The federal banking agencies on July 15 issued interagency questions and answers regarding the Community Reinvestment Act (CRA), offering guidance to help regulated financial institutions meet the credit needs of their entire communities.
The Q&A, issued by the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC), addressing alternative systems for delivering retail banking services; community development-related issues; and the qualitative aspects of an institution’s performance, including innovative or flexible lending practices and the responsiveness and innovativeness of an institution’s loans, qualified investments and community development services.
The agencies’ Q&As are intended to provide guidance on the interpretation and application of the CRA regulations to agency personnel, financial institutions and the public. They first published questions and answers in 1996. The last full Q&A was published in 2010, but some revisions were made in 2013. This new guidance, proposed in 2014, supersedes the 2010 and 2013 Q&As and is effective immediately. As always, the agencies will provide training and outreach for examiners, bankers and other interested parties.
The new and revised guidance addresses questions raised by bankers, community organizations and others regarding the agencies’ CRA regulations in the following areas:
- Availability and effectiveness of retail banking services: To ensure that intermediate and small institutions continue to receive consideration under their community development test for retail banking services that increase access by, or reduce costs for, low- or moderate-income individuals, the agencies will consider services such as electronic benefit transfer accounts, individual development accounts and free or low-cost government, payroll or other check cashing services as retail services when evaluating the provision of community development services.
- Innovative or flexible lending practices: The agencies said alternative credit histories should be used to evaluate low- or moderate-income individuals who lack sufficient conventional credit histories and who would be denied credit based on the institution’s traditional underwriting standards. However, although many financial institutions have used innovative or flexible lending practices, such as a small-dollar loan program or consideration of alternative credit histories, to customize loans to their customers’ specific needs in a safe and sound manner and consistent with statutes, regulations and guidance, such practices are not required to obtain a specific CRA rating.
- Community development-related issues: The definition of “community development” provides that activities that help meet “essential community needs” revitalize and stabilize underserved nonmetropolitan, middle-income geographies. In addition, the agencies clarified that “financing for the construction, expansion, improvement, maintenance or operation of essential infrastructure” may qualify for revitalization or stabilization consideration; financial institutions may receive consideration for a community development activity, such as a qualified investment, if it serves a similar community development purpose as an activity described in an example related to a different type of community development activity, such as a community development loan; and to demonstrate that activities related to a renewable energy facility or project have a primary purpose of community development, an institution may provide a copy of the contractual agreement, such as a lease, power purchase agreement or energy service contract, that allocates energy or otherwise reduces energy cost to benefit affordable housing or a community facility that serves low- or moderate-income individuals.
- Responsiveness and innovativeness of an institution’s loans, qualified investments and community development services: When considering whether an institution has been responsive to community development needs and opportunities in its assessment area, examiners will consider all of the institution’s community development activities in the assessment area; examiners also will consider as responsive to assessment area needs community development activities that support an organization or activity that covers an area that is larger than, but includes, the institution’s assessment area.
Regarding “innovativeness,” or one of several qualitative considerations under the lending, investment and service tests, the agencies said the use of innovative lending practices may augment the consideration given to an institution’s performance under the quantitative criteria, resulting in a higher performance rating. Innovative practices need to be responsive to community needs, but are not required if existing products, services or delivery systems effectively address the needs of all segments of the community.
Finally, the agencies replaced current references to “market leader” with “leaders in innovation” and explained that some financial institutions may not be leaders in innovation “due to, for example, available financial resources or technological expertise.”
The full 220 pages of the Q&A can be viewed here.