I. INTRODUCTION
Effective January 1, 1996, banks were required to comply with the provisions of revised new CRA regulations jointly approved by the Federal financial supervisory agencies. The CRA “reform” effort replaced existing standards for evaluating compliance with CRA requirements with a system that evaluates banks based on their actual performance in helping to meet their communities’ credit needs. The revised CRA regulation provides clearer and more objective evaluation standards, eliminates unnecessary documentation requirements and improves the consistency of CRA examinations and performance evaluations. The regulation emphasizes performance over process and documentation.
II. COVERAGE
All banks are subject to the regulation, except for “special purpose banks” that do not perform commercial or retail banking services by granting credit to the public in the ordinary course of business, other than as incident to their specialized operations (i.e., banker’s banks).
III. KEY DEFINITIONS
The CRA regulation contains terms that are essential to an understanding of the regulation’s application. Key definitions are:
A. Assessment Area Each bank must delineate one or more assessment areas within which its regulator will evaluate the bank’s record of helping to meet the credit needs of its community. The term “assessment area” replaces references to “delineated community” under the former CRA regulation. The assessment area for all banks (other than a wholesale or limited purpose bank) must: (1) consist generally of one or more MSAs or one or more contiguous political subdivision, (e.g., counties, cities, or towns); and (2) include the geographies in which the bank has its main office, its branches and its deposit-taking ATMs, as well as the surrounding geographies in which the bank has originated or purchased a substantial portion of its loans.
A bank is authorized to adjust the boundaries of its assessment area(s) to include only the portion of a political subdivision that it reasonably can be expected to serve. Such an adjustment would be appropriate in the case of an assessment area that otherwise would be extremely large, of unusual configuration, or divided by significant geographical barriers.
The regulation places certain limitations on the delineation of an assessment area in the following respects:
In addition, a bank whose business predominately consists of serving the needs of military personnel or their dependents who are not located within the defined geographic area may delineate its entire deposit customer base as its assessment area.
B. ATM and Branch
An ATM or branch (remote service facility) no longer needs to be located at a fixed site. Staffed mobile offices that are licensed as branches will be considered “branches” or “remote service facilities” and mobile ATMs are considered ATMs. This distinction is significant, since a bank’s assessment area must include the geographies in which the institution has its main office, branches and deposit-taking ATMs. These provisions are designed to ensure that a bank using mobile branches and ATMs in an area not otherwise served by the institution will be evaluated on its success in helping to meet the credit needs of the area. Including mobile branches within the definition of “branch” also effects the evaluation of an institution’s service to its community because the “service test” (See, discussion at Paragraph IV., E.) evaluates the distribution of an institution’s branches and its history of opening and closing branches.
C. Community Development
Community development is defined to mean: (1) affordable housing (including multifamily rental housing) for low- or moderate-income individuals; (2) community services targeted to low- or moderate-income individuals; (3) activities that promote economic development by financing businesses or farms that meet the size eligibility standards of 13 C.F.R. 121.802(a)(2) or have gross annual revenues of $1 million or less; or (4) activities that revitalize or stabilize (i) low-or moderate-income geographies; (ii) designated disaster areas; or (iii) distressed or underserved non-metropolitan middle income geographies designated by the Board of Governors of the Federal Reserve
System, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency, based on (A) rates of poverty, unemployment, and population loss; or (B) population size, density, and dispersion. Activities revitalize and stabilize geographies designated based on population size, density, and dispersion if they help to meet essential community needs, including needs of low- and moderate-income individuals.
The definition of community development restricts qualifying activities to those that promote community welfare. The term includes community- or tribal-based child care, educational, health, or social services targeted to low- or moderate-income persons or services that revitalize or stabilize low- or moderate-income geographies.
To qualify as community development loans or services or qualified investments, activities must have community development as their primary purpose. The fact that an activity provides indirect or short-term benefits to low- or moderate-income persons does not make the activity community development.
“Distressed nonmetropolitan middle-income geographies” are areas located in counties that meet one or more triggers that generally reflect the “distress criteria” used by the Community Development Financial Institutions (CDFI) Fund. The distress triggers are an unemployment rate of at least 1.5 times the national average; a poverty rate of 20 percent or more; and a population loss of 10 percent or more between the previous and most recent 10-year census or a net migration loss of 5 percent or more over the five-year period preceding the most recent census.
“Underserved nonmetropolitan middle-income geographies” are required to meet criteria for population size, density and dispersion that indicate that an area's population is sufficiently small, thin and distant from a population center such that the geography is likely to have difficulty in financing the fixed costs of essential community needs. The basis for these designations, as used by the agencies, are the “urban influence codes” that are numbered 7, 10, 11 and 12. These codes are maintained by the Economic Research Service of the United States Department of Agriculture.
The list of distressed and underserved nonmetropolitan middle-income geographical areas may be accessed on the Federal Financial Institutions Examination Counsel (FFIEC) Website (http://www.ffiec.gov/cra/examinations.htm#UDGEO).
D. Community Development Loan
Community development loan means a loan that: (1) has as its primary purpose community development; and (2) except in the case of the wholesale or limited purpose bank: (a) has not been reported or collected by the bank or an affiliate for consideration in the bank’s assessment as a home mortgage, small business, small farm or consumer loan, unless it is a multifamily dwelling loan; and (b) benefits the bank’s assessment area(s) or a broader statewide or regional area that includes the bank’s assessment area(s).
E. Community Development Service
Community development service is defined to mean a service that: (1) has as its primary purpose community development; and (2) is related to the provision of financial services. (E.g., service on the board of directors of an organization that promotes credit availability or affordable housing meets this requirement. By contrast, general participation by bank or thrift employees in community activities that do not take advantage of the employee’s technical or financial expertise would not qualify. Although an admirable civic contribution, the regulatory commentary suggests that such employee participation is not sufficiently related to the provision of financial services to meet the purposes of CRA.)
F. Consumer Loan
Consumer loan means a loan to one or more individuals for household, family, or other personal expenditures, but does not include a home mortgage, small business, or small farm loan. The rule designates four separate categories of consumer loans, including: (1) motor vehicle loans; (2) credit card loans; (3) other secured consumer loans; and (4) other unsecured consumer loans.
The definition allows a bank to elect evaluation of its consumer lending on a product-by-product basis.
G. Home Mortgage Loans
Home mortgage loan means a “closed-end mortgage loan or an open-end line of credit as those terms are defined in section 1003.2 of this title, and that is not an excluded transaction under section 1003.3(c)(i)(1)-(10) and (13) of this title.
Home equity lines of credit secured by a dwelling, which are currently reported at the option of the financial institution under Regulation C, will be covered loans under the 2015 HMDA Rule. Effective January 1, 2018, financial institutions that meet the reporting requirements under the 2015 HMDA Rule will be required to collect, maintain, and report data on home equity lines of credit secured by a dwelling. For purposes of CRA consideration, in the case of financial institutions that report closed-end mortgage loans and/or home equity lines of credit under the 2015 HMDA Rule, those loans would be considered as home mortgage loans under the amended definition of “home mortgage loan.” The effect of this revision to the home mortgage loan definition will vary depending upon the amount and characteristics of the financial institution’s mortgage loan portfolio. As with all aspects of an institution’s CRA performance evaluation, the performance context of the institution will affect how the Agencies will consider home equity lines of credit. For financial institutions that would not be required to report these transactions under Regulation C, examiners may review the relevant files and consider these loans for CRA performance on a sampling basis under the home mortgage loan category.
H. Qualified Investment
A qualified investment includes a lawful investment, deposit, membership share, or grant that has as its primary purpose community development.
I. Small Bank/Intermediate Small Bank
Small bank means a bank that, as of December 31 of either of the prior two calendar years, had assets of less than $1.649 billion. Intermediate small bank means a small bank with assets of at least $412 million as of December 31 of both of the prior two calendar years and less than $1.649 billion as of December 31 of either of the prior two calendar years. The dollar figures utilized for determining small bank status are to be adjusted annually based on the year-to-year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers. The asset-size thresholds for “small savings associations” and “intermediate small savings associations,” are identical to those set forth above for “small banks” and “intermediate small banks.”
J. Small Business Loan and Small Farm Loan
The terms “small business loan” and “small farm loan” are defined by way of cross-reference to the Call Reports and TFR definitions of these terms.
IV. CRA RATINGS – STANDARDS FOR ASSESSING PERFORMANCE
A. Small Bank Ratings
1. Lending Test
The criteria used for rating a small bank’s (See, definition at paragraph III, I.) CRA performance varies from those applied to large banks. The five performance criteria used in evaluating the CRA performance of a small bank are as follows:
a. The bank’s loan-to-deposit ratio, adjusted for seasonal variation and, as appropriate, other lending-related activities, such as loan originations for sale to the secondary markets, community development loans, or qualified investments;
b. The percentage of loans and, as appropriate, other lending-related activities located in the bank’s assessment area(s);
c. The bank’s record of lending to and, as appropriate, engaging in other lending-related activities for borrowers of different income levels and businesses and farms of different sizes;
d. The geographic distribution of the bank’s loans; and
e. The bank’s record of taking action, if warranted, in response to written complaints about its performance in helping to meet credit needs in its assessment area(s).
2. Community Development Test
An intermediate small bank’s community development performance also is evaluated pursuant to the following criteria:
a. The number and amount of community development loans;
b. The number and amount of qualified investments;
c. The extent to which the bank provides community development services; and
d. The bank’s responsiveness through such activities to community development lending, investment and services needs.
The foregoing criteria are evaluated in the context of the bank’s capacities, business strategy, the needs of the relevant community and the number and types of opportunities for community development activities.
The community development test is to be applied “flexibly” so as to allow a bank to apply its resources strategically to the types of community development activities (loans, investments and services) that are most responsive to helping to meet community needs, even when those activities are not necessarily innovative, complex or new (“innovativeness” and “complexity,” factors examiners consider when evaluating a large bank under the lending, investment and service tests, are not factors in the intermediate small bank community development test).
Although a flexible standard may be applied for intermediate small banks, the agencies do not intend that a bank may ignore one or more categories of community development or arbitrarily decrease the level of such activities; however, the revised rules do not prescribe any required threshold level or allocation of community development loans, qualified investments and community development services. Rather, the agencies expect that a bank will appropriately assess the needs in its community, engage in different types of community development activities based on those needs and the bank's capacities and take reasonable steps to apply its community development resources strategically to meet those needs.
According to the revised rules commentary, the agencies expect a bank to make an assessment using information normally used to develop a business plan or identify potential markets and customers. Examiners are expected to consider the bank’s assessment of community needs – with information from community, government, civic and other sources – to obtain a working knowledge of community needs. Flexibility in the community development test is intended to allow intermediate small banks to focus on meeting the substance of community needs through these means, without undue regulatory consequences from the form of the response.
According to the final rules, an intermediate small bank’s retail banking services will no longer be evaluated in a separate service test, but the extent to which a bank provides community development services to low and moderate-income people will be considered in the community development test. The agencies will consider the types of services provided to benefit low and moderate-income people (e.g., low-cost bank checking accounts; low-cost remittance services) and the provision and availability of services to low and moderate-income people, including through branches and other facilities located in low and moderate-income areas.
The agencies believe that providing flexibility to intermediate small banks in how they apply their community development resources to respond to community needs through the strategic use of loans, investments, and services will reduce burden on these banks while making the evaluation of their community development records more effective.
Under the final rules, a “satisfactory” rating under the community development test requires an intermediate small bank to demonstrate “adequate responsiveness to the community development needs of its assessment area(s) through community development loans, qualified investments, and community development services.” This change provides conformity in the manner in which the term “assessment area” is used in other parts of the regulations.
The agencies did not change previous regulations that allow any small bank, including an intermediate small bank, the option of choosing to be evaluated under the large bank lending, investment and service tests. If a small bank opts to be evaluated under the lending, investment and service tests, the bank will be required to collect and report small business, small farm and community development loan data.
B. Community Development Activities
The federal agencies annually publish a list of distressed and underserved non-metropolitan middle-income geographical areas in which bank revitalization or stabilization activities will receive Community Reinvestment Act (CRA) consideration as “community development.” The list may be accessed on the Federal Financial Institutions Examination Council (FFIEC) Website (www.FFIEC.gov/cra or http://www.ffiec.gov/cra/examinations.htm).
“Distressed non-metropolitan middle-income geographies” are areas located in counties that meet one or more triggers that generally reflect the “distress criteria” used by the Community Development Financial Institutions (CDFI) Fund. The distress triggers are an unemployment rate of at least 1.5 times the national average; a poverty rate of 20 percent or more; and a population loss of 10 percent or more between the previous and most recent 10-year census or a net migration loss of 5 percent or more over the five-year period preceding the most recent census.
“Underserved non-metropolitan middle-income geographies” are required to meet criteria for population size, density and dispersion that indicate that an area’s population is sufficiently small, thin and distant from a population center such that the geography is likely to have difficulty in financing the fixed costs of essential community needs. The basis for these designations, as used by the agencies, are the “urban influence codes” that are numbered 7, 10, 11 and 12. These codes are maintained by the Economic Research Service of the United States Department of Agriculture.
A qualifying loan, investment or service in the area will count so long as a bank made or entered into a binding commitment to make the loan or investment or provided, or entered into a binding commitment to provide, the service while the area was designated. “Distressed or underserved” designations are based on objective criteria that are defined by regulation. In designated areas, bank financing for construction, expansion, improvement, maintenance or operation of essential infrastructure or facilities for health services, education, public safety, public services, industrial parks or affordable housing generally will be considered to meet essential community needs, so long as the infrastructure or facility serves low and moderate-income individuals. Other activities in such areas generally will not qualify for revitalization or stabilization consideration, unless the area meets the distressed criteria. In such cases, the agencies will decide, on a case-by-case basis, whether a particular activity qualifies for such consideration.
The definition of “community development” was also revised to make bank activities that revitalize or stabilize designated disaster areas eligible for CRA consideration. Disaster areas may be designated by Federal or State Governments (e.g., Major Disaster Declarations administered by the Federal Emergency Management Agency). A designation will expire for purposes of CRA when it expires according to the applicable law under which it was declared. Bank examiners are to give significant weight to the extent to which a bank's revitalization activities in a disaster area benefits low or moderate-income individuals.
Under the revisions, a bank activity that has a primary purpose of providing housing affordable to low or moderate-income individuals continues to qualify as “community development” regardless of housing location. Such activity may receive additional weight in the evaluation if an examiner determines that it helps revitalize or stabilize a low or moderate-income census tract, a distressed or underserved rural area or designated disaster area. An activity that provides affordable housing, not necessarily for low or moderate-income individuals, may still qualify as an activity that revitalizes or stabilizes an eligible nonmetropolitan area (e.g., activity providing housing for middle or upper-income individuals in an eligible rural area qualifies as “community development” when part of a bona fide plan to revitalize or stabilize the community by attracting a major new employer that will offer significant long-term employment opportunities to low and moderate-income members of the community).
The federal banking agencies have also revised the term “community development” to include loans, investments, and services by financial institutions that support, enable, or facilitate projects or activities that meet the “eligible uses” criteria described in the Housing and Economic Recovery Act of 2008 (HERA) and are conducted in designated target areas identified in plans approved by the United States Department of Housing and Urban Development (HUD) under the Neighborhood Stabilization Program (NSP).
The final rule provides favorable CRA consideration of such activities that, pursuant to the requirements of the program, benefit low-, moderate-, and middle-income individuals and geographies in NSP target areas designated as “areas of greatest need.” Covered activities are considered both within an institution’s assessment area(s) and outside of its assessment area(s), as long as the institution has adequately addressed the community development needs of its assessment area(s). The rule became effective on January 19, 2011.
HERA establishes five activities that are “eligible uses” of NSP funds (for purposes of this rule, designated as “NSP – eligible activities”). NSP-eligible activities are projects or activities that use the NSP funds to (1) establish financing mechanisms for purchase and redevelopment of foreclosed upon homes and residential properties, including such mechanisms as soft-seconds, loan loss reserves, and shared equity loans for low-and moderate-income homebuyers; (2) purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon, in order to sell, rent, or redevelop such homes and properties; (3) establish and operate land banks for homes and residential properties that have been foreclosed upon; (4) demolish blighted structures; and (5) redevelop demolished or vacant properties.
In addition, HERA provides that all NSP funds must be used with respect to individuals and families whose income does not exceed 120 percent of the area medium income, and not less than 25 percent of funds must be used to house individuals and families whose incomes do not exceed 50 percent of area median income.
HUD approves NSP action plans and applications, including amendments thereto (hereinafter referred to as “NSP plans” or “plans”), for all NSP grantees. These public documents must designate “areas of greatest need” for targeting NSP-eligible activities, consistent with statutory criteria. The vast majority of NSP-targeted areas are listed on a map database located on HUD’s website at: http://www.huduser.gov/portal/nsp1/nsp.html.
HUD has allocated NSP funds in a way that assists communities with the greatest need to address the adverse consequences of elevated foreclosure levels, consistent with Congressional intent. Allowing institutions to receive CRA consideration for NSP-eligible activities in NSP-targeted areas creates an opportunity to leverage government funding targeted to areas with high foreclosure or vacancy rates.
The revised regulations add to the definition of “community development” loans, investments, and services that support, enable, or facilitate NSP-eligible activities in designated target areas identified in plans approved by HUD under the NSP. For example, under the revised definition of “community development,” a financial institution will receive favorable CRA consideration for a donation of OREO properties to non-profit housing organizations in eligible middle-income, as well as low- and moderate-income, geographies. In addition, under the rule, institutions will receive favorable CRA consideration if they provide financing for the purchase and rehabilitation of foreclosed, abandoned, or vacant properties in targeted areas. Other examples of activities that will receive favorable CRA consideration under the rule are loans, investments, and services that support the redevelopment of demolished or vacant properties in such areas, consistent with eligible uses for NSP funds.
Although the CRA rules expressly encourage activities that benefit low- or moderate-income individuals or geographies, the agencies have created limited exceptions to address certain adverse circumstances that may affect middle-income individuals and geographies. The agencies believe that the purposes of CRA can be served by providing CRA incentives to institutions to engage in community development loans, investments and services that meet the narrowly tailored requirements of the NSP. First, HUD has stated that its funding of these programs was designed to satisfy Congressional intent that the funds have maximum impact and be targeted to States and local communities with the greatest needs. In addition, while, by its statutory terms, the NSP may benefit middle-income individuals, grantees must use at least 25 percent of their funds to house low-income individuals and families.
Under the current CRA rules, an institution is evaluated primarily on how well it helps meet the credit and community development needs of its CRA assessment area(s). However, the agencies note that many foreclosed residential properties owned by an institution may be located in areas that are outside of the institution’s CRA assessment area(s). Restricting CRA consideration of NSP-eligible activities to an institution’s assessment area(s) may not fully help to promote Congress’s objectives for the NSP. Therefore, the rule provides that an institution that has adequately addressed the community development needs of its assessment area(s) may receive favorable consideration for NSP-eligible activities under this provision that are outside of its assessment area(s).
Finally, the rule provides that NSP-eligible activities will receive favorable consideration if conducted no later than two years after the last date appropriated funds for the program are required to be spent by the grantees. The agencies will provide reasonable advance notice to institutions in the Federal Register regarding termination of the rule once a date certain has been identified.
The rule imposes no new requirements on institutions. It simply expands the categories of activities that qualify for CRA consideration as “community development.” No institution will be required to provide loans, investments, or services pursuant to the expanded definition. In addition, any community development loans that may be made by large institutions under the new provision will be covered under existing loan reporting requirements. As such, no new reporting requirements and negligible, if any, administrative costs should result from the rule. The rule will provide an incentive for institutions to engage in activities that stabilize foreclosure affected communities approved for NSP projects and will create an opportunity to leverage government funded projects with complementary private financing in areas targeted for assistance with minimal, if any, regulatory burden or costs.
C. Strategic Plan
Any bank, regardless of size, may choose to have its CRA performance evaluated pursuant to a strategic plan developed by the bank. In exercising this option, the bank must obtain regulatory approval, the plan must be in effect and the bank must have been operating under an approved plan for at least one year before the bank will be assessed on the basis of its performance under the plan.
A bank’s strategic plan must be developed in accordance with the following guidelines:
1. The bank’s proposed plan must specify measurable goals for helping to meet the credit needs of each assessment area covered by the plan, particularly the needs of low- and moderate-income geographies and low- and moderate-income individuals, through lending, investment, and services, as appropriate.
2. The plan must specify measurable goals that constitute “satisfactory” performance and may specify measurable goals that constitute “outstanding” performance. Only if the bank submits both “satisfactory” and “outstanding” performance goals, will regulators consider the bank to be eligible for an “outstanding” performance rating.
3. The plan may provide that, if the bank fails to meet substantially its plan goals for a satisfactory rating, it may elect to be evaluated under the lending, investment, and service tests, the community development test, or the small bank performance standards, as appropriate.
4. Prior to submitting a plan for regulatory approval, a bank must solicit public participation in the plan’s development. This may be accomplished by both seeking informal suggestions from members of the public in its assessment area(s) covered by the plan while developing the plan and by publishing a solicitation for comment for at least 30 days by publishing notice in at least one newspaper of general circulation in each assessment area covered by the plan. The published solicitation for comment should designate a period of at least 30 days within which to make comments. During the designated comment period, the bank must make copies of the plan available for review by the public at no cost at all offices of the bank in any assessment area covered by the plan and provide copies of the plan upon request for a reasonable fee to cover copying and mailing, if applicable.
5. In submitting its plan, the bank must include a description of its informal efforts to seek suggestions from members of the public, any written public comment received and, if the plan was revised in light of the comment received, the initial plan as released for public comment. No strategic plan may exceed a term of 5 years. Such multi-year plans must contain annual interim measurable goals. In addition, electing to be evaluated pursuant to a 5 year plan does not eliminate the data collection and reporting requirements of the regulation as set forth at Paragraphs V., A. and B. below.
During the term of a plan, if the bank believes that a material change in circumstances has occurred, it may request the regulator to approve an amendment to the plan. Such an amendment must be developed in accordance with the public participation requirements outlined above. D. Performance Context
The revised regulation replaced the term “assessment context” with the term “performance context.” This change focuses the regulation’s application on three core tests (lending, investment and service) rather than the 12 assessment factors used under the prior regulation.
In evaluating an institution’s CRA performance, regulators consider the following information, as appropriate:
1. Demographic data on median income levels, distribution of household income, nature of housing stock, housing costs, and other relevant data pertaining to a bank’s assessment area(s);
2. Any information about lending, investment, and service opportunities in the bank’s assessment area(s) maintained by the bank or obtained from community organizations, state, local, and tribal governments, economic development agencies, or other sources;
3. The bank’s product offerings and business strategy as determined from data provided by the bank;
4. Institutional capacity and constraints, including the size and financial condition of the bank, the economic climate (national, regional, and local), safety and soundness limitations, and any other factors that significantly affect the bank’s ability to provide lending, investments, or services in its assessment area(s);
5. The bank’s past performance and the performance of similarly situated lenders;
6. The bank’s public file, as described in § 228.43, and any written comments about the bank’s CRA performance submitted to the bank or the Board; and
7. Any other information deemed relevant by the Board.
E. Lending Test
The lending test evaluates a bank’s record of helping to meet the credit needs of its assessment area(s) through its lending activities by considering a bank’s home mortgage, small business, small farm and community development lending.
If consumer lending is a substantial portion of the bank’s business, the regulator will look at that type of lending and evaluate it in one or more of the following categories: motor vehicle, credit card, home equity, other secured and other unsecured loans. Both originations and purchases of loans will be considered. Loans originated or purchased by consortia in which the bank has invested will only be considered if the loans meet the definition of community development loans and will only be considered under the community development lending criterion.
The performance criteria to be used in evaluating a bank’s lending performance are:
1. Lending Activity – The number and amount of the bank’s home mortgage, small business, small farm, and consumer loans, if applicable, in the bank’s assessment area(s);
2. Geographic Distribution – The geographic distribution of the bank’s home mortgage, small business, small farm and consumer loans, if applicable, based on the loan location, including:
a. The proportion of the bank’s lending in its assessment area(s); b. The dispersion of lending in the bank’s assessment area(s); and c. The number and amount of loans in low-, moderate-, middle-, and upper-income geographies in the bank’s assessment area(s).
3. Borrower Characteristics – The distribution, particularly in the bank’s assessment area(s), of the bank’s home mortgage, small business, small farm, and consumer loans, if applicable, based on borrower characteristics, including the number and amount of:
a. Home mortgage loans to low-, moderate-, middle-, and upper-income individuals; b. Small business and small farm loans to businesses and farms with gross annual revenues of $1 million or less; c. Small business and small farm loans by loan amount at origination; and d. Consumer loans, if applicable, to low-, moderate-, middle-, and upper-income individuals.
4. Community Development Lending – The bank’s community development lending, including the number and amount of community development loans, and their complexity and innovativeness; and
5. Innovative or Flexible Lending Practices – The bank’s use of innovative or flexible lending practices in a safe and sound manner to address the credit needs of low- or moderate-income individuals or geographies.
Under certain circumstances, at the bank’s option, regulators will consider loans made by an affiliate of the bank, so long as the bank provides data on those loans.
Regulators consider affiliate lending subject to the following constraints: 1. No affiliate may claim a loan origination or loan purchase if another institution claims the same loan origination or purchase; and 2. If a bank elects to have the regulator consider loans within a particular lending category made by one or more of the bank’s affiliates in a particular assessment area, the bank shall elect to have the regulator consider, in accordance with the above paragraph, all the loans within that lending category in that particular assessment area made by all of the bank’s affiliates. Regulators do not consider affiliate lending in assessing a bank’s performance under Paragraph IV., D.,2,.a. above. Community development loans originated or purchased by a consortium in which the bank participates or by a third party in which the bank has invested: 1. Will be considered, at the bank’s option, if the bank reports the data pertaining to these loans under § 228.42(b)(2); and 2. May be allocated among participants or investors, as they choose, for purposes of the lending test, except that no participant or investor; a. May claim a loan origination or loan purchase if another participant or investor claims the same loan origination or purchase; or b. May claim loans accounting for more than its percentage share (based on the level of its participation or investment) of the total loans originated by the consortium or third party. F. Investment Test
The investment test is designed to evaluate a bank’s record of helping to meet the credit needs of its assessment area(s) through qualified investments that benefit its assessment area(s) or a broader statewide or regional area that includes the bank’s assessment area(s). Any activities considered under the lending or service tests may not be considered under the investment test.
Under the investment test, the following performance criteria will be utilized: 1. The dollar amount of qualified investments; 2. The innovativeness or complexity of qualified investments; 3. The responsiveness of qualified investments to credit and community development needs; and 4. The degree to which the qualified investments are not routinely provided by private investors. G. Service Test
The service test is designed to evaluate a bank’s record of helping to meet the credit needs of its assessment area(s) by analyzing both the availability and effectiveness of the bank’s systems for delivering retail banking services and the extent and innovativeness of its community development services.
In order to be considered, community development services must benefit a bank’s assessment area(s) or a broader statewide or regional area that includes the bank’s assessment area(s).
There are separate criteria used in measuring performance of the bank’s retail banking services versus their community development services. The performance criteria which the regulator will review in the retail banking services area are:
1. The current distribution of the bank’s branches among low-, moderate-, middle-, and upper-income geographies;
2. The bank’s record of opening and closing branches, particularly branches located in low- or moderate-income geographies or primarily serving low- or moderate-income individual;
3. The availability and effectiveness of alternative systems for delivering retail banking services, (such as ATMs, loan production offices, and bank-at-work or bank-by-mail programs) in low- and moderate-income geographies and to low- and moderate-income individuals; and
4. The range of services provided in low-, moderate-, middle-, and upper-income geographies and the degree to which the services are tailored to meet the needs of those geographies.
In evaluating a bank’s performance in community development services, regulators will look at two factors:
1. The extent to which the bank provides community development services; and 2. The innovativeness and responsiveness of community development services.
H. Community Development Test
This test will only apply to wholesale or limited purpose banks. A “wholesale bank” is a bank that is not in the business of extending home mortgage, small business, small farm, or consumer loans to retail customers, and for which a designation as a wholesale bank is in effect. A “limited purpose bank” is a bank that offers only a narrow product line (such as credit card or motor vehicle loans) to a regional or broader market and for which a designation as a limited purpose bank is in effect.
These provisions are of limited significance since there are few wholesale or limited purpose banks in Nebraska. It should be noted that community development services are evaluated as part of the service test, along with an evaluation of a bank’s performance in the retail banking services arena.
V. LOAN DATA COLLECTION AND INFORMATION REPORTING
A. Business and Farm Loan Data Collection
All banks, except those defined as small banks (see definition above at Paragraph III, (I)), must collect and maintain (as opposed to report) in machine readable form until completion of its next CRA examination, the following information for each small business or farm loan originated or purchased by the bank:
1. A unique number or alpha-numeric symbol that can be used to identify the relevant loan file; 2. The loan amount at origination;
3. The loan location; and
4. An indicator whether the loan was to a business or farm with gross annual revenues of $1 million or less.
B. Loan Information Reporting
Prior to March 1 of each year, the following three categories of loan data must be reported in machine readable form to the bank’s primary regulator. Once again, small banks are exempted from this reporting requirement.
1. Small Business and Small Farm Loans – For each geography in which the bank originated or purchased a small business or small farm loan, the data reported must show the aggregate number and aggregate amount of loans: (a) with an amount at origination of $100,000 of less; (b) with an amount at origination of more the $100,000 but less than or equal to $250,000; (c) with an amount at origination of more $250,000; and (d) to businesses and farms with gross annual revenues of $1 million or less (using the revenues that the bank considered in making its credit decision);
2. Community Development Loans – The bank must report the aggregate number and the aggregate amount of community development loans originated or purchased; and
3. Home Mortgage Loans – If the bank is subject to HMDA, the CRA regulation requires the bank to report the location of each home mortgage loan application, origination, or purchase outside the MSAs in which the bank has a home or branch office (or outside any MSA) in accordance with the requirements of Regulation C.
C. Optional Data Collection and Maintenance
For purposes of the lending test, a bank may collect data on consumer loans it originated or purchased. This data should be maintained in machine readable form and may be broken down into one or more of the following categories of consumer loans: (1) motor vehicle; (2) credit card; (3) home equity; (4) other secured; and (5) other unsecured. Once a bank elects to maintain data for loans within a particular category, it must maintain data for all loans originated or purchased within that category. For each loan, the records should show: (1) a unique number or alpha-numeric symbol that can be used to identify the relevant loan file; (2) the loan amount at origination or purchase; (3) the loan location; and (4) the gross annual income of the borrower that the bank considered in making its credit decision.
The bank may also provide other lending performance information, including additional loan distribution data.
D. Affiliate Lending
A bank that elects to have its regulator consider loans by an affiliate, for purposes of the lending or community development test or an approved strategic plan, must collect, maintain and report for those loans the same data that the bank would need to have collected, maintained and reported had the loans been originated or purchased by the bank.
E. Small Banks Data
A small bank electing to be evaluated under the lending, investment and service test, must collect, report and maintain the data listed above under the “Business and Farm Loan Data Collection” and “Loan Information Reporting” sections, above.
F. List of Geographies and Assessment Area
Each year, by March 1, all banks (except small banks) must collect and report to their federal regulator, a list for each assessment area that shows the geographies within the area. All institutions must include a map of each assessment area in their public file, however, the map does not need to show the geographies. The geographies may either be identified on the map or the map may simply show the boundaries of the area, accompanied by a separate list of the geographies contained in the area.
G. CRA Disclosure Statement
Each federal regulator will be responsible for preparing a CRA disclosure statement that contains, on a state-by-state basis, information relating to various types of loans, in addition to aggregate disclosures on small business and small farm lending.
VI. EFFECT OF CERTAIN CREDIT PRACTICES ON CRA EVALUATIONS
Evidence of discrimination or evidence of credit practices that violate an applicable law, rule or regulation, adversely affects an agency’s evaluation of a bank’s CRA performance. Examples of practices constituting evidence of discriminatory or other credit practices violating an applicable law, rule, or regulation include, but are not limited to: (i) discrimination against applicants on a prohibited basis in violation, for example, of the Equal Credit Opportunity Act or the Fair Housing Act; (ii) violations of the Home Ownership and Equity Protection Act; (iii) violations of Section 5 of the Federal Trade Commission Act; (iv) violations of Section 8 of the Real Estate Settlement Procedures Act; and (v) violations of the Truth in Lending Act provisions regarding a consumer’s right of rescission. CRA regulations also provide that a bank’s evaluation is adversely affected by such practices regardless of whether the practices involve loans in the bank’s assessment area(s) or in any other location or geography.
The regulations further provide that a bank’s CRA evaluation is adversely affected by evidence of discrimination or other illegal credit practices by any affiliate in connection with loans inside the bank’s assessment area(s), if any loans of that affiliate have been considered in the bank’s CRA evaluation. The adverse effect on the bank’s CRA rating of illegal credit practices by an affiliate is limited to affiliate loans within the bank’s assessment area(s) because, under the regulations, a bank may not elect to include as part of its CRA evaluation affiliate loans outside the bank’s assessment area(s).
VII. CONTENT AND AVAILABILITY OF PUBLIC FILE
A. Public File
The public CRA file of each bank must contain the following information:
1. All written comments received from the public for the current year and each of the two prior calendar years that specifically relate to the bank’s performance in helping to meet community credit needs, and any response to the comments by the bank. Comments or responses that reflect adversely on the good name or reputation of any persons other than the bank or those that would violate specific provisions of the law (such as privacy laws) should be deleted;
2. A copy of the public section of the bank’s most recent CRA Performance Evaluation. (The bank must place this copy in the public file within 30 business days after its receipt.);
3. A list of bank’s branches, their street addresses, and geographies;
4. A list of branches opened or closed by the bank during the current year and each of the prior two calendar years, their street addresses, and geographies;
5. A list of services generally offered at the bank’s branches and descriptions of material differences in the availability or cost of services at particular branches, if any. The list of services should include hours of operation, available loan and deposit products and transaction fees.
6. A map of each assessment area showing the boundaries of the area and identifying the geographies contained within the area, either on the map or in a separate list; and
7. Any other information the bank chooses. In addition, small banks must also include in their public files, the bank’s loan-to-deposit ratio for each quarter of the prior calendar year, and, at its option, additional data on its loan-to-deposit ratio. Furthermore, if the bank has elected to be evaluated under the lending, investment and service tests, it must include in its public file the following information pertaining to the bank and its affiliates, if applicable, for each of the prior two calendar years:
1. The number and amount of loans:
a. To low-, moderate-, middle-, and upper-income individuals;
b. Located in low-, moderate-. middle-, and upper income census tracts; and
c. Located inside the bank’s assessment area(s) and outside the bank’s assessment area(s); and
2. The bank’s CRA Disclosure Statement. (The bank shall place the statement in the public file within three business days of its receipt.
Effective January 1, 2018, Regulation C will no longer require financial institutions to provide the HMDA disclosure statement directly to the public. Instead, Regulation C will only require financial institutions to provide a notice that clearly conveys to the public that they can obtain a copy of the financial institution’s disclosure statement on the CFPB’s website. As a result, institutions that are required to report HMDA data will only maintain the notice required under Regulation C in their CRA public file, rather than a copy of the HMDA disclosure statement. Nevertheless, a financial institution must maintain in its public file the HMDA disclosure statements required by the CRA regulations that are not available on the CFPB’s website and, therefore, should not remove HMDA disclosure statements from their CRA public files if that information is not available on the CFPB’s website.
C. Location of Public Information
1. At the main office and, if an interstate bank, at one branch office in each state, all information in the public file; and
2. At each branch:
a. A copy of the public section of the bank’s most recent CRA Performance Evaluation and a list of services provided by the branch; and
b. Within five calendar days of the request, all the information in the public file relating to the assessment area in which the branch is located.
VIII. CRA ASSIGNED RATINGS
Institutions will be assigned one of four statutory ratings: Outstanding; Satisfactory; Needs to Improve; or Substantial Noncompliance. Banks evaluated under the lending, investment and service tests will be rated under each performance area with the outcomes of those performance ratings being weighed within a matrix that considers any evidence of discrimination or other illegal credit practices. The agencies have devised the following ratings matrix for aggregating an institution’s scores on the lending, investment and service tests.
Component Test Ratings
Lending
Service
Investment
Outstanding
High Satisfactory
Low Satisfactory
Needs to Improve
Substantial Noncompliance
12
9
6
3
0
4
1
The number of points needed to achieve each of the four composite assigned ratings is as follows:
Points
Composite Assigned Rating
20 or over
11 through 19
5 through 10
0 through 4
Satisfactory
The foregoing matrix is intended to allow regulators flexibility in adjusting the matrix to prevent unintended results during the examination process.
IX. AFFORDABLE SMALL-DOLLAR LOAN GUIDELINES – CRA CONSIDERATION
A. Introduction
The FDIC has issued guidelines to encourage financial institutions to offer small-dollar credit products that are affordable, yet safe and sound. Such products offered in a responsible, safe and sound manner will warrant favorable Community Reinvestment Act (CRA) consideration.
These guidelines explore several aspects of product development, including affordability and underwriting. They also discuss tools, such as financial education and savings, that may address long-term financial issues that concern borrowers.
B. Features of Responsible, Affordable Small-Dollar Credit Programs
The goal of safe and sound small-dollar credit programs is to provide customers with credit that is both reasonably priced and profitable for the institution. Fundamentally, credit should be provided in a manner that offers borrowers a meaningful opportunity to repay debt based on their circumstances and other outstanding obligations. Where closed-end credit is offered, it should also be structured to be repaid in affordable installments within a specified period. Where open-end credit is offered, products should be structured to require minimum payments of interest and principal that provide for the reduction of the outstanding loan over a reasonable timeframe. New products should be appropriate for the group of customers targeted, as well as compliant with all applicable laws.
Over time, borrowers should be able to improve their credit histories and graduate to other more significant asset-building loans, such as home mortgages and small business loans. Some standard products, such as lines of credit and closed-end installment loans, can be offered with features that make them particularly responsive to borrower needs.
Lenders are encouraged to offer credit products with interest rates and fees that reflect associated risks, but remain affordable. To maintain a reasonable annual percentage rate (APR) and cover administrative and other expenses, an origination fee that bears a direct relationship to origination costs might be assessed. However, to help ensure that borrowers reduce outstanding principal, lenders are encouraged to minimize or eliminate charges such as annual fees, membership fees, advance fees, and prepayment penalties. Pricing may vary depending on the risk profile of the target group. For example, a number of institutions have developed affordable small-dollar credit programs with APRs that range between 12 percent and 32 percent with no or low fees. We encourage lenders to offer small-dollar credit with APRs of 36 percent or less.
Institutions are encouraged to structure payment programs in a manner that fosters the reduction of principal owed. For closed-end products, loans should be structured to provide for affordable and amortizing payments. Open-end products should require minimum payments that pay off principal. However, excessive renewals of a closed-end product, or the prolonged failure to reduce the outstanding balance on an open-end loan, are signs that the product is not meeting the borrower’s credit needs.
Effective small-loan products balance the need for quick availability of funds with the fundamentals of responsible lending. Sound underwriting criteria should focus on a borrower’s ability to repay a loan. Given the small-dollar amounts of each individual loan, documenting the borrower’s ability to repay could be streamlined significantly for existing customers and may only need to include very basic information, such as proof of recurring income. Insured institutions have the advantage of a pre-established relationship with most of the customers who now rely on non-bank lenders for short-term, high-cost credit. Community banks often know their customers’ credit needs because of frequent personal contact and awareness of the local economic situation. Relying on this internally obtained information can be particularly helpful not only in increasing application turnaround, but in assisting consumers with little or no credit history obtain credit that they both need and can repay.
Institutions may also rely on various automated programs that provide information on client usage of the bank’s products and services, generating performance profiles that are useful in underwriting decisions. The use of existing platforms and technologies can lower the cost of providing small-denomination credit and make such programs economically feasible for insured institutions. For example, a bank could establish a line of credit facility at the time a deposit account is opened, to be subsequently activated upon proper maintenance of the deposit account relationship for a specified period, for example, six months. Some financial institutions with successful small-dollar loan programs use existing automated telephone banking systems, in-branch automated underwriting, and online applications for quicker, less expensive service. Finally, voluntary preauthorized transfers may help borrowers make regular payments.
Institutions may consider structuring small-dollar loan programs to include a savings component. For instance, borrowers could be required to set aside a percentage of the amount that they borrow in a designated savings account. The funds in this account can serve as a pledge against the loan, as permitted by law, and withdrawals from the savings account can be restricted to require authorization by a lending official. This approach encourages borrowers to create savings that lessen their reliance on short-term financing to meet unexpected needs. From the institution’s perspective, it helps cultivate a banking relationship in which other financial services can be offered to the customer in the future.
Some banks may choose to combine the borrowers’ funds with matching funds from a nonprofit or public agency through an Individual Development Account.
Collaboration with other financial institutions or organizations, both for-profit and not-for-profit, may assist a financial institution to develop and implement a small-dollar loan program for its community. Some lenders have received grants from larger institutions to create loan loss reserves in an effort to provide more lending power to their small-dollar loan programs. Others rely on referrals from community organizations to identify borrowers. Some have developed alliances with alternative financial service providers in an effort to reach out to the unbanked and underbanked, with the aim of transitioning these individuals to asset-building products and more mainstream banking services.
Improving financial skills can help consumers reduce reliance on short-term credit. Moreover, institutions that monitor borrower use of credit and offer financial counseling or education when signs of financial stress are detected will help them become better bank customers and improve long-term customer relationships. Financial institutions may wish to work with non-profit agencies and organizations that provide financial education training, such as reputable consumer credit counseling agencies. Budget management is an important strategy for borrowers. With it, they can eliminate unnecessary spending and focus their attention on meeting their financial obligations and saving for future expenditures. C. Community Reinvestment Act Consideration for Small Dollar Loan Programs
Establishing a loan program in a bank’s assessment area that provides small, unsecured consumer loans that are consistent with these guidelines would warrant favorable consideration under the CRA as an activity responsive to the credit needs of the community.
D. Applicability of Subprime Lending Guidance to Affordable Small-Dollar Loan Programs
The FDIC recognizes that an affordable small-dollar loan program may target customers who have poor or limited credit histories, or who would otherwise be characterized as subprime borrowers. However, the interagency Expanded Guidance for Subprime Lending Programs limits the definition of subprime lending as a program with an aggregate credit exposure greater than or equal to 25 percent of Tier 1 capital.
Accordingly, affordable small-dollar loan programs that fall under the 25 percent of Tier 1 capital threshold would not be expected to provide the additional capital or robust monitoring and portfolio analysis called for in the Subprime Guidance. Given the nature of affordable small-dollar loan programs, the FDIC expects that such programs typically would fall under this threshold.
E. Conclusion
Affordable small-dollar loans are in demand. Many consumers turn to payday or other lenders because they are accessible and can quickly provide loans. Yet, the inability to repay these short-term, high-cost credit products often exacerbates a customer’s ability to meet cash flow needs. Financial institutions can provide the same service with more appropriate loan terms and at a lower cost, and some institutions have found creative ways to do so. The FDIC encourages institutions to consider opportunities for offering innovative, reasonably priced products that meet this need.
X. FREQUENTLY ASKED CRA COMPLIANCE QUESTIONS AND ANSWERS
In response to significant revisions to the Community Reinvestment Act (CRA) regulations that took effect on September 1, 2005, the Federal Agencies issued informal staff guidance in the form of the following new questions and answers
ACTIVITIES THAT REVITALIZE OR STABILIZE
1. Is the revised definition of community development, effective September 1, 2005, applicable to all banks or only to intermediate small banks?
The revised definition of community development is applicable to all banks
2. Will activities that provide housing for middle-income and upper-income persons qualify for favorable consideration as community development activities when they help to revitalize or stabilize a distressed or underserved nonmetropolitan middle-income geography or designated disaster areas?
An activity that provides housing for middle- or upper-income individuals qualifies as an activity that revitalizes or stabilizes a distressed nonmetropolitan middle-income geography or a designated disaster area if the housing directly helps to revitalize or stabilize the community by attracting new, or retaining existing, businesses or residents and, in the case of a designated disaster area, is related to disaster recovery. The Agencies generally will consider all activities that revitalize or stabilize a distressed nonmetropolitan middle-income geography or designated disaster area, but will give greater weight to those activities that are most responsive to community needs, including needs of low- or moderate-income individuals or neighborhoods. Thus, for example, a loan solely to develop middle- or upper-income housing in a community in need of low- and moderate-income housing would be given very little weight if there is only a short-term benefit to low- and moderate-income individuals in the community through the creation of temporary construction jobs. (A housing-related loan is not evaluated as a “community development loan” if it has been reported or collected by the institution or its affiliate as a home mortgage loan, unless it is a multifamily dwelling loan.)
In underserved nonmetropolitan middle-income geographies, activities that provide housing for middle- and upper-income individuals may qualify as activities that revitalize or stabilize such underserved areas if the activities also provide housing for low- or moderate-income individuals. For example, a loan to build a mixed-income housing development that provides housing for middle- and upper-income individuals in an underserved nonmetropolitan middle-income geography would receive positive consideration if it also provides housing for low- or moderate-income individuals.
ACTIVITIES THAT REVITALIZE OR STABILIZE DISTRESSED OR UNDERSERVED NONMETROPOLITAN MIDDLE-INCOME GEOGRAPHIES
1. What criteria are used to identify distressed or underserved nonmetropolitan middle-income geographies?
Eligible nonmetropolitan middle-income geographies are those designated by the Agencies as being in distress or that could have difficulty meeting essential community needs (underserved). A particular geography could be designated as both distressed and underserved. A geography is a census tract delineated by the United States Bureau of the Census.
A nonmetropolitan middle-income geography will be designated as distressed if it is in a county that meets one or more of the following triggers: (1) An unemployment rate of at least 1.5 times the national average, (2) a poverty rate of 20 percent or more, or (3) a population loss of 10 percent or more between the previous and most recent decennial census or a net migration loss of five percent or more over the five-year period preceding the most recent census. A nonmetropolitan middle-income geography will be designated as underserved if it meets criteria for population size, density, and dispersion that indicate the area's population is sufficiently small, thin, and distant from a population center that the tract is likely to have difficulty financing the fixed costs of meeting essential community needs.
2. How often will the Agencies update the list of designated distressed and underserved nonmetropolitan middle-income geographies?
The Agencies will review and update the list annually as needed. The list will be published on the Federal Financial Institutions Examination Council Web site (http://www.ffiec.gov/ ).
To the extent that changes to the designated census tracts occur, the Agencies have determined to adopt a one-year “lag period.” This lag period will be in effect for the twelve months immediately following the date when a census tract that was designated as distressed or underserved is removed from the designated list. Revitalization or stabilization activities undertaken during the lag period will receive consideration as community development activities if they would have been considered to have a primary purpose of community development if the census tract in which they were located were still designated as distressed or underserved.
3. What activities are considered to “revitalize or stabilize” a distressed nonmetropolitan middle-income geography, and how are those activities evaluated?
An activity revitalizes or stabilizes a distressed nonmetropolitan middle-income geography if it helps to attract new, or retain existing, businesses or residents. An activity will be presumed to revitalize or stabilize the area if the activity is consistent with a bona fide government revitalization or stabilization plan. The Agencies generally will consider all activities that revitalize or stabilize a distressed nonmetropolitan middle-income geography, but will give greater weight to those activities that are most responsive to community needs, including needs of low- or moderate-income individuals or neighborhoods. Qualifying activities may include, for example, providing financing to attract a major new employer that will create long-term job opportunities, including for low- and moderate-income individuals, and activities that provide financing or other assistance for essential infrastructure or facilities necessary to attract or retain businesses or residents.
4. What activities are considered to “revitalize or stabilize” an underserved nonmetropolitan middle-income geography, and how are those activities evaluated?
The regulation provides that activities revitalize or stabilize an underserved nonmetropolitan middle-income geography if they help to meet essential community needs, including needs of low- or moderate-income individuals. Activities such as financing for the construction, expansion, improvement, maintenance, or operation of essential infrastructure or facilities for health services, education, public safety, public services, industrial parks, or affordable housing, will be evaluated under these criteria to determine if they qualify for revitalization or stabilization consideration. Examples of the types of projects that qualify as meeting essential community needs, including needs of low- or moderate-income individuals, would be a new or expanded hospital that serves the entire county, including low- and moderate-income residents; an industrial park for businesses whose employees include low- or moderate-income individuals; a new or rehabilitated sewer line that serves community residents, including low- or moderate-income residents; a mixed-income housing development that includes affordable housing for low- and moderate-income families; or a renovated elementary school that serves children from the community, including children from low- and moderate-income families. Other activities in the area, such as financing a project to build a sewer line spur that connects services to a middle- or upper-income housing development while bypassing a low- or moderate-income development that also needs the sewer services, generally would not qualify for revitalization or stabilization consideration in geographies designated as underserved.
COMMUNITY DEVELOPMENT SERVICE
1. What are examples of community development services?
Examples of community development services include, but are not limited to:
QUALIFIED INVESTMENT
1. When evaluating a qualified investment, what consideration will be given for prior-period investments?
When evaluating a bank’s qualified investment record, examiners will consider investments that were made prior to the current examination, but that are still outstanding. Qualitative factors will affect the weighting given to both current period and outstanding prior-period qualified investments. For example, a prior-period outstanding investment with a multi-year impact that addresses assessment area community development needs may receive more consideration than a current period investment of a comparable amount that is less responsive to area community development needs.
2. What are examples of qualified investments?
Examples of qualified investments include, but are not limited to, investments, grants, deposits or shares in or to:
SMALL BANK ADJUSTMENT
1. How often will the asset size thresholds for small banks and intermediate small banks be changed, and how will these adjustments be communicated?
The asset size thresholds for “small banks” and “intermediate small banks” will be adjusted annually based on changes to the Consumer Price Index. More specifically, the dollar thresholds will be adjusted annually based on the year-to-year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted for each twelve-month period ending in November, with rounding to the nearest million. Any changes in the asset size thresholds will be published in the Federal Register.
SMALL BANK PERFORMANCE STANDARDS
1. When evaluating a small or intermediate small bank's performance, will examiners consider, at the institution's request, retail and community development loans originated or purchased by affiliates, qualified investments made by affiliates, or community development services provided by affiliates?
Yes. However, a small institution that elects to have examiners consider affiliate activities must maintain sufficient information that the examiners may evaluate these activities under the appropriate performance criteria and ensure that the activities are not claimed by another institution. The constraints applicable to affiliate activities claimed by large institutions also apply to small and intermediate small institutions. Examiners will not include affiliate lending in calculating the percentage of loans and, as appropriate, other lending-related activities located in a bank's assessment area.
INTERMEDIATE SMALL BANK COMMUNITY DEVELOPMENT TEST
1. How will the community development test be applied flexibly for intermediate small banks? Generally, intermediate small banks engage in a combination of community development loans, qualified investments, and community development services. A bank may not simply ignore one or more of these categories of community development, nor do the regulations prescribe a required threshold for community development loans, qualified investments, and community development services. Instead, based on the bank's assessment of community development needs in its assessment area(s), it may engage in different categories of community development activities that are responsive to those needs and consistent with the bank's capacity.
An intermediate small bank has the flexibility to allocate its resources among community development loans, qualified investments, and community development services in amounts that it reasonably determines are most responsive to community development needs and opportunities. Appropriate levels of each of these activities would depend on the capacity and business strategy of the bank, community needs, and number and types of opportunities for community development.
COMMUNITY DEVELOPMENT SERVICES UNDER INTERMEDIATE SMALL BANK COMMUNITY DEVELOPMENT TEST
1. What will examiners consider when evaluating the provision of community development services by an intermediate small bank?
Examiners will consider not only the types of services provided to benefit low- and moderate-income individuals, such as low-cost bank checking accounts and low-cost remittance services, but also the provision and availability of services to low- and moderate-income individuals, including through branches and other facilities located in low- and moderate-income areas. Generally, the presence of branches located in low- and moderate-income geographies will help to demonstrate the availability of banking services to low- and moderate-income individuals.
RESPONSIVENESS TO COMMUNITY DEVELOPMENT NEEDS UNDER INTERMEDIATE SMALL BANK COMMUNITY DEVELOPMENT TEST
1. When evaluating an Intermediate Small Bank’s community development record, what will examiners consider when reviewing the responsiveness of community development lending, qualified investments, and community development services to the community development needs of the area?
When evaluating an Intermediate Small Bank’s community development record, examiners will consider not only quantitative measures of performance, such as the number and amount of community development loans, qualified investments, and community development services, but also qualitative aspects of performance. In particular, examiners will evaluate the responsiveness of the bank’s community development activities in light of the bank’s capacity, business strategy, the needs of the community, and the number and types of opportunities for each type of community development activity (its performance context). Examiners also will consider the results of any assessment by the institution of community development needs, and how the bank’s activities respond to those needs.
Subsequent to issuance of the informal staff guidance by the federal banking agencies in 2005, the agencies issued “Interagency Questions and Answers Regarding Community Reinvestment.” In 2010, the Agencies issued a series of new and revised Questions and Answers that can be found at www.ffiec.gov/cra/pdf/2010-4903.pdf. On November 20, 2013, the agencies issued revisions that focus primarily on community development. Community development activities are considered as part of the CRA performance tests for large institutions, intermediate, small institutions, and whole sale and limited purpose institutions. Small institutions may use community development activity to receive consideration toward an outstanding CRA rating. Among other things, the amendments:
The most recent revisions to the “Interagency Questions and Answers Regarding Community Reinvestment” can be found at www.ffiec.gov/cra/qnadoc.htm.