Recently, the federal banking agencies—the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation—issued revisions to Interagency Questions and Answers Regarding Community Reinvestment (the Interagency Q&A), originally issued in the mid-1990s and most recently amended in 2010. The new revisions, which became effective November 20, 2013, provide insured depository institutions (IDIs) and their holding companies with additional guidance on the agencies' Community Reinvestment Act (CRA) regulations. Aside from these revisions, the prior Q&As otherwise continue to apply.
The focus of the recent revisions is primarily on community development lending (CDL) and other community development activities. Depository institutions can receive CRA credit for community development activities. Among other things, the revisions are intended to provide clarification and additional guidance in the following areas:
How the regulators view community development activities benefiting a broader statewide or regional area that includes an IDI's assessment area
CRA consideration of, and documentation associated with, investments in nationwide funds
CRA consideration of certain community development services, such as service on a community development organization's Board of Directors
Treatment of loans to or investments in organizations that, in turn, invest those funds and use only a portion of the income from their investment to support a community development purpose
For large IDIs, the application of CDL performance to the "lending test" rating under the agencies' CRA regulations
Statewide or Regional Areas
This standard has been simplified a bit. It now requires only that examiners consider the IDI's community development activities in all statewide and regional geographies in which the IDI has its footprint. The revised standard applies even if these activities do not directly benefit the IDI's assessment area(s), provided the IDI has been responsive to community needs and opportunities in the latter.
The assessment area is defined in agency regulations to include metropolitan statistical areas (MSAs) and one or more political subdivisions (e.g., towns, cities, counties) where the IDI maintains its headquarters, branches, and ATMs, and where it makes (or has purchased) mortgage, small business, small agricultural, and consumer loans. In addition, the agencies now acknowledge that a regional area may be wholly intrastate but may also cross one or more state lines, as long as it encompasses the IDI's assessment area(s).
This has been streamlined. An IDI may receive CRA credit for investments in a nationwide fund that benefits the IDI's assessment area(s) or the broader statewide or regional geography that encompasses such assessment area(s). Previous requirements of side letters and earmarking have now been eliminated; they are permissible but no longer required. Finally, the agencies considered but declined to adopt a separate CRA category for investments in national funds.
Community Development Service
CRA credit for community service targeted to low- and moderate-income (LMI) individuals now includes services to:
Students and their families from a school at which the majority of students qualify for free or reduced-price meals
Individuals who receive or are eligible to receive Medicaid
Recipients of government assistance from programs that have income qualifications equivalent to, or stricter than, the definitions of LMI in the CRA regulations (e.g., HUD section 8)
In addition, consideration as a community development service will be given for service on the board of directors of an organization engaged in community development activities.
CRA consideration is given to investments or loans made to an organization primarily engaged in community development. If the organization invests the proceeds in instruments that do not have the primary purpose of community development (e.g., Treasury securities) and only uses that investment income for that purpose, then only the latter amount will receive consideration by the examiners. On the other hand, if the investment in the instrument is intended to secure capital for leveraging purposes, to secure additional financing, or to generate a return with minimal risk until funds can be deployed toward the originally intended community development purpose, more positive consideration by the examiners is likely.
CDL in the 'Lending Test' Applicable to Large IDIs
A new Q&A explicates that a large IDI's record of making community development loans may have a positive, neutral, or negative impact on the "lending test" rating. A strong record in retail lending may counterbalance weak performance in CDL, and vice versa. Moreover, the agencies have clarified that CDL is not mandatory in all of an IDI's assessment areas; examiners will consider the lack of CDL in a particular assessment area within the context of the environment (e.g., economic, demographic, and competitive factors) in which the IDI operated during the evaluation period.