Community Development Financial Institutions Fund; CDFI Target Market Assessment Methodologies, 63852-63854 [2022-22767]

Agencies

• DEPARTMENT OF THE TREASURY

[Federal Register Volume 87, Number 202 (Thursday, October 20, 2022)]
[Notices]
[Pages 63852-63854]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22767]


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DEPARTMENT OF THE TREASURY


Community Development Financial Institutions Fund; CDFI Target 
Market Assessment Methodologies

ACTION: Notice and Request for Comment.

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SUMMARY: The Community Development Financial Institutions Fund (CDFI 
Fund), Department of the Treasury, requests comments from the public 
regarding the pre-approved Target Market assessment methodologies that 
entities applying for Certification as a Community Development 
Financial Institution (CDFI) may use to assess whether the recipients 
of an entity's Financial Products or Financial Services are members of 
a pre-approved Target Market. Capitalized terms found in this notice 
are defined in the regulations that govern the CDFI Program.

DATES: Written comments must be received on or before December 19, 2022 
to be assured of consideration.

ADDRESSES: You may submit comments via the Federal eRulemaking Portal: 
www.regulations.gov. Follow the instructions on the website for 
submitting comments. In general, all comments will be available for 
inspection at www.regulations.gov. Comments, including attachments and 
other supporting materials, are part of the public record. Do not 
submit any information in your comments or supporting materials that 
you consider confidential or inappropriate for public disclosure.

FOR FURTHER INFORMATION CONTACT: Michelle Dickens, Program Manager, 
Office of Certification Policy and Evaluation, CDFI Fund, U.S. 
Department of the Treasury, 1500 Pennsylvania Avenue NW, Washington, DC 
20220 or by phone at (202) 653-0300. Other information regarding the 
CDFI Fund and its programs may be obtained through the CDFI Fund's 
website at https://www.cdfifund.gov.

SUPPLEMENTARY INFORMATION: To be a Certified CDFI, an entity must 
demonstrate that it serves at least one eligible Target Market (either 
an Investment Area or a Targeted Population). In addition, it must 
direct at least 60% of both the number and dollar volume of arm's-
length, on-

[[Page 63853]]

balance sheet Financial Products to one or more eligible Target Market 
components. Under the current policies and CDFI Certification 
Application, Applicants must describe and seek approval for each 
assessment methodology they have used and intend to use to confirm 
financing activity to their identified Target Market(s). Only those 
Target Market assessment methodologies that have been approved by the 
CDFI Fund may be used when compiling Target Market data.
    In an effort to increase transparency and reduce burden through a 
revised CDFI Certification Application, https://www.cdfifund.gov/sites/cdfi/files/2022-10/CDFI_Certification_Application_Preview_Final_10322.pdf, the CDFI Fund 
intends to publish a list of pre-approved Target Market assessment 
methodologies that Applicants and Certified CDFIs may use and rely upon 
to demonstrate that they are serving their identified Target Market(s). 
Through the revised application and Annual Certification and Data 
Collection Report (ACR), Applicants and Certified CDFIs will select 
from a drop-down menu the options in the methodology list that they 
used for each of their Target Market components (i.e., Investment Area 
(IA), Low Income Targeted Population (LITP), or Other Targeted 
Population (OTP).
    The proposed list of pre-approved Target Market assessment 
methodologies, which may be found on the CDFI Fund website 
(www.cdfifund.gov), reflects the primary assessment methods that have 
been approved by the CDFI Fund and are most commonly used by a majority 
of currently Certified CDFIs, but may not be a comprehensive list of 
all the assessment methodologies previously approved by the CDFI Fund. 
Because the CDFI Fund, to this point, has not specifically tracked 
approved Target Market assessment methodologies (and in part as a 
result of documentation system changes), the CDFI Fund may previously 
have considered and even approved a Target Market assessment method 
unique to a specific Applicant or Certified CDFI that does not appear 
on the proposed list.
    Applicants that use one of the pre-approved options will no longer 
be required to describe the assessment process used to confirm 
financing activity to their Target Market(s) as part of the 
Certification Application or a Target Market modification. If an 
Applicant or Certified CDFI seeks to use an alternative or modified 
Target Market assessment method, it will be permitted to submit a 
service request through AMIS for consideration of that process to the 
CDFI Fund. If new assessment methodologies are approved, the CDFI Fund 
intends to update the list of pre-approved methodologies as 
appropriate, so that any newly approved methodologies may be available 
to other Applicants and Certified CDFIs as well.
    Approved CDFI Fund Target Market assessment methodologies must be 
used exactly as approved unless and until modification of the method is 
authorized by the CDFI Fund. To use an alternative or modified Target 
Market assessment method when compiling Target Market data for the CDFI 
Certification Application, the new method must be approved by the CDFI 
Fund prior to submission of the application. Failure to use an approved 
assessment methodology (or maintain required documentation, as noted in 
the list) may result in the termination of a Certified CDFI's 
certification.
    Through this Request for Comment (RFC), the CDFI Fund seeks 
feedback from the public on the proposed list of pre-approved Target 
Market assessment methodologies. The CDFI Fund also seeks any 
additional information beyond the questions below that members of the 
public believe would assist in establishing policies and procedures 
related to the Target Market assessment methodology. The CDFI Fund 
intends to consider the feedback received through this RFC prior to 
establishing a final list of pre-approved Target Market assessment 
methodologies.

I. Pre-Approved Target Market Assessment Methodologies

    a. Do each of the listed Target Market assessment methodologies, if 
used, provide sufficient confidence as to the level at which an 
Applicant or Certified CDFI is serving an Investment Area, LITP, or 
OTP? If no, please identify the methodology, the reason it may 
inaccurately capture the level of service to an Applicant's or CDFI's 
Target Market, and how the methodology could be strengthened.
    b. Are there assessment methodologies the CDFI Fund previously 
allowed but that do not appear in the proposed list of pre-approved 
Target Market assessment methodologies? If yes, please describe any 
such methodology and indicate the date on which the methodology was 
approved by the CDFI Fund.
    c. Are there additional assessment methodologies the CDFI Fund 
should consider that it may not have previously approved, but that 
would serve to provide sufficient confidence as to the level at which 
an Applicant or Certified CDFI is serving a Target Market? If yes, 
please provide the following information for each proposed methodology:
     The applicable Target Market type (IA/LITP/OTP)
     Data Collected (e.g. data fields, time period, reporting 
level)
     Model/Method design (e.g. mathematical equations, 
relationship between data fields, etc.)
     Documents reviewed (e.g. contracts, agreements, white 
paper, etc.)
     The step by step process used to collect the data and 
review any documents or run the model and process its results
     If proposing a programmatic proxy, the step by step 
process used to compare programmatic data to CDFI Fund definitions 
(e.g. income sources, income thresholds, etc.)
     Any record keeping process
     The process for updating any methodology dependent on 
underlying data changes.
    d. What standards should the CDFI Fund use in its decision making 
to approve or disapprove a proposed assessment methodology?
    e. The CDFI Fund also will continue to allow, in the absence of 
documentation of an individual's actual income, an organization's use 
of assessment methodologies that treat a Financial Product recipient's 
participation in an income-based program as a proxy to determine that 
individual's status as a member of a Low-Income Targeted Population. 
For a program to be an eligible proxy, the income limits of the program 
must align with the CDFI Fund's definition of Low-Income.
    In addition, the use of any programmatic proxy as an assessment 
methodology that is not previously pre-approved by the CDFI Fund must 
be submitted to and approved by the CDFI Fund prior to submission of an 
application for CDFI Certification.
    Because the CDFI Fund has not historically tracked all approved 
programmatic proxy assessment methodologies, the CDFI Fund requests 
organizations that currently use, or seek to use, a programmatic proxy 
not listed among the proposed assessment methodologies, submit as part 
of this Request for Comment information on the programmatic proxy. 
Doing so will enable the CDFI Fund to make a determination on the 
eligibility of that programmatic proxy prior to the finalization of the 
pre-approved methodologies. In addition to the information requested 
above, please also provide the step by step process the organization 
used to compare programmatic data to CDFI Fund

[[Page 63854]]

definitions (e.g. income sources, income thresholds, etc.).
    f. The CDFI Fund also is considering whether to include as a pre-
approved assessment methodology the use of a geography-based proxy to 
identify members of a Low-Income Targeted Population in the absence of 
documentation of an individual's actual income. One such approach would 
be to identify eligible areas based on the share of households in the 
area that earn less than 80 percent of the Area Median Income (AMI), 
such that for a Financial Product or Financial Service delivered to a 
resident of the area there would be a reasonably high likelihood that 
the resident would be determined to be low-income.
    For example, setting a 70 percent threshold for Low-Income 
households in a census tract block group (as determined by Low to 
Moderate Income Population by Block Group https://hudgis-hud.opendata.arcgis.com/datasets/HUD::low-to-moderate-income-population-by-block-group/about data from the Department of Housing and 
Urban Development) as the proxy would capture approximately 34 million 
of the 134 million Low-Income persons residing in the United States. In 
addition, approximately 8 million higher-income individuals also live 
in such block groups and effectively would be treated as Low-Income by 
such a proxy. There is, however, a significant overlap of block groups 
with high levels of Low-Income households and block groups located 
within an Investment Area (where an investment delivered to a higher-
income resident is already an eligible Target Market Financial 
Product). Approximately 32 million Low-Income individuals captured by a 
70-percent threshold proxy are also located within an Investment Area, 
along with 7.5 million higher-income individuals. By contrast, 
approximately 1.6 million Low-Income individuals captured by such a 
proxy as well as 478 thousand higher-income individuals are located 
outside of an Investment Area.
    Setting a lower threshold for the proxy would capture a higher 
share of the nation's Low-Income population, but similarly would 
effectively treat as members of an LITP a larger number of individuals 
who would not otherwise be considered Low-Income. Setting a higher 
threshold, on the other hand, would increase the likelihood that a 
resident of the geographic proxy is actually Low-Income, but would 
further limit the utility of the proxy by capturing an even smaller 
share of the total U.S. Low-Income population.
    Based on a 70 percent threshold, a list of all qualifying block 
groups can be found on the CDFI Fund website, here https://www.cdfifund.gov/programs-training/certification/cdfi/certification-pra. Note that the income status of these block groups is based on data 
from the 2011-2015 American Community Survey (ACS). If the CDFI Fund 
determines that residence in an eligible geography is an acceptable 
proxy for assessing an individual's Low-Income status, the data upon 
which the CDFI Fund will rely for this purpose will be updated 
periodically based upon the most recent data available from the U.S. 
Department of Housing and Urban Development.
    i. Should the CDFI Fund establish a geographic proxy for Low-Income 
status as an approved Target Market assessment methodology, such that a 
Financial Product or Financial Service delivered to a resident of a 
qualifying block group would be deemed delivered to an LITP, even if 
the proxy might overestimate the share of LITP borrowers served by an 
Applicant or Certified CDFI?
    ii. Alternatively, should the CDFI Fund accept the use of such a 
proxy only when other methodologies are unavailable (e.g., 
documentation of actual income or borrower participation in another 
program with income-based eligibility restrictions)?
    iii. If the share of Low-Income households in a census tract block 
group is an acceptable proxy for LITP status, is 70 percent an 
appropriate qualifying threshold to maintain the integrity of the CDFI 
Certification? If no, what is an appropriate threshold?
    iv. Are there guardrails the CDFI Fund could place on such a proxy 
to limit opportunities for abuse of the proxy, e.g., an entity that 
chooses to use the proxy because it will allow it to represent more 
activity as directed to an LITP than would otherwise qualify? If yes, 
describe those guardrails? If the CDFI Fund allows the use of a 
geographic LITP proxy, should it also require users of the proxy to 
obtain an attestation from a Financial Product or Financial Services 
recipient that their income is below 80 percent of the area median 
family income?
    g. Should a Financial Product delivered to a business, not owned by 
a member of a Targeted Population or located in an Investment Area, 
that is providing jobs, products, or services to a Targeted Population 
or Investment Area, be deemed delivered to a Target Market? If yes, are 
there assessment methodologies for end users, other than those already 
included in the list that the CDFI Fund should consider? What are those 
assessment methodologies? Should approval of any such methodology 
associated with jobs to a Targeted Population or located in an 
Investment Area be dependent on standards for a livable wage or other 
quality job metrics?
    h. Current standards for identifying members of a Native American 
and Native Alaskan OTP include an assessment that an individual has 
``maintained Tribal affiliation or community attachment.'' The CDFI 
Fund's proposed assessment methodologies state that a financing entity 
may assess a recipient's Tribal affiliation or community attachment via 
the collection of a government-issued or tribal government-issued photo 
identification. Are there other methods the CDFI Fund should deem 
entities can use to assess such status, and in particular an 
individual's ``community attachment'' to a Native population? What are 
those methods and describe them?

II. General Target Market Verification Questions for Public Comment

    a. Is there additional information that the CDFI Fund should 
consider related to Target Market assessment methodologies? If so, 
please describe.
    Authority: 12 U.S.C. 4701 et seq.; 12 CFR 1805; Public Law 116-260.

Jodie L. Harris,
Director, Community Development Financial Institutions Fund.
[FR Doc. 2022-22767 Filed 10-19-22; 8:45 am]
BILLING CODE 4810-70-P