Community Reinvestment Act “CRA” An Overview John Meeks FDIC Community Affairs.

Community Reinvestment Act “CRA”

An Overview

John Meeks

FDIC

Community Affairs

1936 Home Owners Loan Corp map of Philadelphia

Summary of CRA

Legislation passed in 1977Requires 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

CRA Ratings

Outstanding Satisfactory Needs to Improve Substantial Noncompliance

Public Disclosure

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 OnlyStrategic Plan

• All institutions

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 billionHolding company size not a factor

Small Bank Performance Criteria

Loan to Deposit RatioLoans Inside Assessment AreaGeographic DistributionIncome DistributionResponse to Complaints

Intermediate Small Bank Performance Criteria

Small bank factors plusA single rating factor that includes the level of

qualified Community Development loans, investments and services.

Large Bank Performance Criteria

Lending Test Investment Test Service Test

Revised CRA Regulation

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

Major Changes of Regulation

Adds new element to definition of Community Development

Original elements:Affordable Housing Community ServiceSmall business/farm financingActivities that revitalize or stabilize low- or moderate-

income geographies.

Major Changes of Regulation

New elements added to “Activities that revitalize or stabilize”Designated Disaster AreasDistressed or underserved non-metropolitan

middle-income geographies.

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


DistressedUnemployment >1.5X national average orPoverty rate of 20% or morePopulation loss of 10% or more between last

two censuses orPopulation loss of 5% or more over 5 year

period preceding most recent census


UnderservedLow 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.


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


ISB’s need not :collect and report CRA loansCollect 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)


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


Effects of Change on ISB’s

ISB’s 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


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


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.


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.


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 bank’s lending performance, loans in the Assessment Area can adversely affect the rating.


Examples provided of practices that can be considered in CRA ratingDiscrimination against applicants on a prohibited basis

in violation of ECOA or FHA Illegal referral practices in violation of Section 8 of

RESPAViolations of Truth in Lending relating to the

customers right of rescission.Violations of Home Ownership and Protection ActEvidence of unfair and deceptive credit practices under

Section 5 of the Federal Trade Commission Act

The End

Division of Supervision and Consumer Protection

Community Reinvestment Act “CRA” An Overview John Meeks FDIC Community Affairs.

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