Nonbank originator Change Lending and the U.S. Department of the Treasury have agreed to settle a lawsuit in which the lender claims “flawed analysis and mathematical errors” led to its decertification as a Community Development Financial Institution (CDFI).
The parties announced on Thursday that Change will remain a certified CDFI until the lender’s next application related to the fiscal year 2025 is determined. In addition, the parties said the CDFI Fund has agreed to first engage in a “good faith meet and confer process with Change” if it encounters any issues related to the 2025 application.
“We now look forward to expanding our impact and our reach serving underserved borrowers and communities by expanding our innovative product offerings in the coming weeks,” Carlos Salas, Change’s chief executive officer, said in a statement.
The CDFI certification is given by the Treasury Department CDFI Fund to lenders providing financial services to low-income communities and people who lack financing. But at least 60% of a lender’s financing must target these borrowers.
A Barron’s investigation found that Change failed to meet its underserved lending requirements in 2022, resulting in the lender being removed from the CDFI Fund’s list of certified program lenders in August.
Change sued the CDFI Fund in late August, complaining about the Fund’s analysis. A federal judge sided with Change in September, allowing the lender to continue its mortgage offerings until at least December.
The lender, which became a CDFI in 2018, claims it has funded over $25 billion in loans to over 75,000 families.
On Wednesday, the parties notified Judge James Selna of the U.S District Court, Central District of California, about the settlement agreement.
Neither party has admitted fault, error, or liability. Moreover, the Treasury confirmed that it is not aware of findings or recommendations under which the CDFI Fund could take action against Change. The settlement provides Change a release from future claims relating to the dispute.
Despite resolving the matter with the Treasury, Change is involved in litigation with a former employee.
In October, the company sued Adam Levine, CEO Steven Sugarman’s former chief of staff, after he accused the firm of retaliation when he notified executives of employees’ “mischaracterizing loans” to skirt federal reporting requirements.
Change accused Levine, who was fired in March over multiple accusations of workplace misconduct, of committing fraud and breaching his contract with the firm to advance his scheme to extort Change and its principals for over $10 million.