Two organizations representing community lenders and small businesses have filed a lawsuit against the Trump administration, demanding the release of hundreds of millions of dollars in congressionally approved funding for the Community Development Financial Institutions (CDFI) Fund. The legal action, announced Tuesday, argues that the executive branch's refusal to disburse the funds is an unconstitutional override of legislative authority.
The CDFI Fund, established in 1994 with bipartisan support, provides capital to community-based lenders that serve small businesses often overlooked by mainstream banks. These lenders operate in every state and nearly every congressional district, supporting entrepreneurs in rural, urban, and Native communities. The program leverages $8 in private investment for every $1 of federal funding, making it a rare public-private partnership that draws support from both parties.
Congress appropriated $324 million for the CDFI Fund in fiscal 2025 and again in fiscal 2026, the largest core funding level in the program's history. The appropriations passed with strong bipartisan backing, reflecting the program's proven impact on small business growth and local economic development. However, the administration has taken repeated hostile actions against the fund, culminating in the current withholding of these funds.
Under the law, the money must be disbursed to certified CDFIs by September 30, 2026. If the fiscal 2025 funds are not released by then, they will expire permanently. This ticking clock is already forcing lenders to shelve loan pipelines and turn away small business borrowers, according to the plaintiffs.
“This isn't a policy disagreement we can resolve by waiting it out,” said Carolina Martinez, CEO of CAMEO Network, a national network of CDFIs and business support providers. “When the executive branch declines to spend money Congress has lawfully appropriated for its intended purpose, the administration is not exercising discretion—it is overriding the constitutional authority of the legislature.”
Martinez and Rudy Espinoza, president and CEO of Inclusive Action, filed the lawsuit on behalf of their organizations. They emphasize that the decision to sue was not taken lightly, but that the stakes are too high for inaction. “Lenders across the country are making real decisions right now—shelving loan pipelines, turning away small business borrowers—because they cannot plan around money that was appropriated by Congress and then withheld by the administration,” they said in a joint statement.
The lawsuit highlights the real-world consequences of the funding freeze. A bakery in rural Idaho, a childcare provider in Detroit, and a manufacturer in North Carolina are just a few examples of businesses that have thrived thanks to CDFI-backed loans. Without these funds, such businesses would struggle to access the capital they need to grow and create jobs.
Hundreds of members of Congress from both parties have publicly supported the CDFI Fund, recognizing its role in strengthening local economies. The program's bipartisan appeal is a testament to its effectiveness, and the lawsuit aims to ensure that Congress's intent is honored.
“Every month of delay is a month of loans not made, jobs not created, and small businesses left to fend for themselves,” the plaintiffs wrote. “Small businesses in every congressional district in America can't afford to be kept waiting.”
The lawsuit comes amid broader tensions over executive spending authority, with similar disputes over election security funds and student loan funds. The outcome could set a precedent for how courts handle executive refusals to spend appropriated funds.
