Minor facelift for CRA

The Comptroller’s Office, Federal Reserve, and FDIC recently published a new set of updates to the Interagency Questions and Answers Regarding Community Reinvestment Act, the first update in three years. 

Depending on how you’re counting, this set of updates tallies nine revised and five new questions and answers. In addition, there are several other changes to existing Q&As that are strictly technical in nature and don’t make any substantive change.

Broader explanations

Some of the revised and new Q&As involve the addition of more examples to illustrate the type of activity being described in the answers.

For example, take Q.22(b)(5)–1, which describes what examiners consider in evaluating the innovativeness or flexibility of an institution’s lending under the large institution’s Lending Test. This has been updated to add more examples relating to small-dollar loan programs with reasonable terms and underwriting standards that use alternative credit histories, such as utility or rent payments.

The list of examples of Community Development Loans under Q.12(h)-1 was expanded to include the example of a loan program to finance renewable energy; energy efficient or water conservation equipment; or projects that support the development, rehabilitation, improvement, or maintenance of affordable housing or community facilities for low- or moderate-income individuals.

Projects financing new or rehabilitated communications infrastructure (such as broadband internet service) or flood control measures that serve the community, including low- and moderate-income residents, were added to the list of examples in Q.12(g)(4)(iii)-4 of projects that would qualify for consideration as activities that can be considered to revitalize or stabilize an underserved nonmetropolitan middle-income geography.

More on community development

Several revised and one new Q&A deal with the definition of community development.

Workforce development and job training programs targeted to low- or moderate-income individuals have been added to the list of examples of community development activities that promote economic development and thereby meet the “purpose test” for a community development loan, service, or investment.

Economic development activities

Q&A .12(g)(3)-1 was also revised to expand the examples of activities that promote economic development under the community development definition.

Activities that support permanent job creation, retention, and/or improvement for low- or moderate-income individuals in low- or moderate-income geographies by financing intermediaries that lend to, invest in, or provide technical assistance to start-up or recently formed small businesses or small farms would be considered community development activities.

Loans to Community Development Financial Institutions that finance small businesses or small farms have been added to the list of loans, services, and investments that are presumed by the regulators to be community development qualified.

More help on service test

Two of the new Q&As that were added provide some guidance on how examiners evaluate community development services and retail banking services under the large institution Service Test.

Question .24(e)-2 advises that examiners consider both quantitative and qualitative aspects of community development services.

• Quantitative factors would include the number of low- or moderate-income participants in the service or organizations served by the service; how many sessions the institution sponsored; and the number of staff hours that were devoted to the service.

• Qualitative factors would include the innovativeness of the service and the degree to which the service is responsive to the community needs. In evaluating retail banking services, examiners would consider the availability and effectiveness of the institution’s systems for delivering banking services, particularly to low- and moderate-income individuals and communities, as well as the degree to which the services are tailored to meet the needs of low to moderate income geographies and individuals.

Examples listed in new Q&A.24(a)- include low-cost deposit accounts; free or low-cost government, payroll, or other check cashing services; and reasonably priced international remittance services.

Considering nontraditional delivery

Question .24(d)(3)-1 was revised to provide more guidance on how examiners evaluate alternative delivery systems for retail banking services.

The Q&A now lists factors that the examiners may look at when evaluating whether alternative delivery systems represent an effective means of delivering retail banking services in low- and moderate-income geographies and to low- and moderate-income individuals.

One such factor is the cost of the service to consumers as compared with the institution’s own other delivery systems.

The agencies decided not to include as a factor cost comparisons with other institutions’ delivery systems as some commenters wanted.

However, the Q&A does clearly signal that the agencies expect that institutions will be able to demonstrate some type of cost advantage to the consumer in alternative delivery systems, at least in comparison with the institution’s own products and delivery systems.

However, cost wasn’t the only factor that the examiners will consider. Ease of use, ease of access, and reliability are also considered. The examiners will consider any information that the institution makes available for consideration of not only alternative delivery systems availability, but also of their actual use by low and moderate income individuals.

What do you think about the changes and clarifications? Are they helpful to your institution? If so, how? Tell me in the comment space below.