SAFE Banking Returns Stronger with New Opportunities for CDFIs

The Secure and Fair Enforcement Banking Act (“SAFE Banking Act”) was reintroduced in the House (H.R. 2891) and Senate (S.1323) on April 26, 2023. The reintroduced bills included important new changes that could provide opportunities for non-depository Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs). CDFIs and MDIs are financial institutions that provide financial products and services to populations and businesses in underserved communities. MDIs specifically are financial institutions owned or directed by minority individuals. 

Prior versions of SAFE Banking provided safe-harbor protections for depository CDFIs, including banks and credit unions serving state-sanctioned cannabis and hemp businesses, but did not cover non-depository CDFIs, including nonprofit loan funds and venture capital funds. Safe- harbor, in the case of the SAFE Banking Act means that those financial institutions may not be held liable pursuant to any Federal law or regulation 1) solely for providing a financial service; or 2) further investing any income derived from such a financial service provided to a state-sanctioned marijuana business. The new bill also explicitly extends protections for compliant MDIs serving legitimate cannabis and hemp businesses. The safe-harbor would help reduce the risk of federal enforcement and the loss of access to federal programs and support for MDIs and CDFIs serving the legal cannabis industry. If passed, the new safe-harbor for CDFIs and MDIs could result in much needed capital for small and minority-owned businesses and state-backed programs designed to support those businesses. 

Prior to joining the firm, Ice Miller Counsel Amber Littlejohn, helped draft and spearhead lobbying efforts to extend SAFE’s protections to non-bank CDFIs and MDIs to address capital access issues for small and minority operators at the heart of the cannabis industry. In her testimony before the House Financial Services Subcommittee on Consumer Protection and Financial Institutions in February 2022, she spoke on opportunities for CDFIs and MDIs to serve as a “natural conduit” for businesses in the emerging cannabis industry. She continued to work with the bill’s sponsors and congressional leadership to include the language with a package of provisions to strengthen the bill’s equity provisions. When reintroduced this year, SAFE included expressed protections for CDFIs and MDIs. 

Last month, the Senate Committee on Banking, Financial Services, and Urban Affairs discussed SAFE Banking during their hearing titled, “Examining Cannabis Banking Challenges of Small Businesses and Workers.” In the hearing, Sen. Sherrod Brown (D-OH) touted that “MDIs and CDFIs can help reach these communities that are often overlooked—or worse, preyed upon—by other financial institutions.” Sen. Jeff Merkley (D-OR) – sponsor of the SAFE Banking Act – discussed how MDIs and CDFIs can help fund businesses in “…underserved communities that have been disproportionately affected by cannabis enforcement in the past.” Sen. Merkley further stated the newly-amended bill "includes provisions to address concerns around equity…raised in the memo by the Department of Justice last year.”  Even advocacy organizations previously opposed to SAFE’s passage expressed support for the expanded language to help address their equity concerns. 

In addition to providing new opportunities for CDFIs and MDIs, the new language could help push the bill over the line and onto President Biden’s desk. Despite passing in the House last year—and for the seventh time—the previous version of SAFE stalled in the Senate after proponents failed to reach consensus on provisions to address the equity issues raised by Democratic leadership or secure the 60 votes necessary for the bill to pass in the chamber. With continued bipartisan support for SAFE Banking, and congressional leaders and advocates alike promoting CDFI and MDI access as a means to address the equity concerns by Senate Democratic leadership, there is renewed hope to see the bill finally become law. 

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.