Community Reinvestment Act

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Community Reinvestment Act CRA An Overview

• John Meeks
• FDIC
• Community Affairs

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1936 Home Owners Loan Corp map of Philadelphia
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Summary of CRA

• Legislation passed in 1977
• Requires supervisory agencies to
• Encourage financial institutions to help meet
  credit needs of local communities
• Assess the institutions records of meeting those
  needs
• Consider CRA records when evaluating applications
  for acquisitions, mergers, branches, relocations,
  and deposit insurance

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CRA Ratings

• Outstanding
• Satisfactory
• Needs to Improve
• Substantial Noncompliance
• Public Disclosure

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CRA Examination Procedures

• Small Bank Test
• Total assets less than 250 million
• Large Bank Test
• Total assets 250 million or more
• Holding company 1 billion or more
• Community Development Test
• Wholesale or Limited Purpose Only
• Strategic Plan
• All institutions

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As of September 1, 2005 Intermediate Small Bank
(ISB)

• Total assets originally 250 million to less than
  1 billion
• For 2009 277 million to 1.109 billion
• Holding company size not a factor

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Small Bank Performance Criteria

• Loan to Deposit Ratio
• Loans Inside Assessment Area
• Geographic Distribution
• Income Distribution
• Response to Complaints

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Intermediate Small Bank Performance Criteria

• Small bank factors plus
• A single rating factor that includes the level of
  qualified Community Development loans,
  investments and services.

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Large Bank Performance Criteria

• Lending Test
• Investment Test
• Service Test

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Revised CRA Regulation

• When? Effective September 1, 2005
• Why? To reduce regulatory burden

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Major Changes of Regulation

• Adds new element to definition of Community
  Development
• Original elements
• Affordable Housing
• Community Service
• Small business/farm financing
• Activities that revitalize or stabilize low- or
  moderate- income geographies.

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Major Changes of Regulation

• New elements added to Activities that revitalize
  or stabilize
• Designated Disaster Areas
• Distressed or underserved non-metropolitan
  middle-income geographies.

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Major Changes to Regulation

• Disaster Areas
• Designation as Disaster Area by appropriate
  Federal or State agency, such as FEMA.
• The disaster designation for CRA ends when area
  no longer a disaster area.
• Significant weight given to revitalizing
  activities that benefit low- and moderate income
  individuals

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Major Changes to Regulation

• Distressed
• Unemployment gt1.5X national average or
• Poverty rate of 20 or more
• Population loss of 10 or more between last two
  censuses or
• Population loss of 5 or more over 5 year period
  preceding most recent census

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Major Changes to Regulation

• Underserved
• Low population size, density and dispersion
  indicate
• Areas population is sufficiently small, thin and
  distant from population center that the tract is
  likely having difficulty financing fixed costs of
  meeting community needs.

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Major Changes to Regulation

• Eligible underserved tracts will be designated by
  the Agencies based on urban influence codes
  maintained by the Economic Research Service
• Eligible underserved tracts will be published on
  FFIEC website

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Major Changes to Regulation

• ISBs need not
• collect and report CRA loans
• Collect and report information on location of
  mortgage loans outside an MSA in which bank has
  home or branch office or any other MSA (as it is
  now for small banks under HMDA)

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Major Changes to Regulation

• Agencies will continue to evaluate CRA and
  non-metropolitan mortgage loans if it
  constitutes a major product line of the bank

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Major Changes to Regulation

• Effects of Change on ISBs
• ISBs will be able to apply resources
  strategically to the types of Community
  Development activities (loans, investments,
  services) that are most responsive to the
  community need

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Major Changes to Regulation

• The innovation and complexity of Community
  Development activities are not a weighting factor
  as with large banks

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Major Changes to Regulation

• The regulation does not imply that a bank may
  ignore one or more category or arbitrarily
  decrease previous activity level, but there is no
  required threshold for allocation between the CD
  activities. A bank may focus on meeting the CD
  needs without undue regulatory consequences from
  the form of response.

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Major Changes to Regulation

• Discrimination or illegal credit practices
• The old regulation stated that evidence of
  discriminatory or other illegal credit practices
  effects a CRA performance rating.
• The new regulation provides more detail.

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Major Changes to Regulation

• Discrimination or illegal credit practices
• The discriminatory or illegal credit practice
  need not be in the Assessment Area to be an
  adverse factor in CRA rating.
• For affiliate loans considered in the banks
  lending performance, loans in the Assessment Area
  can adversely affect the rating.

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Major Changes to Regulation

• Examples provided of practices that can be
  considered in CRA rating
• Discrimination against applicants on a prohibited
  basis in violation of ECOA or FHA
• Illegal referral practices in violation of
  Section 8 of RESPA
• Violations of Truth in Lending relating to the
  customers right of rescission.
• Violations of Home Ownership and Protection Act
• Evidence of unfair and deceptive credit practices
  under Section 5 of the Federal Trade Commission
  Act

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The End
Division of Supervision and Consumer Protection