community reinvestment act “cra” an overview john meeks fdic community affairs
Post on 26-Dec-2015
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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 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.
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
Major Changes to Regulation
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
Major Changes to Regulation
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.
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
Major Changes to Regulation
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)
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
Major Changes to Regulation
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
Major Changes to Regulation
The “innovation” and “complexity” of Community Development activities are not a weighting factor as with large banks
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.
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.
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 bank’s lending performance, loans in the Assessment Area can adversely affect the rating.
Major Changes to Regulation
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
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