Written by: Eric Bank
Edited by: Lillian Guevara-Castro
Reviewed by: Adam West
Key Takeaways
- Jim Nussle called on Congress to fund the CDFI Fund, CDRLF, and SBA programs, providing financial access to underserved communities.
- The CDFI Fund assists credit unions and subprime borrower-serving lenders directly by reducing capital expenses and allowing more lenient underwriting.
- Removing this assistance can harm the subprime industry's capacity to expand responsibly, particularly in low-income and rural communities.
Eliminating the Community Development Financial Institutions (CDFI) Fund could have a crippling effect on subprime lenders, credit unions, and the 142 million Americans credit unions serve.
That’s the urgent message Jim Nussle, the President and CEO of America’s Credit Unions, makes in an open letter to members of Congress in which he implores them to keep in place important funding programs that benefit underserved communities.
The June 2 letter appeals to Congress to reject the proposed elimination of the Community Development Financial Institutions Fund in the next budget cycle.
Nussle also asks lawmakers to maintain the Community Development Revolving Loan Fund (CDRLF) as well as SBA lending programs.
In his correspondence, Nussle requested a floor appropriation of $324 million for the Community Development Financial Institutions Fund and $4 million for the Community Development Revolving Loan Fund — levels equal to FY25 appropriations.
He underscored the importance of these federal programs in linking low-income, minority, and rural communities to financial services.
Such institutions in these communities often rely on federal aid to continue operations and to provide inclusive lending.
Subprime players need to pay attention. Funding cuts to these programs could cripple low-cost credit access especially in subprime markets, affecting borrowers who are already excluded from conventional sources of credit.
It could also eliminate useful levers that allow responsible lenders to be profitable in high-risk niches. Nussle’s missive is addressed to policymakers, but the impact could echo throughout the credit universe.
That is particularly timely as the public discourse surrounding subprime finance becomes increasingly contentious. Under threat of repeal, this is the time to reaffirm how responsible lending plays a role in economic inclusion.
Why the CDFI Fund Matters to the Subprime Market
Administered by the U.S. Treasury, the CDFI Fund expands access to capital in underserved communities through powerful public-private partnerships.
It does this by providing crucial funding and technical assistance that drives affordable housing, homeownership, small business growth, sustainable job creation, and consumer financial security.
In the case of subprime lending, it means more affordable capital, which can be the deciding factor in lending or rejecting a borrower.
Lenders in riskier credit segments have thin margins. The Financial Assistance and Bond Guarantee Programs of the CDFI Fund alleviate such pressures, enabling these institutions to lend at competitive terms without assuming disproportionate risk.
If this program did not exist, more lenders could step back from the subprime market, diminishing access where it is needed most.
CDFI certification also provides the gateway to mission-based branding. That branding appeals to customers, regulators, and ESG-oriented investors who are concerned about community development. In a highly regulated industry, this kind of positioning is a reputational and regulatory benefit.
Impacts of Loss of CDFI and CDRLF Support
Nussle’s correspondence describes the broader value of these programs, but the biggest benefits are in the subprime market.
The Community Development Revolving Loan Fund, as one instance, provides credit unions with technical assistance grants to improve digital resources, expand branch reach, and create new underwriting approaches.
This kind of infrastructure investment is needed to better serve nonprime borrowers. It decreases delinquency and facilitates service to urban and rural low-income areas usually neglected by conventional banks.
Eliminating CDFI funding may limit the subprime lending market in its outreach.
Losing these programs may also hamper innovation. Subprime lenders increasingly use cashflow-based underwriting and alternative data approaches to serve borrowers who do not fit the FICO profile. Without federal investments in such efforts, the momentum could be stopped in its tracks as consumer demand increases.
What Subprime Lenders Can Do Now
Subprime lenders need not sit idly by. The open letter presents an opportunity to make the case to continue investing in inclusive finance. Lenders can reinforce the message by showing how CDFI tools assist them in serving their communities responsibly.
Working with legislators, lobbying trade groups, and capturing impact can pay off. Whether providing affordable auto loans in a credit desert or keeping a small business operating through SBA programs, lenders must now convey those stories.
The CDFI Fund is more than a line item in the federal finances — it’s the keystone of the responsible subprime lending environment. Preserving this keystone could be what assures underserved borrowers of continued actual access to credit in the years to come.
