CDFIs file lawsuit against Treasury to release funding

• Key insight: The lawsuit is the latest escalation in a running battle between CDFIs and their supporters and the Trump administration, which has repeatedly blocked funding for the popular program. 
• What's at stake: The CDFI fund recipients include banks, and many banks get Community Reinvestment Act credit for grants to the financial institutions. 
• Forward look: The CDFI lawsuit says the funds expire in September. 

WASHINGTON — A network of Community Development Financial Institutions have filed a lawsuit against the Treasury Department, asking a federal court in California that the government release congressionally approved funding for the financial institutions. 

CDFIs have long been a target of the Trump administration, with the Office of Management and Budget delaying the release of funds that Congress has already approved. OMB Director Russell Vought said in Congressional testimony earlier this year that the financial institutions — despite wide bipartisan support in Congress and a history of particularly supporting Republican states and rural areas — are "woke," and that federal support should be dismantled. 

The lawsuit, filed in August by Inclusive Action for the City, a California-based CDFI, and the California Association for Micro Enterprise Opportunity Network, asks the U.S. District Court for the Northern District of California to order Treasury and OMB to release the funds and begin making awards.

Democracy Forward, a legal nonprofit that's represented many people and organizations against the Trump administration, is representing the CDFIs in court. 

The plaintiffs say the administration is effectively accomplishing through delay what it could not accomplish through legislation or an earlier effort to eliminate the CDFI Fund. Congress has continued to appropriate money for the program, including $324 million for fiscal 2026, and barred the administration from using appropriated funds to reduce or eliminate programs proposed in the president's budget without congressional approval, according to the complaint.

The CDFI Fund provides grants and other financing to mission-driven lenders, including some banks, serving communities that conventional banks often do not reach. 

The administration's effort to shrink the program has been consistent and multifaceted since the onset of President Trump's second term. In March 2025, President Trump ordered agencies to reduce the CDFI Fund to the minimum presence required by law. Treasury later told OMB that all 11 of the fund's programs were legally required.

In October 2025, the administration moved to lay off Treasury employees working on the CDFI Fund, with termination notices saying the reductions were necessary to implement its abolition.

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The latest dispute centers on the money itself. The complaint says OMB released $35 million for the fund's administrative expenses in fiscal 2025 but withheld the $289 million Congress appropriated for its award programs. OMB did not release that money until April 8, 2026, more than a year after the fiscal year began. Treasury still had not made a single fiscal 2025 award when the lawsuit was filed, according to the complaint.

"The result is that every dollar Congress appropriated for fiscal year 2025 awards is at risk of expiring unspent on September 30, while the money Congress appropriated for the years that follow sits frozen in OMB accounts where the Fund cannot reach it," the plaintiffs said in the complaint. "Defendants have never explained any of this. They have identified no statute authorizing them to withhold the money. And they have said nothing at all about what the delay means for CDFIs that applied for those funds, or for the communities those CDFIs serve."

The plaintiffs argue that the government's refusal to spend the money violates federal appropriations law and unlawfully delays agency action. They also say the delay is causing immediate harm to CDFIs and the borrowers and communities that depend on them.

Inclusive Action says it applied for a fiscal 2025 Financial Assistance award 17 months ago and is still waiting for a decision.