Treasury Targets CDFI Abuse as Program Faces 63% Funding Cut

The Treasury Department says it is taking a closer look at certified Community Development Financial Institutions (CDFIs).

The review is aimed at identifying potential violations of the law and to make sure CDFIs that receive federal assistance are properly using public money, the department said in a Monday (April 27) news release.

“CDFIs play a critical role in expanding access to capital in underserved communities,” said Treasury Secretary Scott Bessent.

“CDFIs that engage in predatory practices and take advantage of the very communities they are intended to serve will be reviewed and, where appropriate, held accountable.  We remain committed to enforcing the law and protecting taxpayer resources while supporting the mission of responsible CDFIs.”

The review is happening as the White House is moving to cut $204.5 million from the CDFI fund, a 63% reduction.

The CDFI Fund is designed to promote economic opportunity in underserved communities by backing mission-driven financial institutions that offer capital and services to people and businesses often overlooked by traditional lenders.

But the Trump administration says that under previous presidencies the fund was “abused” to service “partisan agendas.”

“Past awards enabled lender practices in which race was a key determinant in access to loans, and provided funds for products and services that advanced immigration, gender, and climate radicalism,” the budget reads.

Lawmakers and banking groups have protested the proposed cuts. America’s Credit Unions, for example, issued a statement earlier this month saying that the budget proposal would cut off access to reliable and affordable financial services.

“CDFIs play a critical role in expanding economic opportunity, particularly in underserved areas, and any reduction in support risks limiting that impact,” Scott Simpson, president and CEO of America’s Credit Unions, said in a news release.

Meanwhile, a pair of U.S. Senators introduced a bill in February they say would help the CDFI fund improve capital access and economic development in underserved communities.

The “Access to Fair Financing for Opportunity and Resilient Development Act” (AFFORD Act), introduced by Sens. Steve Daines (R-Mont.) and Mark Warner (D-Va.), would let smaller CDFIs take part in the CDFI Bond Guarantee Program, reauthorize the CDFI liquidity enhancement program to increase CDFI lending capacity, and expand a USDA CDFI relending program that supports Native CDFIs.