
small dollar loan product. (An outcome measures the successes and 
achievements associated with the product.)
    2. Please describe some of the outputs a financial institution and/
or its stakeholders experience as a result of offering a small dollar 
loan product. (An output identifies the end result that occurred after 
the small dollar loan product was offered.)
    3. Many financial institutions have not previously offered a small 
dollar loan product, or have a limited track record of doing so. Please 
describe some of the barriers to entry financial institutions may 
experience related to small dollar loan products.

VIII. Performance Goals, Compliance, and Reporting

    The performance goals for SDLP award Recipients will: (1) Align 
with the purpose of the SDLP and (ii) establish accountability measures 
associated with the anticipated outcomes and outputs of an SDLP award. 
SDLP award Recipients will be expected to maintain compliance and 
reporting requirements that demonstrate successful achievement of the 
performance goals and will be set forth in the Assistance Agreement. 
The CDFI Fund would like to obtain input on certain aspects of the 
performance, compliance, and reporting requirements for the SDLP.
    A. Period of Performance: The compliance and reporting period will 
be for a specified timeframe, or the Period of Performance (anticipated 
to be two to three years):
    1. Should a SDLP Recipient with a limited track record (e.g., those 
with less than two years of experience) be required to report on its 
use of the SDLP award for more than two years?
    2. Are there additional factors the CDFI Fund should consider in 
determining the Period of Performance?
    B. Performance Goals: Due to the revolving and short-term nature of 
small dollar loans, it is anticipated that Recipients will be able to 
demonstrate an increase in loans offered through its small dollar loan 
portfolio during the Period of Performance.
    1. What is the minimum dollar volume of small dollar loans that an 
award recipient should be expected to make based on its award amount 
(for example, $10 of loan volume for every $1 of award)? Should this 
ratio vary based on the amount of award used for LLR vs. TA, and if so, 
why and how?
    2. Are there other performance goal(s) the CDFI Fund should 
consider for

[[Page 45301]]

SDLP Recipients who commit to using their awards for:
    a. Loan Loss Reserves?
    b. Technical Assistance?
    3. What units of measurements should be used in establishing 
performance goals for Recipients? For example, cumulative dollar amount 
of small dollar loans closed over the Period of Performance, growth in 
average size of small dollar loan portfolio outstanding over the Period 
of Performance, etc.
    4. Should there be any differences in the reporting goals for award 
Recipients with limited track records versus established track records? 
If yes, please describe.
    C. Reporting Requirements for Recipients:
    1. Should SDLP recipients structure their loan systems to track 
usage of the SDLP at a loan level? Would this be a burden, and if so, 
in what way?
    2. In addition to annual reporting, should the CDFI Fund require 
supplemental (e.g. quarterly, semi-annually, etc.) reporting for 
limited experience award Recipients?

IX. General

    1. Are there any clarifications the CDFI Fund should consider 
providing to the Proposed Definitions of Key Terms?
    2. Please describe potential unintended impacts (positive or 
negative) of SDLP awards on overall credit availability within 
underserved communities.
    3. Is there any other information the CDFI Fund should consider in 
establishing this program?

    Authority: 12 U.S.C. 4719.

Jodie L. Harris,
Director, Community Development Financial Institutions Fund.
[FR Doc. 2020-16213 Filed 7-24-20; 8:45 am]
BILLING CODE 4810-70-P