“What does the future look like?” That’s the question Aaron Duffy hears most often from credit union leaders navigating the uncertainty around the Community Development Financial Institutions (CDFI) Fund. As senior vice president of community advancement at CU Strategic Planning, Aaron has had a front-row seat to the unease, the policy shifts, and the resilience credit unions have shown in the face of constant change.
When Sarah Snell Cooke sat down with Aaron on The Credit Union Connection, the conversation quickly moved past surface-level concerns. The pair dug into the real anxieties behind recertifications, executive orders, and the sheer administrative weight credit unions are carrying—all while still striving to serve overlooked communities. For anyone working in or watching the CDFI space, this exchange offers both clarity and a candid glimpse of what lies ahead.
What makes the conversation striking is Aaron’s balance of pragmatism and optimism. He doesn’t gloss over the “dozens and dozens” of hours credit unions have poured into compliance, or the confusion sparked by sudden rule changes. Yet, he also points out the deep commitment behind that work, leaders juggling mergers, product rollouts and member services, all while navigating a 20-month recertification marathon. That dedication, he notes, underscores just how vital the CDFI designation is to communities often left behind by mainstream finance.
The dialogue also ventures into contested ground: overdraft and NSF fees. Aaron acknowledges the legitimate concerns regulators have raised, but he’s quick to add nuance. For many credit unions, overdraft protection is less about revenue and more about meeting members where they are—offering a lifeline that prevents reliance on predatory loans. His perspective challenges the narrative of uniform abuse, highlighting instead a field where thoughtful practices often outweigh bad actors.
Perhaps most compelling is Aaron’s take on the bigger picture. Even under what he calls the “most antagonistic administration” toward the CDFI Fund in memory, bipartisan support and Treasury backing remain strong. If credit unions can weather this storm, he suggests, the sector may actually emerge more resilient and more trusted than before.
Conversations like this remind us that policy shifts aren’t just about regulations; they ripple directly into the lives of people striving for financial stability. And as Aaron emphasizes, credit unions willing to adapt and persist may find themselves not just surviving but shaping the next era of community finance.
NOTE: The following transcript was created by our robot overlords. It could have a boo-boo here and there.
Sarah Cooke
Hello and welcome everybody. I am Sarah Snell Cooke, your host for The Credit Union Connection, I’m here today with Aaron Duffy,
Welcome,
Aaron Duffy
thank you. Sarah, glad to be here.
Sarah Cooke
Yeah, awesome to see you again. We’re going to be talking CDFI. So tell us a little bit more about yourself and CU strategic planning and what you do.
Aaron Duffy
I’m Aaron Duffy. I’m the SVP of community advancement. I oversee our grant development and certification services. Cu strategic planning has been around for over two decades now, and we are the industry leader for credit union CDFI services. We write grants, we do strategic planning, we do executive search, all things CDFI related. That’s us. Yep,
Sarah Cooke
yep. Great work you and your credit unions are doing. It’s amazing some of the credit unions that I get to interview for you all and their stories, but today we’re talking a little more on the compliance side, because things have been kind of chaotic at cdf, at the CDFI Fund, and then, if you don’t know, that’s Community Development Financial Institutions Fund, and CDFIs are community development financial institutions. So Aaron talk about the biggest topics that are coming out of CDFI, that you’re getting credit questions about from credit union leaders.
Aaron Duffy
I think the biggest question right now is, what does the future look like? Is the CDFI Fund on good footing. Are they at risk? Are the programs going to continue? So back in March of this year, an executive order came out that targeted a number of agencies. The CDFI Fund was one of them, and I would say at this point the administration had learned some lessons about. How to Get agencies where it wants them to be, and the executive order was fairly, relatively targeted in that manner. What it did was ask the agencies to determine which of their programs are statutorily authorized and which aren’t. And so they were trying to avoid the argument that they were overreaching, stepping in and getting in the way of Congress. That caused some pause in the industry. Thankfully, we saw a lot of positive come out of it, a lot of bipartisan support for the CDFI Fund, for all the things it’s accomplished, the CDFI Fund has enjoyed broad bipartisan support since really its inception, it’s well backed in science, lots of studies about the impact, and we saw that support come out after this executive order. At the end of the day, Secretary Besant said, all the CDFI funds programs are statutorily authorized, and so there’s no real risk at that point, still, understandably, credit unions are saying, Should we be concerned about this? At this point, we’ve seen proposed budget in the two 70 million range. I think from the lower house, we’ll probably see something more than that. In the Senate, full support by the Treasury Secretary, so really we don’t have any basis to be concerned. There were some some rocky months there, but everything looks good right now, and so we’re encouraging credit unions to stay the course, and let’s move forward as if everything’s normal, because really all the signs are pointing that direction,
Sarah Cooke
yeah, that well, and that’s good to hear, because obviously Community Development Financial Institutions are kind of the backbone of their communities and the communities they serve, because these are people, generally, who have been overlooked historically and really need access to financial services, including especially probably credit building credit is so important to everything we do, and so what do you see as the or what kind of credit questions are you getting From credit union executives regarding the the different changes at CDFI Fund. I mean, they’ve been through a couple administrators. And just prior to, like, the executive order, you were finalizing the or the CDFI Fund was finalizing the way it was certifying it, because it changed that up, and then a lot of credit unions had to get recertified to stay CDFIs. So how is the new executive order affecting that? Let’s start there.
Aaron Duffy
Yeah, it really is a time of change which has been unsettling for a lot of credit unions. I would say the executive order just added some additional uncertainty on top of the insert uncertainty that already existed for some context there. Since the mid 90s, the CDFI Fund has never made CDFIs recertify once they’re certified. There’s an annual reporting requirement, but it’s if you’re meeting that requirement. Once you’re certified, you stay certified. In December of 23 a combination of about a three or four year process came to fruition, and new rules came out, and it required all CDFIs to go through a really extensive recertification process. And not only that, it added a couple of different layers of complexity of things that the CDFI Fund was not looking at before, in regards to certification. So we’re adapting to new rules, and we’re going through this new process. We start our credit unions off on that process, and then multiple times in 2024 the CDFI Fund made some pretty substantial changes to the rules into the process, and so credit unions have had to be nimble. Have had to adapt, and it’s really it’s been a pretty big administrative burden on our clients. It’s been a long process. Many of them have been going through it for 20 months now, and that just really speaks to their commitment to their communities and the importance of the CDFI designation and the resources they they have access to, and how that supports their missions and their service of their communities.
Sarah Cooke
And I understand you’re just starting to hear of certifications being finalized. We are, we are,
Aaron Duffy
yeah, we submit a handful late last year. It’s taken the CDFI Fund much longer than we had hoped to get those turned around, but starting a couple of months ago, we’ve seen a couple come trickling out, all good results, but it’s been a slow process.
Sarah Cooke
Yeah, federal government, everybody is slow, but Trump based. Basically it’s been having everybody moving fast. So how has this affected the existing CDFIs and their, I want to say, kind of their, their mental resilience. How is that? How is that going? I mean,
Aaron Duffy
I think that the fact that we knew this was coming was helpful to some degree, but you don’t really know the extent of until you get into it. And this is it’s hard to estimate how many hours the credit unions have had put into this dozens and dozens and dozens, and at the same time, they’re doing core conversions, and they’re doing mergers, and they’re rolling out new products, and they’re assessing needs in their communities, and all the things they need to do to run their community, run their credit unions and serve their communities well. And then on top of all that, they have this massive recertification so it’s been difficult. It’s a lot of data they have to collect. There are a lot of questions that the CDFI Fund is asking that they’ve never asked before. So that causes a lot of discussion and takes a lot of time. At the same time, we’re getting through it, and we’re planning on submitting dozens and dozens by the end of this month, and being pretty much wrapped up with this round by the end of September.
Sarah Cooke
Nice. Yeah. And so what are some of you get into the little bit of the nitty gritty? What are some of those questions or that the CDFI is asking that are new?
Aaron Duffy
One of the big ones that’s causing the most concern is over overdraft and NSF, the CDFI largely followed the CFPB s lead on thoughts on those programs. And we all know the CFPB had some big questions and had some guidance, and in general, wasn’t a big fan of those programs. The concern initially was, was the CDFI going to say, hey, no more overdraft, no more NSF. Thankfully, they didn’t go that direction. What they did was they said there are some practices that we don’t love but will allow you to do. If you do then we need some explanation of why they’re consistent with a community development mission. Those practices were charging fees more than the item being charged, charging more than six overdrafts in a rolling 12 month period, and then charging more than one NSF fee on a single item presented. So if an items represented, if you charge another fee on it, they didn’t like that. They didn’t say any of those practices were prohibited. They just wanted to hear why the credit union could engage in those and still be serving their members. And there’s lots of good arguments. Why those things go on. Some of them are technological limitations. A lot of core systems won’t recognize re presentments. I haven’t found a single core system yet that can track on a rolling 12 month basis whether a member has charged up to six overdrafts or not. So some of it’s technological, some of it’s more practical. Some of it’s we’re trying to serve our members well and meet them where they are, meet the needs they have, and something like overdraft is a met much better option than any other option they might have, like a payday loan or pawn or something like that.
Sarah Cooke
Yeah, absolutely this. I saw data or it was on LinkedIn the other day where a person got a loan for, I think it was nine, about 900 bucks, and including all the interest they would be paying in the end, they would have paid $5,500 and you know, for this, you Don’t have to comment on this, but for the CFPB and others to be complaining about banks and or credit unions, especially credit unions, of course, you know, $25 when you overdraft 100 bucks or whatever. I mean, it’s not great, but that is a massive difference from, you know, six times as much, right?
Aaron Duffy
And to be fair, there are bad actors out there. And even more nuanced, there are entities out there that are maybe not as thoughtful as they should be in their overdraft and NSF program, and there are some legitimate concerns. What I’ve seen, we’ve worked with well over 100 credit unions this process, is that the vast majority are very thoughtful. So they’re reaching out to their members, they’re providing free financial counseling. They’re putting limits on how much can we charge. It’s for the vast majority. This is not a cash. How it’s a service? Yes, there is a cost to it, but there’s a cost to run it. So while I think there are some legitimate points to be made, at least among the CDFI credit unions we work with, is there a widespread abuse? Certainly not.
Sarah Cooke
I’m going to ask you to predict here. So under the Trump administration, do you feel like some of those things could get rolled back? Is there any like, you know, whispers about that, not those things, the things that’s to clarify, the things that the CDF fund put in place before, you know, at the end of or not put in place, but put in place in the last administration.
Aaron Duffy
Yeah, there’s speculation, but nothing beyond that at this point, like you mentioned, the federal government is a it’s a big ship with a tiny rudder. Takes a long time to change anything, typically, and the changes were in in process for years and years and years. So to reverse those at this point, I think would be a major undertaking. I personally do think we’re going to see maybe that there’s not as much need for concern in some of the things that they were looking at. For example, ODP and NSF, the CDFI Fund was following the CFPB. Well, the CFPB has been largely sidelined at this point, and I think that changes the political calculus and the thinking of the CDFI Fund. So while it’s still something that is going to be examined in the recertification do I expect to see broad denials of recertification because of concerns about ODP or NSF? No, not at all,
Sarah Cooke
okay, so it’s more in the nuance than the actual regulation and or executive orders. Yeah, and so what is going to happen with after the recertifications? Obviously, we’re still waiting. You said they’re starting to trickle in, but obviously still waiting on a lot of those. And because there are far more than a couple of credit unions that are CDFIs, how do you think that is going to affect going forward? I know there were certain requirements that were new to be recertified. And is that going to affect how credit unions move forward once they are moving forward?
Aaron Duffy
Yeah, it’s a good question, and the rules are wide ranging. What we saw in general was that most credit unions were already complying with all the things the CDFI Fund wanted to see, so we didn’t see a lot of need for change. I’ll give you an example. The CDFI fund does not want CDFIs selling debt to third party collectors. They’re okay with a credit union hiring an attorney or a debt collector to collect on the credit union’s behalf, but not fully selling the debt. The concern being, once you sell the debt, you don’t have control over how it’s collected. Maybe there are abusive practices and so forth. Well, in general, the vast majority of our credit unions didn’t do that. Anyways, some did, and, you know, had good relationships and good reasons to do so, and so they had to change their processes, but the vast majority did not. Another example might be adjustable rate mortgages. The CDFI Fund wanted to see that lenders underwrite adjustable rate mortgages at the highest rate they could reach in the first five years of the life of the loan. And the idea there is, you, if something goes wrong and the rate goes way up, you want that mortgage, they’ll be affordable, right? Well, a lot of credit unions were already doing that sort of thing. It’s they don’t want to put their members in to a mortgage that they’re not going to be able to afford. They’re not setting their members up to fail. So a lot of this stuff, while it was something that, yes, we had to check the box on, it’s not something that is creating large operational changes.
Sarah Cooke
Yeah, well, that’s good to hear, at least. And I think that’s interesting about the stopping the outsourcing of debt collection, because, you know, in particular, with credit unions, if you’re using a CUSO that you, you know, have either an investment in or just some kind of saying how that functions, I would think that would be credit union enough. But, yeah, I also see where it’s difficult to, you know, allow credit unions do that, not banks. I think there would be a complete uproar, right?
Aaron Duffy
Monks were doing their collections in house or with the help of an organization that they still had control over,
Sarah Cooke
So Aaron, what I know some of the changes was about lending requirements in the regs and so how is that affecting credits going forward?
Aaron Duffy
Yeah, so the high level requirement is still the same that it has been, which is, in general, 60% of your lending needs to go to your target market. And target market is very nuanced, but in general, it’s the low income underserved that you’re serving. So that generally stayed the same, but lots of little nuances underneath that rule changed, and it made it more difficult for credit unions to hit that 60% required threshold. We saw in general, target market lending percentages drop, not because the credit union’s activity changed, but because the way that target market lending was being measured changed. What that did is it brought a lot of credit unions closer to the threshold than they were. So they might have been at 70, maybe they dropped to 65 or they’re at 80, and they dropped to 70. And what that means is that credit unions that want to maintain their CDFI designation need to be very careful and cognizant of where their lending is going, and that 60% test is being tested every year looking at the prior year’s lending so it’s really something you have to keep top of mind to ensure that you can meet that test when it comes up again the next year. If you don’t meet the test, there are some things that you can possibly do, but in one way or another, it’s going to put your designation at risk. And so it’s something that we’re working with credit unions on tracking and on ensuring that they’re going to meet those
Sarah Cooke
thresholds. And for those who may not know, explain a target market.
Aaron Duffy
So a target market is a complex and new, nuanced concept, but in general, it’s the underserved and low income borrowers that you’re lending to. A little more granular, your target market consists of what the CDFI Fund calls components. Most component most target markets are going to consist of a low income component, and what the CDFI Fund calls an investment area component. And what low income is, it’s low income borrowers, and investment area is our low income areas. So any loan you make to a low income borrower is likely going to be in your target market. Any loan you make in a low income area is likely going to be in your target market. After that, it really becomes particular to the credit union on what they want to bring into their target market, and there are administrative and compliance burdens, the more complex you make your target market. So we tend to try to keep the target markets as simple as possible.
Sarah Cooke
So how have the new certifications affected the participation of credit unions and others that are CDFIs?
Aaron Duffy
Yeah, it’s quite a challenge to get through this application. It’s, I don’t know how many pages of guidance we’re up to, well over 800 I think this, at this point, the application itself is well over 100 pages. That this is not an easy thing. And we keep our pulse on the loan fund, CDFI world as well. And we’re seeing especially among loan funds, which tend to be smaller, tend to have fewer resources than credit unions, they’re really struggling to get through this application. Like I said, we’ve been working with some credit unions 20 months on this, and it’s taken every bit of it to get through it. And we’re seeing conversation in the loan fund world that they’re asking each other, should we get started on our application? And it just it blows the mind, and I don’t think they understand what they’re going to be getting into and how technical it’s going to be. And we’re actually seeing now that some loan funds that submitted earlier in the process are getting denied. And these are loan funds that have been around for decades, have done great work in their communities. There’s no question about them being good CDFIs, but they’re just not hitting the technical boxes. So what we anticipate seeing is, I think the world of CDFIs is going to shrink. I think there are going to be fewer CDFIs, which is good news for those who can’t get through the process. They’re going to have access to around a comparable amount of resources, and there’s going to be less competition for those resources. But you hate to see good CDFIs not be able to maintain the designation,
Sarah Cooke
Yeah, yeah, for sure. And I mean, I think the purpose of the rig change was to ensure that CDFI credit unions were actually doing CDFI work, not just guardians, banks and London well, but yeah, it turns out, that ends up pulling resources away from other institutions that really need it to continue functioning. So, kind of a double edged sword there. And so one of the things I noticed you said when you were talking about the target market area, there’s a lot of focus on lending. And obviously capital helps, you know, invest the capital investment will help build the community and individuals when used properly. So what about savings and things like that? Is that also part of the requirements for the CDFI it play a role
Aaron Duffy
Maybe not as large a role as we’d like to see. Cu strategic planning has been, I’ll say, encouraging the CDFI Fund for a long time to recognize that CDFI work and community development work is not just lending, it’s also deposit services. Services. Having free access to a checking account is a big deal. It keeps you from having to go down to the check casher at the gas station and pay 5% every time you want to cash your paycheck. I would say that the CDFI Fund has recognized that benefit to some degree in the new regulations. The way it did that is it said, Okay, CDFI depositories, if you can show that you’re a significant number of your depositors are in your target market, then we’ll give you a break on the lending requirement. So in general, your lending needs to be 60% of the target market. That’s both 60% by number of loans and by dollar volume of lending. The Fund said, if you can show that at least 60% of your depositors are in your target market, then they’ll lower one of those 60% lending requirements to 50% so typically, what we’ll see is, we’ll review a list of depositors from the credit union might be 70% 80% whatever it is are in the target market that allows us to go back to the CDFI Fund and say, okay, the rule now for This credit union is 60% of their number of loans needs to go the target market, but only 50% of their dollar volume lending needs to go to the target market, making it easier to meet that requirement.
Sarah Cooke
Yeah, that totally makes sense. That’s good to know, because obviously, credit unions were created for thrift
Aaron Duffy
A big part of what we do. Yeah.
Sarah Cooke
Part of the mission
Sarah Cooke
So one of the new things that was required in the CDFIs certification and recertification is to have an advisory board. Can you talk a little bit more about what’s required there, and maybe, is that? Is that difficult? How is how is difficult? Is it? How is it helpful?
Aaron Duffy
Thankfully, it’s not a strict requirement, but it is an option. So what the CDFI Fund requires is that the CDFI show what the fund calls accountability. It’s a technical word. I like to use the word representation instead, because I think that’s what they’re really getting toward to you can show you meet the representation requirement, either through your board of directors or through an advisory board. So the first stop is we look at the board of directors to see if those target market components are represented, and a sufficient amount of your board represents the target market. A lot of credit unions have that box checked already. Great. We typically don’t move on to the advisory board. Then, if they don’t, though, then the next stop is the advisory board. The benefit, from just a compliance standpoint is that when you have your board of directors, it’s already set right. And board of directors is not an easy or short term task, but you can form a new committee relatively quickly. So what we’re helping our credit unions do who need the advisory boards is go out into the community, identify community members that are either aware of the needs and challenges that are out there or helping to meet those needs and challenges, have something to say about those needs and challenges and inviting them onto this advisory board to meet that representation requirement. Frankly, it can be a time consuming lift. You’re going around looking for people that meet the requirements, but are also going to be a good fit for your credit union, a good fit for the group on the advisory board. It does take some time. We do think that it’s something that’s going to pay off, though, for credit unions, I think there are a number of potential benefits, besides having a closer connection to the community and having a new sort a new perspective, new source of ideas, these are folks that you’re you’re getting to know better, and might even be a step on towards moving towards your board of directors. We’ve seen that a lot of credit unions are inviting heads of nonprofits or community partners that they’ve wanted to have deeper relationships with. What better way to get a deeper relationship with an organization than having that person on your advisory board and seeing them multiple times per year and for the right partner, that can be a good lending pipeline to come in and at that point, then having multiple conversations has really paid off for the bottom line and for service to the community.
Sarah Cooke
Yeah, absolutely, because there’s either they’re like, Are they required to be your members the advisory board?
Aaron Duffy
They’re not okay, so it’s wide open.
Sarah Cooke
Okay, that’s good to know too. But how is this, I guess have you are when are they required to have or are they already have been required to have the advisory board set up the ones who need it.
Aaron Duffy
It just has to be in place before the recertification application is submitted. So with the credit unions we’re working with the vast majority we have those are in place because we’re going to be submitting most later this month. For those that might be wanting to submit in September on their own, they just need to have the policy in place and all of the advisory board members approved by their board of directors before they hit the submit button on that recertification application.
Sarah Cooke
Okay, and is there a required number to have on the advisory board?
Aaron Duffy
There is that’s something. If a credit union is looking at this on their own, they need to create a checklist and go down the checklist make sure that each item is checked. This is one of. Major reasons that loan funds are getting recertification applications denied is because they’re not checking all of the boxes. One of them is a number of members. It has to be at least five and then at least 60% so three of the five need to be accountable to the target market.
Sarah Cooke
Okay, yeah, it makes sense? Well, I always allow my guests the final thoughts. So how would you like to close out your discussion here with our credit union audience?
Aaron Duffy
I’d say it’s been a rough couple of years. We know that we’ve seen it, but all the signs are pointing to a bright future. We, quite frankly, are in the midst of probably the most antagonistic administration to the what the CDFI Fund has done in in memory, and even in that environment, we’re still looking at being funded at a high level, still looking at all the major programs being there. So if we can survive this, we can survive just about anything, all the hard work that’s gone into this. It’s been very time consuming. I have a lot of respect for the credit unions that have stayed the course, have gone through it, and I think that we have bright days ahead.
Sarah Cooke
Awesome. Well, thank you so much. Good to hear that. Good to have you. Thank you. Aaron, thank you, sir
Aaron Duffy
I appreciate the opportunity.
CDFI compliance is not for the weak