Legal Challenge Asks Court to Stop Unlawful Attempt to Defund Lifeline for Local Entrepreneurs
August 16, 2026 - San Francisco – A coalition of economic development groups is challenging an attempt by the Trump-Vance 
administration to unlawfully un-fund a community lending program that has been repeatedly approved by bipartisan majorities in Congress.
A complaint filed on Friday by the CAMEO Network and the Los Angeles-based Inclusive Action for the City, is asking a court to act quickly to prevent the irreversible expiration of hundreds of millions of dollars in Congressionally appropriated funds for Community Development Financial Institutions (CDFIs). This investment is a critical source of capital for small businesses and entrepreneurs in underserved areas across the country. The funds, which are set to expire if not distributed by the end of September, support CDFIs in making loans to small businesses, which face barriers in accessing capital from traditional banks, on accessible terms borrowers can actually repay, in places other programs do not reach.
“Supporting small businesses shouldn’t be controversial – that’s why generations of bipartisan leaders have invested in CDFI programs that support entrepreneurs and create jobs,” said Doug Smith, Vice President of Policy and Legal Strategy at Inclusive Action for the City. “We’re proud to be taking action to protect the funding that small businesses depend on, and to stand against these reckless attacks that would have devastating impacts on our communities and economy in every corner of the country.”
“After many conversations and much deliberation, we had no choice, but to stand up for our members and their small business clients,” said Carolina Martinez, CEO of CAMEO Network. “The CDFI Fund is a wonderful example of a public-private partnership that works, leveraging $8 in private sector investment for every $1 in public funding and spurring economic activity. Ultimately if this money doesn’t flow, our communities suffer.”
In the mid-1990s, a bipartisan Congress established the Treasury Department’s CDFI Funds, creating a source of federal support for community lenders that serve people, businesses, and communities that traditional lenders often fail to serve. Over three decades, bipartisan Congresses have consistently appropriated money for the CDFI Fund, which has financed more than $270 billion in small business loans, housing, community clinics, and other community investments between 2005-2023. The funding has built the capacity of more than 1,400 certified CDFIs operating in all fifty states, the District of Columbia, Guam, and Puerto Rico. More than that, CDFIs are critical to broader community investment, including expanding affordable housing and affordable healthcare that serves families and communities.
Funding for CDFIs came under threat in May 2025, when the president’s budget asked Congress to eliminate the CDFI Fund’s discretionary award programs outright. Congress rejected the proposed cuts and appropriated $324 million for fiscal year 2026, the same amount that it appropriated in fiscal year 2025. Congress further barred the use of any appropriated funds to “increase, eliminate, or reduce funding for a program, project, or activity as proposed in the president’s budget request” unless Congress itself enacts that change.
Still, the Trump-Vance administration persisted in unlawful efforts and ignored Congress’ clear directives by withholding all of the money Congress appropriated for CDFI award programs, which is supposed to reach CDFIs and the communities they serve. The funding is at risk of expiring as the fiscal year 2025 appropriation is set to expire on September 30, 2026, and CDFI Fund award announcements have not been made, –taking hundreds of millions of dollars in investment away from CDFIs nationwide. Meanwhile, the money Congress appropriated for future years sits frozen in Office of Management and Budget (OMB) accounts where the CDFI Fund cannot reach it, threatening to repeat the unlawful effort again in the future.
The plaintiffs ask that the OMB follow the law and that the CDFI Funds are released for both 2025 and 2026 so the lenders can go about their business and support America’s small businesses and entrepreneurs looking to start and grow their businesses.
“Community Development Financial Institutions offer a crucial lifeline to small businesses that all too often get left behind by big banks, and efforts to defund CDFIs are an assault on small business owners in every community in this country. We are honored to work with our clients to defend CDFIs,” said Skye Perryman, President and CEO of Democracy Forward.
The case is Inclusive Action for the City and CAMEO Network v. U.S. Department of the Treasury et al. Democracy Forward’s legal team involved in this case includes Andrea Matthews, Anna Deffebach, Hanna Hickman, and Steven Bressler. Democracy Forward’s legal team involved in this case includes Andrea Matthews, Anna Deffebach, Hanna Hickman, and Steven Bressler.
Read the complaint here.
Democracy Forward Foundation is a national legal organization that advances democracy and social progress through litigation, policy, public education, and regulatory engagement. For more information, please visit www.democracyforward.org.
CAMEO Network (registered as California Association for Micro Enterprise Opportunity) is a national network of business service providers made up of 400 organizations, agencies, and individuals dedicated to furthering Micro-Business development with small and micro-business financing such as loans and credit, technical assistance and business management training. Annually, CAMEO members serve about 200,000 very small businesses with training, business and credit assistance and loans. These firms – largely start-ups with less than six employees – support or create 300,000 new jobs and generate a total of $15 billion in economic activity.
Inclusive Action is a nonprofit organization and a community development financial institution (CDFI) based in Los Angeles. Our mission is to champion working people, invest in entrepreneurs, and change systems to build an economy that works for all of us.
Source: Democracy Forward Foundation
