Online Event Archive Recorded: August 15, 2024

Join NCRC for Just Economy Conversations, a series of online discussions addressing America's racial and socio-economic divides. Experts from NCRC and our network will share ideas and strategies to make a Just Economy a national priority and a local reality. The first in the series, "Winning Strategies for CDFIs in Special Purpose Credit Programs," will explore how SPCPs effectively address lending disparities.

Over the past several years, Special Purpose Credit Programs (SPCPs) have emerged as a powerful tool for addressing persistent lending disparities. At the encouragement of regulators, advocates, and others, many institutions have launched SPCPs specifically designed to close lending gaps in communities of color, with very promising results. Community Development Financial Institutions (CDFIs) are in a unique position to reach these populations, but there has been growing concerns about the continued viability of these programs considering recent legal challenges to race-conscious programs in other areas. This webinar will (1) provide an overview of SPCPs; (2) highlight the progress lenders have made over the past several years, including examples of various public programs, (3) address the impact of anti-affirmative action litigation/legal developments on CDFIs, and (4) discuss a strategic path forward for CDFIs interested in creating programs aimed at reducing the racial wealth gap and other important disparities. The panel discussion will end with a Q&A from the audience.

Panelists:

Imani Cherry,Attorney with Relman Colfax
Dafina Williams,EVP Chief Public Policy Officer & Head of Government Affairs for Opportunity Finance Network

Moderator:

Jacelyn Matthews,Director of National Training Academy

Transcript:

NCRC video transcripts are produced by a third-party transcription service and may contain errors. They are lightly edited for style and clarity.

Speaker 1 0:21
Good afternoon and welcome everyone. We were trying to give some people more time to get in, but as they filter in, they'll get to jump right in and hear what we're chatting about today. So I wanted to welcome you all to our first of many when it comes to just economy conversations. This one will center on winning strategies for CDFIs and Special Purpose Credit Programs. We have two speakers today that will be sharing more about this topic. So just a little bit about NCRC. For those who may not know who we are, our mission is to make a just economy a national priority and a local reality. We're a coalition of organizations and individuals dedicated to creating a nation that not only promises but delivers opportunities for all Americans to build wealth and live well. So just a couple of housekeeping things before we actually get started. We do have our code of conduct that applies to all of our gatherings, just trying to be respectful of everybody's space, honoring who people are when they come into the space as well, and also considering that as you share within the chat or in the Q and A box, so we are using WiFi, we know how it is more on webinars, and using zoom. So just considering that there may be a 5-10 second delay on the slides, or you may experience temporary audio or visual lagging. So these are normal depending on your internet connection and a number of additional devices attached to your internet. If you're having issues with that, please let us know. You can contact us at [email protected] immediately, so we can be of assistance if there's technical issues we can assist with and we are allotting time for Q and A towards the end of our webinar today. So please type your question in the Q and A pod. We'll be sure to be able to check in and get your questions answered by our presenters at the end of our time today. And just so you know what we're covering today, so I'll go over introduction of our speakers who are here, an overview of the Special Purpose credit programs will be discussed. They'll discuss a legal landscape after SFFA, and then also we will talk about winning strategies for actually creating special purpose credit programs within CDFIs. Okay, sorry, so let me just go back and introduce our speakers really quickly. First we have here Imani Cherry. Imani is an attorney at Relman Colfax, PLLC, based here in Washington, DC. She practices in the Civil Rights counseling group where she advises banks, nonbank, financial institutions, fintechs and other organizations on best practices for complying with fair housing, fair lending and other consumer protection and anti-discrimination laws and promoting techniques to address algorithmic discrimination. We also have Dafina Williams, who is executive vice president, Chief public policy officer and the head of government affairs at Opportunity Finance Network (OFN), she does many things here, leading national network of more than 425 mission-driven community lenders with more than 18 years of experience in the CDFI industry, she leads the organization's public policy, Legislative Affairs and regulatory initiatives. Prior to assuming her current role, Dafina played a pivotal role in shaping OFN policy agenda, concentrating on federal appropriations, small business policy and fair lending practices. And now I'll turn it over to Dafina and Imani to get our presentation started.

Cherry 03:34
Hi everyone. It's really nice to, I can't see you, but to meet you. Some of you again, some of you for the first time, thank you so much for taking the time out to attend this crucial, critical conversation about special purpose credit programs I started. We started this conversation, like Jacelyn said, at the NCRC Just Economy Conference this year, and we're continuing it, specifically targeted towards CDFIs. So I kind of want to give it start with an overview of what special purpose credit programs are. This is a very unique program that's been around for a long time, but not really used or highlighted until the last few years. So this program is a creature of the Equal Credit Opportunity Act. So what is Equal Credit Opportunity Act? It's a federal law that prohibits discrimination and credit transactions, including inquiries into an applicant, a credit applicant's membership in a protected class. So protected class meaning your race, your gender. Etc, your sex, etc. However, within the statute, within ECOA, as we call it, it says it's not a violation of the statute for creditors to establish Special Purpose credit programs, to extend credit to benefit economically disadvantaged persons or meet special social needs if the requirements of its implementing regulation, regulation B are met. Because of this, we're allowed now to as creditors, you all as creditors, to consider the protected class of applicants under this special purpose credit program requirements when determining eligibility for a special purpose credit program, lending product or program.

Next slide, so how do you create a Special Purpose Credit Program? How do you qualify a program as an SPCP? The biggest thing is meeting the standards set out in Regulation B. And there are two different standards depending on the type of program that you're a type of entity that you are under the regulation you can either do a program Express, expressly authorized by law. We're not going to talk about that today, but the other two relevant here are programs by for-profit entities and programs by nonprofit entities. And there are slightly different standards for each of these programs. I'm going to start with for-profit, which is a little more complicated. There's three criteria that you need to meet to establish a Special Purpose Credit Program. The first, it has to meet special social needs. Second, it has to be established to a class of to meet the needs of a class of persons who under the entities customary standards of credit-worthiness. I always get tripped up on those words. Customary standards of credit-worthiness probably would not receive credit or would receive it on less favorable terms. And then finally, for-profit entities, when they establish their SPCP, they need to have a written plan, literal, physical documentation of what the special purpose credit program is. So this is CFPB advisory opinion out there that contains the general information that a written plan must, must have to support a particular special purpose credit program in that written plan. And I'm emphasizing this because it is kind of one of the most important parts of establishing one of these programs is drafting that written plan is to include, you know, the actual class of persons that your program is intended to serve the program and standards that you are using to extend the actual credit under The program, and then the time period for which you will reevaluate the program or determine the continued need for the program. And then finally, which is another very important piece, is describing the need for the particular program and how it meets the needs of the class of persons you intend to serve. This is a really, kind of a thorough analysis that folks must do when they put out their special purpose credit program. And I highly encourage folks to take a look at that. CFPB advisory opinion for more information on that. I want to make a note here that special purpose credit programs are not just meant for institutions to do them in isolation, you can also partner with other institutions. So the regulation allows for for-profit entities to also partner with other entities and other programs established by other entities to offer this type of credit.

The second entity is a nonprofit entity. This is a lot, a little bit less, I won't say a lot, but a little bit less than the for-profit entities standards. And there's two ways you have to establish your SPCP here. You have to show that the program benefits the members of your organization. So for example, if you're a credit union show that the program is going to benefit your members, or it can show be shown to offer a benefit to an economically disadvantaged class of persons. You'll see the difference here that there isn't a specific standard for nonprofits to have a written plan. Oftentimes nonprofits that establish SPCPs do have a written plan, and we encourage that generally, for a few kind of overall overarching reasons. Namely, you know, no matter how carefully you can design a special purpose credit program, there is some sort of risk a. Associated with it, some inherent risk, right, for example, not exactly following the specific standards and outlined in reg D, or this other risk that we will talk about in a little bit, you know, a risk of, actually, you know, litigation. So it's really helpful to have documented justification for your program. It also helps organizations to synthesize information to justify the program. Once again, it helps explain the need for the program. It helps outline that relevant research to lay the foundation for the benefits and need of the program. And then finally, it also facilitates conversations with stakeholders, including your regulators. You know, I want to note here that from either for-profit or nonprofits, you need to get approval, necessarily, by a regulator. Your regulator that says, that said, you know, it's always good to have these conversations generally to see what they expect. But again, it's not necessary, but a written plan can definitely help facilitate this conversation. Okay, so I went through all the different nuances, or, you know, how to create a program, what they are? So are these programs supportable? That's a really big question. So next slide, the I'll give a little bit of background before I get into these four, four things like I said earlier. SPCPs have been around for a while. They've been around since 1976 but it really wasn't effectively used or really out there, really because of two reasons. One, there was some hesitancy among financial institutions to implement it, because it wasn't clear how it eco is provisions comported with other anti-discrimination law. There was some sporadic guidance here and there. For example, like in 2001 the OCC had some guidance on SPCPs, which is now outdated. But the real guidance really came out from the CFPB in, you know, in 20 can't remember the exact year, 2016, probably. And this is where the CFPB started, more and more, saying, Hey, these are some programs that you can support creditors. And we think that there's a you have a leg to stand on here, and you should start using those programs. So with that, pushed by the CFPB, other regulators and articles and came out to support special first credit programs, our firm just a little to our firm's work, we put out a an opinion well, not an opinion article, excuse me, just kind of explaining how we thought Special Purpose credit programs comported with the Fair Housing Act, how they also comport with other anti-discrimination law and that they don't violate either one of them. A few months later. You know, there was another there was an article that came out by sorry, a few a year later. There was an interagency statement that came out from HUD that also supported that similar analysis that the Fair Housing Act generally does not. It's not going to be violated if you have an SPCP. So this is all really encouraging information. There's been, you know, all the regulators seem to be on board with this, these types of programs. They put out multiple statements encouraging creditors to have these programs. And we've seen more and more banks and financial institutions actually implement these programs. And you hear about that, hear about that a little more from Dafina. So I'm going to stop talking. I know that's a lot of information. I'm always happy to take some questions at the end, if you can go back. But I think the top line here is that these are programs are really, really good. They're really supported by the various regulators that we have now, and we think that they're a great way to, you know, reach underserved populations. So for more on that, I'm going to pass it off to Dafina to talk about, like, why they're so important and the reality of it on the ground.

Williams 14:01
Thanks, Imani, can we go to the next slide? So you know, knowing that we're on an NCRC webinar with an audience of CDFIs, I don't think that there's a lot of convincing that you all need as to why these special purpose credit programs are important. But want to go through some of the kind of key highlights anyway, you know, we continue to have kind of stubborn racial inequality and wealth gaps in many of the economic indicators of, you know, wealth and access to capital across this country. So we know that the racial wealth gap is kind of deeply rooted in systemic inequities and. Including discriminatory policies and housing, education, employment and access to credit, and they've compounded over generations, so it's limited both building opportunities for communities of color. So how does this show up in the economy? We have a large racial homeownership gap, almost 30 percentage points lower for Black people add for 20 percentage points lower for Hispanics compared to White borrowers. And then we also know that when people of color apply for mortgages, they're often approved for smaller amounts and receive higher interest rates than their White counterparts. The wealth gap is again, it's stubborn, it's persistent, and we've got White wealth that is about six times higher than that of Black families and more than four times higher than that of Hispanic families. And the access to capital. Gaps are persistent when it comes to credit and capital for entrepreneurship and business ownership as well. So businesses owned by people of color continue to get denied for financing at higher rates than White-owned businesses, and when they do receive credit, similar to the mortgage space, it's often less than what they apply for. And so for you know, lenders, again, working in this space, I don't think that any of these data points are going to be surprising to you. This is what we're kind of seeing and experiencing in the communities on the ground that we're all serving. But I do think the context here is important that you know, there are ongoing racial disparities and the major ways that people create wealth in this country, homeownership, education, access, working in the labor markets. And these stubborn gaps are, you know, the result of those policies over centuries, quite frankly. But we also know that in economic downturns that the outcomes are actually worse for communities of color. So when you think about there being a homeownership gap, we also know that the foreclosure crisis and the subprime mortgage crisis negatively impacts borrowers of color more so than white borrowers. Same thing when it comes to, you know, educational attainment, student debt, it's going to have, you know, greater consequences for people of color than for their white counterparts. And even when we think about like the labor markets and employment, we know that during the recession and during COVID-19 pandemic, that, you know, temporary layoffs and unemployment, again, those kind of economic impacts really do tend to hit those communities of color harder than other communities. So there's a real need for these kind of targeted solutions to address some of these issues.

Next slide, please. So there, you know, these policy interventions can be an effective way to address some of these gaps, and SPCPs have the ability to really target solutions to the specific needs of the community, and they're an important tool and efforts to close the racial wealth gap. So we've seen some widespread adoption of these programs, as Imani was alluding to, by larger financial institutions and even some quasi-government entities like the GSEs also have their own special purpose credit program. So again, as Imani noted, there has been kind of clear and direct regulatory guidance over the past several years, which has paved the way for more of this, which we really have seen the Biden-Harris administration kind of step into this and continue to issue that interagency guidance and hosting events, and just being really out front about, you know, the importance of these programs and that they are something that is going to be allowable and looked upon favorably by the regulators, and these programs can also be a way for financial institutions to meet their Community Reinvestment Act obligations. So another little added bonus there.

Next slide. So I just want to talk about a couple of examples of some of these programs, and using the lens of some of the larger banks that have created them, we know that, you know, there are CDFIs that have them, and again, there's some, you know, Fannie and Freddie have their own. But just a couple of examples, you know, again, they're not always spelled out in black and white on the website. This is a Special Purpose Credit Program, but sometimes they are. So just want to go through a couple examples. So Bank of America has a community affordable loan solution that's a mortgage program for first-time homebuyers that's going to help with down payment assistance and no closing costs for properties in Black and Latino communities that are in Charlotte, Dallas, Detroit, LA and Miami. And so they're using different credit guidelines, looking at things like timely rent, utility bills, phone payments, insurance payments, and there's no mortgage insurance or no minimum credit score requirements. So again, trying to address some of those hurdles when it comes to being able to kind of underwrite and assess the credit-worthiness of communities of color, you often see that, you know, they might have income issues or higher debt or lower credit scores, and so these programs really can try to get at, you know, providing solutions to addressing some of those issues. For this program, I think it's one thing that's notable about this Bank of America program is that it's actually not based on the. Race of the borrower. They note on their website that anyone from any race or ethnicity is welcome to apply. But you know, they're likely hoping that by targeting these communities of color, that the applicant pool is going to be, you know, black and Latino, without explicitly saying this is directed to a individual person. So I think that's an interesting example, because depending on kind of the recent income of those that are using the programs you might actually see this, you know, have some some impacts on, you know, potentially gentrification, depending on, you know, kind of how that shakes out. But again, this is targeted to communities of color, and the idea being to increase access to homeownership. A different example is US banks kind of business lending diversity program. So when US Bank acquired Union Bank A few years ago, Union Bank had a long history of implementing their own special purpose credit program, and after that acquisition, US bank actually kind of opened up that program to all of their customers. So this is on the small business side. It, you know, same idea. There's modified credit guidelines that enable more business owners to access the capital they need to run their businesses. So a focus on women and minority and veteran-owned businesses they are. You know, their underwriting guidelines allow for kind of reduced credit scores and these decreased cash flow, covert requirements. So you know, different than some of the conventional lending products and underwriting standards, and they're sort of, again, making some accommodations to try to reach the communities that need it most. Us. Bank also has some partnerships with CDFIs to provide financing to developers that have been limited and lacking access to capital, including supporting and growing kind of the number of developers led by people of color is a big focus there, too. And they also have an affordable housing Special Purpose credit program, so providing lending capital to, again, minority LED or owned developers who are expanding access to affordable housing and then. And one other example here is the Wells Fargo diverse community capital program that was a $75 million initiative over three years. And this was, you know, kind of directly in partnership with CDFIs. And you know, OFN actually helps play a role there too, on some of the training and technical assistance for the CDFIs to help them build their capacity to serve more diverse businesses. So alongside the capital, there was also a lot of kind of cohort training and shared technical assistance to really make sure that, you know, the CDFIs that were on the front lines of building relationships and lending to diverse small businesses had the resources that they needed to be able to do so successfully. And then I also wanted to just again highlight that, you know, Fannie Mae and Freddie Mac also haveSPCPs, and we've actually seen some of that activity kind of accelerate, just based on the regulatory environment for the GSEs, where they actually have to have approved equitable housing programs, as directed by the Federal Housing Finance Agency. And you know, Freddie Mac in particular, has designed programs to increase access to homeownership opportunities for black and Hispanic borrowers. So, you know, pretty kind of interesting array of, you know, programs here and again, not even touching all of the amazing work that some of the CDFIs are doing setting up their own SPCPs, but just wanted to help give a baseline of what these programs actually look like in practice. So I think for that, I want to turn it back over to Imani, who's now going to walk us through, like, you know, what, what are the kind of shifts that have been happening in the external environment that you know are impacting, you know, the ability to kind of stand up and execute on these special purpose credit programs.

Cherry 23:29
Yeah, so I, I'm presuming most of us have heard of this case. If not, I will definitely summarize. But last summer, you know, there was this case called Student for Fair Admissions versus North Carolina, University of North Carolina at Chapel Hill and Harvard College. This was a big shift in affirmative and really the anti-Affirmative Action Movement, I will call it, and has affected a lot of affirmative action programs across the country, especially in within universities, I really would like to say that, you know, we have this special purpose Credit Program Provision. We had so much movement. We've had so much energy behind it. And then right in the middle of all this energy that we were seeing, right, you know, regulators paving the path forward, especially after George Floyd in 2020 and those protests, there was a ton of activity and movement and interest in special purpose credit programs, and then just three years later, you have this extremely disheartening decision from the Supreme Court. I'm going to get into that in a sec, but I would like to say that and acknowledge. How devastating a lot of folks felt when this decision came down, and it felt like the progress that we've all been making over the years has been a little bit stilted. But I do want to, you know, to say that there is some hope, a little bit of hope, and that, you know, we all can work together. And I think that's kind of the theme that you'll see coming out of this webinar. But let me not belabor the point. Let me get into the facts and kind of discuss the impacts of this decision on special purpose credit programs.

Next slide. So SSF, SFA, as we call it. Was a case that involved a constitutional challenge to Harvard and UNC is admission student admission policies, both of which directed admission staff to consider race as one of many factors in making admission decisions. The plaintiffs claimed in the case that the university is considered race, and because of that, it violated the Equal Protection Clause of the 14th Amendment, as well as Title VI, which is a federal statute that prohibits recipients of federal funding from discriminating based on race. We'll talk a little bit more about that later. A majority of the Supreme Court, as we know, you know, sided with the plaintiffs, and they struck down both Harvard and UNC admissions policies, and essentially said that you can no longer consider race when making emission decisions. When it comes to SPCPs, this case is not directly affected. That is the upshot here. That is the the bright line. That is the hope here, that we, that we have this decision is limited to entities that are subject to the US Constitution. So for example, university and college admissions, obviously, government actors, entities that engage in government actions, and then recipients of Federal financial assistance. I'm going to pause on that point, because I think that that's really the one that we're going to talk about a little bit more that recipient of federal financial assistance and how that comports with the work that CDFIs do and SPCPs, and we'll get a little bit more into that later, but presuming now we're just talking about a private SPCP that does not receive federal funds, this very unfortunate Supreme Court case does not address that. So as of today, the applicable law, ECOA and REG B still stand. SPCPs are still a valid statutory program. But what has changed, as Athena alluded to, is that the landscape around these affirmative action type programs has shifted towards an awareness of these programs, increased desire from anti-DEI, anti-affirmative action plaintiffs and lawyers and groups to go after various iterations of these type of and affirmative action programs.

Next slide, please. I think I just summarized that so we can go on to the next one.

Thank you. So what, what is this like, landscape that I'm talking about? What has shifted? What has changed? It really is, you know, the amount of litigation that has been, you know, that's been pursued after SFFA. Next slide, there's been a lot of reverse discrimination litigation from the same folks or similar folks as the as the group that brought the SFFA case. The guy's name was Edward Blum and his I say, Blum and his folks. I'm not as big as fan, as you might be able to tell, but you know, they've been coming after various affirmative action programs, which in normal days we would see as a good thing, but in these days, apparently they are discriminating against white people or people that aren't able to access these programs. And that is essentially the bottom line here. I'm going to go through the private programs, and I'll go through some of the public and federal cases against the public and federal programs, so on the private side, even before this, and I want to say SFFA may have accelerated all of this litigation or all of this interest, but this, this thought, this, this mindset, existed before SFFA, right? There are some cases filed against Amazon before the SFFA decision came down, which you know, ended up being resolved right after the SFFA decision, which claimed that one of Amazon's programs that supported small business owners and sellers was a violation of anti-discrimination law, the parties and later sell settling on the program the case was dismissed. Then, more recently, there's been a number of programs in between then that have been dismissed or have been, you know, later settled. For example, there's some programs against law firms dei programs for their interns that little law firm said, Hey, we're not even going to litigate. We'll just change the program, which really was a win for that anti-affirmative action, you know, movement, if you will, for the folks just to, you know, not even engage in litigation, and then just walk, walk, everything that they've been doing back Citibank recently, there's a complaint filed against them for their ATM fee waiver policy. That policy allowed certain financial institutions, including minority-owned financial institutions and banks, to not pay the same amount of ATM fees. They're they're their customers will not pay the same amount of ATM fees at City ATMs, and so they waive those fees for those groups. But there was a complaint out there currently that this policy discriminated on the basis of race, because white majority white institutions could not benefit from this. This program. City recently filed its motion to dismiss the case on July 12. This is a case I would encourage folks to keep following again. It's not SPCP-related unnecessarily, but really important to watch, to see how, what kind of arguments folks are bringing against these affirmative action programs. And then most notably is the Fearless Fund. This case has been widely publicized everywhere it seems, since in the last year, and for unfortunately, the fearless fund case in June 2024, the 11th Circuit handed down its decision on the preliminary injunction, basically stopping the program and saying that, you know, it's unlikely that, or you know, the contest that they had, which is to support Black-owned businesses, grants to Black-owned businesses likely violated anti-discrimination law, specifically section 1981 which prohibited which prohibits discrimination in the provision of contracts. It held that it's unlikely to receive this First Amendment protection, and the plaintiffs there had had standing to sue. None of these programs, again, deal with specialist credit programs directly, the closest Navy City Bank, because it's a bank. But these are really important, just to see the posture and see how varied the different types of programs that this anti-discrimination group is going towards. And the goal here doesn't seem to be to get money, right. Sometimes the goal is merely to stop the program. Next slide, and we see that really prominently in the San Diego case that was filed in March of 2024, this was a government base. It's a little different than these other programs. Is a government-based down payment assistance program. It wasn't explicitly called an SPCP, but this is probably the closest case that we've seen. That's where a lending program has been challenged, right again. The complaint did not allege that it was an SPCP and it was a bad SPCP or anything like that. They limited their claim to just the Equal Protection Clause. They didn't bring in any claims under ecoas statutory provisions, the Fair Housing Act, or any other anti-discrimination law. And like I said earlier, a lot of the goal of this program is just to stop us or stop you in your tracks, right? They only wanted damages of $1 no compensatory damages at all, which clearly indicates that all they wanted to do was just stop people from receiving help. If I'm being frank and it's worth tracking. It's it was in March 2024, I'm not quite sure right now, like where it stands, but this is, once again, an example of the. Closest example we have of the lending program being challenged. And then there's these other federal programs that many of you may have heard of. Is the Small Business Association and the Minority Business Development Agency, and both of their programs were deemed unconstitutional by two district courts, SBA last year, and then the Northern District of Texas this year, and both of them, they have these rebuttal, rebuttable presumption, or a presumption, of certain groups being more disadvantaged than others, and the Court said that they no longer can, can, can consider that anymore in their programs. And as a result, both of these programs have had to shift dramatically. They can't include, you know, an assumption that just because you're black means you're disadvantaged, or just because you're Hispanic means that you have are less disadvantaged, even though, as Dafina was explaining that there is plenty of data out there to show and prove improve that point. But there is no now, no rebuttal, rebuttable presumption, that is true. And then finally, there is another case, just showing, again, the variation of cases that have been out there against West Point. This one is a tiny bit more of a bright line, but this case was filed by the same people Edward Blum that filed the case against Harvard and UNC. They tried to basically argue the same thing, and the Supreme Court actually declined to intervene because they said the factual record was underdeveloped. So although they are winning in many places, they are not getting slam dunks everywhere, which just makes me happy overall. So this is kind of like where, where the litigation happened. I think the impact really here again is just to reiterate, SPCPs still stand. But the real impact is there's just more attention on these programs in general and the risk of litigation, meaning the risk that somebody will sue you is slightly higher. It doesn't mean they will win automatically, but the fact that they'll sue you, and you have to, I always say, crack open West Law for those lawyers that are on the call and call a lawyer and have to defend and rack up some legal fees to to defend against this. That is, you know, has been the highest risk for at least SPCPs. But again, SPCPs are still viable programs as of today.

Williams 37:18
So I'm going to spend a little bit of time talking about the political implications and how you know the kind of the mood externally that it might just laid out around the sort of anti-DEI backlash and pushback, as with so many things in our country right now, there are some kind of deep partisan divides on how the you know, the left and the right are reacting to and understanding and speaking out about this issue. So, you know, we saw last year that, you know, there the Republican attorneys general actually issues statements of condemning dei programs and saying that, you know, large companies need to pull back or not have these types of programs. And then a week later, you saw the democratic state attorneys general put out a rebuttal to that letter applauding these programs and reaffirming that they are legal. And I think it just kind of underscores that, you know, there's, there's there's a real political lens to, you know, how these programs are viewed and implemented, and it all is all kind of wrapped up in each other. So, you know, what we're focused on today are obviously the special purpose credit programs. But as Imani was just saying, there's just a general mood in and out of government like that about, you know, there's how we move forward with these kind of race-conscious remedies. And we're really seeing, especially on the government side, some backing away from these types of programs that have, you know, racial preferences. So she just mentioned, you know, the MBDA and the SBA with the kind of presumption of disadvantage. But we've also seen some shifts in, you know, coming from Treasury and how they're designing their program to try to make them so that they can avoid some of these legal challenges that are, you know, based on race. So we saw that with the Treasury Department. It was originally a pandemic relief program that was a minority lending program that was then changed to the equitable recovery program, where they really were very thoughtful about how to use proxy definitions, as opposed to targeting the funds specific racial groups. They're looking at other factors and trying to approximate how to reach some of those same borrowers using, you know, methodologies that have been kind of deemed to pass legal muster. So. Looking at income and geography and other things at the same time, though, you still see some agencies continuing to, you know, kind of still have some kind of racial targeting. So the CDFI Fund still has in its certification criteria other targeted populations, which is, you know, still a critical part of that certification process. I know many CDFIs have that designation for that OTP, and they also actually expanded it under the new application to include certain Asian communities as additional targeted populations that CDFIs can kind of serve and direct resources to. So I think another thing that we kind of both mentioned before is that the federal regulators are also continuing to kind of double down on their support of the Special Purpose credit programs I mentioned earlier that, you know, the FHFA actually hosted a roundtable in late September of last year, which was like interagency to really kind of reinforce the guidance that was put out. And they had, you know, the CFPB was represented the bank regulators, FHFA, and they had a panel of advocates talking about why it's important to have special purpose credit programs, and really continuing to kind of reinforce that, you know, this is an activity that is legal and allowed and also encouraged next slide. But you know, we're, we're entering into what I can only describe as like an increasingly litigious policy-making environment, and so even some of these established programs and certain agencies are, you know, going to be coming under increased scrutiny, and depending on the outcomes of the upcoming election, we could see that level of scrutiny kind of continue or increase. So I'm going to walk through some of the political implications and what that might actually mean in practical terms. So what we might see under a Harris administration is likely to be pretty similar to what we saw under the Biden-Harris administration, which is continue encouragement by regulators and agencies to address racial disparities and address the racial wealth gap. The Biden-Harris administration, even as recently as this week, is continuing to still kind of put out data and information and press releases about how it's addressing the certain components of the racial wealth gap. So SBA just put out a press release, I think, earlier this week about how many new black and Latino businesses that have been served through their lending programs, and so they're continuing to collect that data, report out on it, and, you know, continue to highlight those efforts that are being made. So we're likely to probably see a lot of that continue. Under a Harris administration, under Trump administration, we could be facing a much different environment. So one clear way is that, you know, the President can appoint different people to run the regulatory agencies that have different perspectives on these programs, and whether or not this is something that should be encouraged or that is, you know, is closing the racial wealth gap a policy objective of the administration is that aligned with the values of the administration. So, you know, similar to when under the first Trump administration, we saw, you know, the reforms so the Community Reinvestment Act put forth that were kind of widely condemned by banks and community groups. But you can get a sense of like, who is actually put in charge to run these agencies really does matter, and some of the people coming in to run these federal agencies will have less enthusiastic views of these programs and programs that are different, in general, designed to address racial disparities, and so you might see different type of regulatory guidance or interpretations that are coming out, especially when it comes to how the bank regulators are looking at and evaluating banks that are engaging these types of programs. It could discourage them, or, you know, really try to undo some of what's been put in place under the previous administration. So that's kind of a direct political implication. Based on who's going to win the White House, who wins the congressional elections will also impact these programs. So as I've said before, this is emerging as a pretty partisan issue. Obviously, you know, it's not sort of, you know, there are some folks that, you know, there are people on the right that believe that, you know, there should be equal access to credit and opportunity for people. And you know, there's different opinions. But in general, there are some pretty strong partisan viewpoints here. And if we were to see a change in the composition of Congress, if the Senate were to flip to Republican leadership, which there's a decent chance of that happening. You might see attempts to address dei and the backlash, and, you know, some potentially messaging or not messaging bills to try to roll back or prevent, you know, the Congress or the agencies from actually setting up these types of programs that might come out of the 119th Congress. You will certainly, you know, not be seeing any type of like affirmative these programs that are designed to address the racial wealth gap. That's probably not something that you might we'll see coming out of a Republican Congress, you know, like we saw in 2020 and 2021, with, again, some of the pandemic relief that was again very targeted. Provide to certain groups and communities to ensure those resources made it to where they were needed. Another really important impact of the election is that whoever is in charge of the White House and the Senate will be able to appoint and confirm judges. So we've seen that, you know, play out during in the first Trump administration, that who makes it on the Supreme Court is very, very important. And we had that shift in the balance and composition to the court to be more conservative. That's going to be really key. We have. The Supreme Court has been pretty clear, I think, about how it feels about these types of programs. And so there, you know, we would, we would not expect to see a lot of support coming from federal judges that are kind of put in place, you know, potentially under Trump administration, it's not just the Supreme Court, though, right? It's actually the district judges and appeal court judges that are all also going to be, you know, nominated, do the executive branch and confirmed by the Senate. That is going to, again, have, you have conservative-leaning judges that are, do not like or support these types of programs, you know, getting on the bench, it's just going to create an even more challenging environment to these types of programs, and an environment that's more conducive to the folks that are bringing challenges to these programs, where they'll have more sympathetic kind of, you know, ears to those, to these types of cases. Another way that, you know there's going to be a lot of uncertainty that's been introduced into this entire situation, is that so much of the kind of interpretation of, you know, special purpose credit programs is, you know, done at the regulatory and agency level. And so the recent Chevron decision that just came down from the Supreme Court will essentially, you know, we're going to probably see more legal challenges to regulations and programs, and we'll see a lot of that decision-making around, you know, what is or isn't allowed is kind of going to come from the judicial branch, as opposed to, you know, the executive branch and the administrative branch, sort of Deciding how to interpret the laws from Congress. And, you know, I think we've seen under the Biden administration that there's been a lot of interest in taking a expansive view of some of these programs and trying to make sure that they're achieving their policy objectives by, you know, putting some of these, you know, race-conscious remedies in place. And it's just the chevron decision kind of upends all of that, and you're going to potentially have a lot more of that evaluation of what is and isn't allowed to happen at the judicial level. And so again, we have a lot more judges in place that are not supportive of these programs, and they're making decisions around what is and isn't allowed. You could see how it could potentially lead to just creating a much more challenging environment. And as Imani alluded to, like there's just this broader anti-DEI movement where, you know, we're seeing lots of groups and organizations looking for opportunities to challenge these programs, and, you know, wind them through the court system and get struck down, but also to have that chilling effect on, you know, the lenders and CDFIs and other institutions that really are trying to address the racial wealth gap. And so I think one of the, you know, potential byproducts of this whole kind of anti-DEI movement is, you know, are people kind of stepping back and not wanting to engage in these types of programs because there is a concern that they might be sued of or of that litigation risk, and so there's just a lot of a lot bubbling in the external environment. And, you know, there's a lot of uncertainty about how all of these different things will interplay with each other. But, you know, I think it's important to remember that the our politics and our elections will have kind of direct impacts and complication on this issue. So I let's go to the next slide, and let's see if we can bring a little bring a little hope back.

Cherry 48:35
I'll try.

Williams 48:38
Sorry, you want to take this up, talk about what CD wise can do?

Cherry 48:41
Yeah, I'll start off a little bit. And, you know, like you were saying to just there is a lot of interplay between all of these different things. They could seem very overwhelming. The upshot here, though, if you move to the next slide, is that none of this so far, you know, put my hands up. None of this so far has really impacted the core Crux validity of Special Purpose Credit Programs. There's been no cases. And I know somebody asked that in the chat, there have been no cases directly challenging an SPCP, probably for good reason, because it's written in the law, right? It's been there since 1976 it's written in the law. It's written regs. There have a uphill battle to fight, to try to challenge one of these programs, not saying that somebody will have the, you know, the thought to challenge it. But as of today, SPCPs are still permitted by the Equal Credit Opportunity Act and Regulation B as of today. HUD, guidance on that the Fair Housing Act is not violated. There's no violation of Fair Housing Act by having the an SPCP that still stands as of today. So any SPCP, if you currently have one right now, they were, if they were lawful, meaning that they followed all the requirements of Reg B that I set out in the beginning of this webinar. They're tailored with the necessary documentation and show the necessary need. If they were lawful prior to all this shift in the environment around SPCPs, then they're still lawful today. That's where we stand as of August 15, 2024, and that's that's the good news. However, there is a special you can move to the next slide. There is still some, you know, I like to say just you have to be still cautious, right? You know, there is, I do understand that. You know, some folks have, you know, said, You know what? You know we're going to go for it regardless. And that's their risk appetite, and they want to take the risk. You know, that's that's on each individual's institutions. Decision that said it's important here to weigh the risks of these programs. These programs do not come without complete, you know, faultless and not completely without risk. Again, there's this general increased litigation. Risk of just getting sued in the first place, having to undergo even if SPCPs are defensible. Some folks, like Dafina was saying, might just walk away from them because they don't even want to go down that route, even though ECOA clearly permits it. Some folks said, You know what, I don't want to have to deal with it. So I'm not going to put out these programs, which clearly are beneficial and very targeted programs that can attack all of the you know, dare I say, all of the economic issues that underserved communities are facing, right in a very targeted way, almost all. But some folks you know have walked it back, and I do again. I do understand there is a risk analysis that you have to take into account and increase. Litigation risk is one of them. The second risk, though, is very specific. Oh, before I move on, some of the folks that are accepting this litigation risk, it also depends on where you're located. So someone located in the Fifth Circuit, for example, which is very hostile towards these type of programs, or the 11th Circuit, versus someone you know in the ninth circuit or or another circuit, might have a very different opinion on whether or not to pursue some of this, to pursue an SPCP, meaning a more friendly court versus more hostile court, might get you two different results. Even if it's even if it's an SPCP, it just might, you might end up in a different place. So there's also that kind of risk calculus of you know where I'm located, and do I have more firm footing to stand on to put out programs like this and and defend against them if litigation comes my way. But the second issue really is very specific to CDFIs, and I want to talk a little bit about that today, and I think that's kind of one of the reasons why we've had this webinar specifically directed towards CDFIs. There is this other piece, which is title six. Title six, as I mentioned earlier, is a federal civil rights law that says that it is prohibited for those who receive federal financial assistance to discriminate based on race. Um, this was a part of the Supremes court's analysis of the Harvard and UNC admission policies. And again, that case does extend to folks that receive federal financial assistance. So what does this mean? Does it mean that CDFIs that receive federal financial assistance are, per se, prohibited, in general, from doing SPCP? The answer is, it's unclear. It depends on many, many factors the DOJ. You can go on the DOJ website, they have a Title VI manual that kind of goes over what Title VI is and what it is and what it isn't, and what it where it applies and where it doesn't. And you know the reason why it's unclear, because it depends on so many factors of an institution. So for example, the operational purpose of an entity, the purpose. Of the federal funds that are that are being provided, and then the structure of the entity. All three of those factors can determine whether Title VI applies and how Title VI applies to a specific organization. In the worst-case scenario, you know, you may not be able to have an SPCP. Best case scenario, you can obviously, those are the kind of two binary choices right here. But I think the point of it is that there is a for CDFIs specifically that have sbcps, or plan or want to have sbcps. This is a necessary part of your analysis. You must, you know, I'm not telling you what to do, but strong I'm not gonna say must, but you I strongly suggest, I strongly suggest that you hire someone, a lawyer, seek out your legal counsel that you work with to do this analysis, because this is crucial in being able to stand up your program, to being able to have the confidence to do one of these special purpose credit programs and to understand your overall risk that comes with it. Again, we have not seen what Title VI we there's not been an SPCP case. There has been nobody challenging sbcp necessarily under a title six. You know, asserting Ttitle VI again, the closest that we've had was the San Diego case, and that's a clearly a government entity, and they only challenge it under the equal protection clause. They have not challenged it under anything else that said, this is not a slam dunk either way. I think it's very important again, to just underscore the point that any CDFIs that receive federal funding need to do or should conduct this analysis when they're thinking about their special purpose credit program, so you can understand the risks here. It's somewhat disheartening because, you know, very like I said, there's always a possibility that you may or may not be able to do this. This program with or without titles, like anybody you know, if you don't set the program up right, you might be at risk for having your programs shut down, but particularly for CDFIs. This is an issue that we highly you know, recommend that you look into understand your organization's risk, because, based on your specific entity structure, like the DOJ manual said your structure the purpose of the funds and the purposes of of your CDFI.

Williams 57:21
All right. So, you know, I know, and I'm, you know, looking at the chat, I know everyone is really looking for kind of yes, no, black and white answers, can we do this? Can we do that? And I think, you know, the very unsatisfying answer that you're going to hear from both of us today is that it's unclear and it depends, right? So we're in a very kind of dynamic political and legal environment, and so much of what your organization decides to do is going to have to be dependent on the individual strategic decisions that you will make with your board of directors and with your staff and with your communities about what your individual risk tolerance is. As Imani mentioned, like there, you know, there's no kind of magic bullet here that, oh, you know, you're, yes, you're allowed to set up instructor a program that works like this, and that's going to be totally fine, and you're going to be safe. It's just not that simple. It's much more kind of complicated and nuance and so much of this, you know, we're still kind of unpacking the implications of all the things we've been talking about over the over the past hour, but we do think there's some important steps that CDFIs can start to take to, you know, really understand and do that analysis and come to that conclusion about what your organization wants and needs to do. I think the first thing is that the evaluation, like I cannot overstate it enough. Please, please, please, seek legal counsel. I know that not that many CDFI loan funds in particular have general counsels on board, that you might not have someone on your staff that is, you know, doing this work. But there are actually partners and pro bono attorneys and firms that will actually, you know, potentially be able to help you through some of this. You know, I just want to give a big shout out to Relman Colfax. They are an amazing partner. They've really been help helping, you know, to help us assess and understand what exactly the implications of these recent court cases and decisions are, but have also been a great partner for, you know, showing up at panels and discussions and being really accessible, you know, to kind of talk through what all of this means. And, you know, I'm sure if you reach out to your networks on the ground in your communities, there's. Probably other you know, different types of firms, or your network probably knows someone that you could probably consult with, and it can help you start thinking through these things. So please, you know, start by thinking about how you're going to get some legal counsel and legal advice. It's so important to do that in the environment that we're in now. You really want to make sure that you're clear about what your individual CDF is, risk tolerance is, and you know how far you're willing to go and what the potential, you know, consequences of that may be. I know as the minority list lifted up, there are some entities that have been very clear that they are. They're full steam ahead. We will not change our programming. We're going to keep doing what we're doing. And then there are others that are, you know, taking a different tactic, which is, you know, saying maybe we need to start thinking about proxy definitions or different types of programs. Maybe we need to focus on first-generation homebuyers. You know, we talked through some of those examples already today. There's no value judgment from either one of us about what your organization, you know, does. That's, again, that's going to be an individual kind of assessment that you all will need to make and comes to that conclusion on your own. We're really here to just provide you with the information to help you think through, you know, all of the potential outcomes and how they might impact your organization going forward. So again, like just, you know, having the conversations now and thinking through what your, you know, your strategy might be going forward is going to be really, really, really important for your organizations to do. So I think, you know, I'll turn it back to you money to kind of talk about, you know, some of the other pieces. But you want to make sure also that you're you need to stay on top of what's happening, right? You need to be monitoring what's going on with these different cases and understanding, you know what these decisions are, organizations like OFN, obviously, we're here to kind of help, you know, and in consultation with attorneys who can actually help us through, actually the legalese of it all. But you know, we are certainly here to help, kind of aggregate information and to make that available to you as well, but it's really important to kind of build this into your strategy, into your organization practices, because I don't foresee an environment where we're going to be having kind of less legal challenges to this work. It really does feel like no matter what the political outcomes are, there's this energy that's in the external environment around challenging and pushing back and kind of attacking some of these programs. And so we just know, regardless of the decision your organization makes, you want to be prepared. And I think that's really what we're trying to get at here, is like sharing the information to get you to understand how to be prepared. Imani, I'll turn it over to you as well to kind of chime in on, you know, what CDFIs could do.

Cherry 1:02:23
Yeah, and just because I'm a lawyer doesn't mean, you know, I mean, I think it legal counsel. It's not because I'm just a lawyer. Like, I'm not saying, hire me. I'm saying, like, well, you can hire me. But I'm saying, like, in general, it's very important, and I appreciate Athena for emphasizing that. But there are also, in addition to this legal analysis, that we very strongly encourage folks to do. Even if you have an SPCP, and you get comfortable with doing an SPCP, you have gone through the legal analysis again. It doesn't mean that you're just like, totally, totally not. You know, don't have to worry about it at all. There are requirements just under Regulation B, under ECOA, that you still have to meet, right? So you need to understand those provisions. Seek legal counsel to even set up these programs as well, because there are specific things within the program. It might not invalidate the entire statute, but someone could sue you, hypothetically, for getting it wrong, right, for not showing that you have the necessary requisite requirements that the reg B sets out, right? There Is that legal risk, that that legal risk has always existed for any of these type of programs, right? So more attention the external environment, again, has just increased the attention, increase the scrutiny. So making sure that your program is all tied up nicely with Bose, and making sure that it you know, all four corners of the regulation are followed is really, really important, and ensuring that they comport with the regulatory requirements is very important as well. Um, there also is this. Um, this, you know, a risk calculus, aside from, again, the Title VI issue and some of these other issues with just understanding, you know, your program design, choosing certain programs over others. Safina mentioned some of the programs earlier, like the Bank of America. One is based off of geography. Some of them are based off of individuals, right? If you're if you're a black woman, if you're black, you know this program is for you, versus if you live in a majority black census track or a majority back MSA, those have. Implications, and those weigh differently on depending, and again, depending on your risk appetite. You might go with one over another. For institutions that do find however, that they're a lot more risk averse. They're not inclined to do an SPCP, or they're inclined to wait until the environment kind of cools off, even if they have done the analysis or not. I still want to emphasize that LMI programs, programs based off of income, are still very effective. They're very, very effective programs. Many institutions have these programs. We've seen institutions even expand these programs to, for example, first-generation programs. Those are not necessarily, you know, it's not first-generation is not a protected class, so you don't need an SPCP for them. But this is another way to get at some of the populations that you know CDFI serve, without implicating race or national origin, for example. So it's really important to also evaluate these other programs and to stand up your other LMI programs, first home buyer, first-generation programs, to ensure that those programs are also receiving the attention that they need and getting to the groups that need them the most. What could help get those LMI programs, or income-based programs to the appropriate populations that you want to get at is affirmative marketing. Affirmative marketing is a really powerful tool that really kind of doesn't it kind of goes unnoticed for a long time, but affirmative marketing is a really great way to promote these lending products, they are it's permissible to promote lending products, for example, specific, you know, like affirmatively market certain lending products under ECOA to specific protected classes without running afoul of the Fair Housing Act as well and other anti-discrimination law. There's plenty of guidance out there that talks about the permissibility of affirmative marketing. There are some guardrails. For example, you can't affirmatively market something and then change the lending standards based off of who you're affirmatively marketing to. The program still has to be open to everyone, but the and the goal of it has to be expanding a pool of applicants for a certain product, not limiting it. Um, so, you know, best practice perform the affirmative marketing alongside your general marketing activities. But that's another strategy that doesn't involve race. It doesn't involve directly, you know, to get your LMI programs, to get your existing programs that you have now out into the community, reaching the folks in your targeted population. Again, the downside is not as effective as SPCPs. SPCPs are like very targeted and you can get the money in the hands of people that need it right away. You don't know that with LMI programs, it could be, again, they're for anybody that qualifies under this income cap, but it still has considerable impact nonetheless, especially when it when coupled with your CDFI statutory mission, you know, I think they can be very effective as well. So again, for those that are less risk averse, there, there are options, paths forward, ahead, to still help the communities that we all care, care and love. And you know, you know, impact some of these disparities that we've been seeing that Dafina so eloquently laid out in the beginning. I don't really have much else to say on this, you know, just other than emphasizing what Dafina has to say. But again, there are ways that we can still win, if you will. And ultimately, we just hope that you come away from this feeling you know that there are paths forward and that that you can still affect the communities that you're looking to affect, and that, you know, there is some reality to some of some of these programs as well, to make sure that you're, you're standing up the program, making sure that you're not putting yourself at risk of whatever your risk appetite is, and making sure that You're, you know, seeking the appropriate advice and doing the proper analysis before engaging.

Willams 1:09:07
Yeah, I think the only thing I would add is, you know, we're an institution of, I mean, an industry of people who are, you know, our institutions were born out of the civil rights movement and adversity, and you know, we know how to navigate the most challenging circumstances, and we know how to be nimble and flexible, and you know, to really figure out how to do a huge amount of work with limited amount of resources. And so, you know, I, I still strongly believe that CDFIs will figure out a way through this. We just really want to make sure that. That we're sharing out the information about some of the things that we really don't have much control over, which are what things that are happening in the external environment, and using that to, you know, just make sure that we're, you know, able to have the best kind of strategic direction and being prepared for, you know, anything that might come our way, because it can be, you know, devastating to a CDFI institution to have to, you know, defend itself for litigation for, you know, two, 510, years. And you know, we really just want to make sure that we're, you're considering all of the options out there when you're thinking about how to best support your communities into your work. So, you know, we wanted to make sure that we ended on a little bit of a kind of hopeful note, and I think with that, we can maybe go to questions.

Matthews 1:10:33
Great. Thank you. Thank you both Imani in Dafina for sharing, and I will actually start with the questions in our Q and A and then move over to the chat. So starting here, could you describe some examples of these programs? I'm assuming they mean the programs actually don't know if you want to add in the chat what your question was, what programs you were referring to. I don't want to assume, but I'll move down to the next question while we wait for that response. The examples including Wells Fargo, Bank of America and US Bank are great. Do you know of other banks and credit unions that offer such programs? Is there a list of these institutions?

Williams 1:11:18
Yes. So this was, you know, kind of pulled together through some, you know, Google research, on my part, but I will say that the American Bankers Association website actually does have a page dedicated to Special Purpose credit programs, and actually does highlight a few examples of some of their members that that do have those programs. So there's no like single source where you can find them, it does kind of take some sleuthing, and it's not always explicitly called a special purpose credit program, but that could be a good place to kind of start for a little bit more direction. You know, to go to the ABA website.

Cherry 1:11:53
If somebody wants to start compiling them, feel free. I mean, it would be great to have a list. I know of some just like on on the top of my head, I know Chase, Chase Bank was one of the first to have a special purpose credit program. So maybe go to their website and see if they still have one. One thing that's kind of …this has nothing to do with the question hardly. But I just want to emphasize that with the 1071, small business rule that just came out, we might be seeing more of small business focus SPCPs, which is, I think is great. A lot of the SPCPs that we've seen are in like mortgage and housing. So having these small business ones also kind of feeds into that 1071, thing, and then also this new CRA rules, like Dafina was saying, like, they have specifically, like, you can, you know, special purpose credit programs, you can receive credit for them. So I think it's really encouraging to see regulators kind of standing behind this. So hopefully there's just more to come in the next few, maybe months or years.

Matthews 1:13:01
Great. Our next question is, what would you say to institutions who want to set up an SPCP but are concerned about allegations of reverse discrimination, which, if successful, can have serious repercussions?

Cherry 1:13:16
I think that's kind of like the entire conversation summed into one. You know that's the anxiety. And I know I'm looking at the questions too. They were asked earlier, but again, just understanding that, that you know your specific institutions, risk tolerance, understanding your risk, doing that analysis, making sure that your SPCPs comport with REG B on any ECOAs requirements. All of these things can either help you understand your risk or reduce your risk. So just ensuring that you're doing this appropriate analysis is critical, and again, it's again, whether you you know you win or lose on the merits of the case, I do acknowledge that there is just this inherent litigation risk where somebody's just going to sue you, and anybody can sue anybody, that it can get dismissed. But even having to dismiss something that's just like a frivolous suit, right? You know, it still takes time and energy and money sometimes. So I do understand the hesitancy sometimes with going from them again. I haven't seen any SPCP lawsuits out there, we're still, you know, keep your ears to the ground, and I would encourage folks to do the same.

Matthews 1:14:30
Someone's asking for a link to the January 2024, Treasury, CDFI guidance.

Cherry 1:14:35
I think that, I think that was, I think we called it guidance, but I think that was more so the updated, what's it called? like the application requirements for the CDFI Fund. When I think they updated it in January, and they, when you read through it, it's not like they changed all the targeted population categories. I think that's what we were trying to get at there.

Williams 1:15:02
Okay, yeah, I dropped in the chat, you know, a link to the Title VI compliance worksheet and the blog post that the fund put out, I think in late 23 that might be what you're looking for. But, yeah, I don't think there's any sort of particular thing from… Yeah, so hopefully this, this might address that question, just the funds and their way of describing why, you know, CDFIs getting federal financial assistance need to complete the worksheet, and there's some instructions and a manual and all that stuff. So hopefully that helps.

Matthews 1:15:38
The question that was asked earlier about examples of programs. So they're wanting CDFI examples. I'm assuming CDFIs that have done Special Purpose credit program examples, besides a couple that you listed.

Williams 1:15:49
Yeah, I think this is the other, sort of similar to the first question. Is there's, there's not a real, like, comprehensive database of these programs that exist like I, you know, I think we probably individually know of some that have them. But it actually is a good note, honestly, for OFN that we perhaps could think about starting a resource that we could post on potentially our CDFI Connect platform that does just some kind of, like running list of, you know, these types of programs. So I know, like, low-income investment fund has one, but there's no like, I get existing like, database of all of them that we could share with you right now, but definitely worth starting to track.

Matthews 1:16:38
Are there good examples of SPCPs that provide minority business lending?

Cherry 1:16:41
Yeah. I mean, there's one off the top of my head. We, if you were at the NCRC conference, there was the Federal Home Loan Bank, Home Loan Bank of Pittsburgh. They have a small business SPCP program called Bobby banking on business that's on their website. You can just kind of Google it. So that was a really, that's a really good example of one of the Federal Home Loan Banks programs. I think there are. I think there are a few others Dafina that you mentioned earlier. I know Bank of America has one. US Bank has one. There's a few out there.

Williams 1:17:21
Yeah, where we were prepping for this, you know, in the interest of time, I only highlighted a couple, but pretty many of the larger banks do have them. I you know, Chase also has some resources dedicated to small business, I think PNC, Truist, so, you know, there's, there's quite a few of them out there. I think part of the challenge is that, you know, they're not always necessarily like bright headline that this is a special purpose credit program, so we kind of stuck to examples of ones that explicitly did call that out in their own words. But you know, there's, there's quite a few of them out there that do exist. And yet, the previous examples of US Bank and the Wells Fargo initiative, even though that's over now, I think you know, are examples of how, how banks are stepping into the business, small business space.

Matthews 1:18:09
What role if any, do you see for local government to support partner CDFIs in establishing or defending SPCPs?

Williams 1:18:20
You want to start…

Cherry 1:18:26
I know that's a hard question, because, I mean, you know, don't, don't, don't give them fun anyway, so I'm just kidding, um, I I think local governments can generally, you know, support these type of programs coming out in general, of support of their and maybe I'll bring it out more to state law, you know, generally supporting the these programs, saying that, you know, we support the federal government's use of them. You know, we acknowledge that, you know, state law doesn't preempt these programs. I mean, that could be a great way to just generally advocate for them. But when it comes to establishing a program, I think that there, again, there are some other constitutional questions that arise that you know, again, you don't want to automatically jump into when it comes to government-sponsored programs, as opposed to, like I said earlier, private programs and even nonprofit programs. So but maybe just the public policy, messaging and support, providing data could be helpful. You know, if a small business, or, sorry, a CDFI, wants to start a small business program, and there's some data that you want, maybe a local government official could help synthesize or provide that data, maybe that, that could be helpful. But, you know, I do, I do caution local, you know, governments, you know, from doing these programs just because of that constitutional risk that we talked about earlier.

Williams 1:19:57
Yeah, I totally agree. And, you know, I saw in the chat that someone had mentioned the lift fund case and, and that situation, the the county government was a point, I mean, was the defendant alongside the CDFI. So it's just complicated, right? Like, there's, you know, it's, it's hard to say, but I agree. I think helping, like, you know, data and helping to identify gaps and access to capital, and, you know, highlight the needs and communities could be really helpful, but it much like everything else that we've talked about in this conversation, and everything is nuanced and complicated, and it's like peeling an onion and you really it's really hard to to give like affirmative of dice in one direction or another.

Matthews 1:20:41
I'm now moving over to the chat trying to scroll through to see all the questions. If so, if I miss anything, please let me know. Is age a qualifying factor for SPCPs? For example, the elderly population. Additionally, can an SPCP serve a population that intersects two disadvantaged classes like race and gender. For example, Black women.

Cherry 1:21:33
I'll answer the last one first, yes, you can do something like that. It ECOA covers race, national origin, sex and, you know, age. So presumably, you know, most, most of these programs that we've seen are, you know, race-based, but a lot of them, presumably, could be extended to other protected classes. I think that's kind of the overarching thing. I think the more important piece, though, is that you have to show the need for the program, and it's probably harder to get data on specific needs for, for age versus, you know, Black women, or, you know, Black men, or something like that, probably even, you know, easy, even easier, if it's open to all Black people, right? But I think the goal here is to make sure that, I think there is a part of it where you're not supposed to even within SPCPs, not supposed to disadvantage one group over another, even within your SPCP. So there's a little bit of caution when it comes to, like, hybrid, you know, Black women, Black men, kind of thing. But theoretically, you could, you know, find a way to find a way to do that. Again, the age thing probably a little bit harder to find the data to support that. And again, these special purpose credit programs are based heavily on this nexus this data that you need to show the need for the program. And again, especially nowadays, you really want to have that data to back it up.

Matthews 1:22:51
Okay, as a follow-up to that question, must an SPCP serve a disadvantaged group under ECOA? Or can financial can a financial institution define another category that correlates with income?

Cherry 1:23:04
It wouldn't be an SPCP. So that's my answer. If it's not covering one of those protected classes, you know, under ECOA, then you know, and it's covering income, for example, like that, you don't need an SCP, spcp to cover income, right? Like an income-based program where, like, say, it's 120 AMI 80% AMI only, or something that would just be an LMI program. You don't need to SPCP for it, but if you're involving, you can have a situation where you're doing income and you're overlaying that with race or national origin or something like that, then you would need a SPCP because you're using protected class in the calculus.

Matthews 1:23:50
Okay, are there anti-DEI proof SPCPs or other economic justice initiative templates available for you?

Cherry 1:23:58
There is no templates. Like, I'm sorry, there's just no one. There's just no one, one thing. I mean, every single one, every single SPCP, every single institution that does it, is unique and different, and they have different needs, and they serve different populations. It there's nothing. And also, there's just nothing in this life that's, you know, litigation proof. Like I said, litigation is more so if somebody wants to sue you or not, versus whether there's the legal merits and they win. But again, do the analysis, understanding your particular institution's risks and whether you're willing to accept those risks. Is a necessary part of setting up an SPCP, and we encourage you to do that before you engage in the exercise.

I will say, though, it's not a template, but I will promote NFHA, the National Fair Housing Alliance. They have a toolkit that our firm helped work on where it kind of goes over all of these specific nuances, specific requirements, I mean, to setting up an SPCP, and I would, I can drop that in the chat, and that's a good resource to use.

Matthews 1:25:22
Okay, I know we're winding down on time, so I'll have this last question. I know there were other questions that we didn't get to. I will be sharing the contact information for Imani and Dafina as well, so that if you do have follow-up questions, you're able to ask also. So we'll ask this last question, do you think that financial institutions do not have appetite to add more portfolio programs and the effect of interest rates?

Williams 1:25:53
I mean, it can't, obviously cannot speak for you know, every single financial institution, and I think similar to the exercise that CDFIs are going through, you know, these financial institutions are assessing their own priorities and their strategic direction and their customer base and the needs and the risk and all that. In general, you know, regulated depositories tend to be a little bit more kind of risk-averse and, you know, but it's just, it's hard to, you know, to say directionally. Now, I think if we're in a political situation where the regulators are saying that this is not something that they will look kindly upon, that's a different situation, right? So, you know, it's sort of, it's a little bit of a meandering answer, which is like, I can't speak for every financial institution. They all will do their assessments with their attorneys and try to figure out what's the best direction and partnership for their organizations. And, you know, I, I still think there's lots of opportunities for partnerships with, you know, CDFIs and the capital still seems to be kind of flowing into the industry. It might just look different, right? It might just not have some of the kind of explicit racial targeting that we saw coming post-George Floyd, where everyone was, you know, creating new types of programs to support Black businesses or whatever. Maybe it might just, you know, it might not look like that anymore, but as of right now, we're still seeing a lot of you know interest in partnering with CDFIs to make sure that capital reaches where it's needed most.

Matthews 1:27:35
Thank you. Thank you again to Imani and Dafina for being with us this afternoon to share their expertise on special purpose credit programs. That is a hard one to say quickly. We appreciate it again. My name is Jocelyn Matthews and the director of the National Training Academy here at NCRC. We appreciate you for being with us again today. The recording for this will be on our Learning Hub. We'll also be sending out a survey so that we can hear from you about your thoughts on this webinar today, and also so that we can make sure we're improving and providing topics that you're interested in learning more about. So please, we ask you that to share and to respond to the survey, and then here I'm going to share the contact information for both of our panelists that'll be here. I know we did not get to all of your questions. There were a lot of questions in the chat. We do appreciate your engagement and your interest in the topic. We want to make sure that we provide you the information that you're looking for. So please feel free to reach out to them. We'll also be providing a one pager with key takeaways from our time here today, so please don't be on the lookout for that as well. And again, thank you. Applause.

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