The Treasury Department said Monday it has initiated a review of Community Development Financial Institutions to identify potential violations and ensure proper use of federal funds.
The department said it's assessing whether certified CDFIs are complying with applicable law and the terms of assistance agreements tied to the CDFI Fund.
"CDFIs play a critical role in expanding access to capital in underserved communities," Treasury Secretary Scott Bessent said in the department's release.
"CDFIs that engage in predatory practices and take advantage of the very communities they are intended to serve will be reviewed and, where appropriate, held accountable," he said.
"We remain committed to enforcing the law and protecting taxpayer resources while supporting the mission of responsible CDFIs."
Treasury said the review is part of its efforts to strengthen oversight of federal grant programs, promote accountability, and prevent abuse.
The move follows administration proposals to reduce the CDFI Fund by more than $200 million in fiscal 2027 and redirect remaining funding toward rural lending.
Speaking at a Senate Appropriations subcommittee hearing, according to American Banker, Bessent said the program "had lost its way. And I can tell you that part of the CDFI program had lost its way in terms of a partisan agenda.
"We want to make sure that it is doing what it is designed and not loaded with a partisan wish list.
"We also want to make sure that the CDFI program is free of waste, fraud, and abuse."
The administration's budget proposal would reduce the fund by $204.5 million and direct remaining resources toward a $100 million rural development initiative.
Bessent cited concerns raised during the hearing about program misuse.
"There's a CDFI [named] Tricolor, which, it turned out, was fraud auto lending to minority communities, so we want to avoid that," he said.
Lawmakers from both parties pointed to the program's role in smaller communities and underserved borrowers.
"They're sustaining daycares in small communities of just over 300 people," Sen. Deb Fischer, R-Neb., said during the hearing.
"They're keeping retail stores in rural downtown, initiating new businesses on the Winnebago and the Omaha reservations in northeast Nebraska, and they're supporting efforts to increase that rural housing developments, which is so needed," Fischer said.
Treasury said it will take action where appropriate based on the findings of the review, consistent with federal law and program requirements.
The Small Business Administration recently referred 562,000 suspected fraudulent pandemic-era loans totaling more than $22.2 billion to the Treasury Department for collection, according to the agency.
"From Day One, the Trump SBA has worked tirelessly to crack down on billions in pandemic-era fraud that the Biden Administration forgave or ignored," SBA Administrator Kelly Loeffler said in a statement.
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