On Thursday, July 17, 2014, the federal banking agencies held a webinar on the revisions made to the November 2013 Interagency Questions and Answers Regarding Community Reinvestment that were issued on November 15, 2013, and the revised Interagency Large Institution CRA Examination Procedures that were issued on April 18, 2014. The webinar was recorded and can be viewed on the Philadelphia Fed webpage. For more information about the Community Reinvestment Act, check out our Community Reinvestment Act Topic Page.
General Overview
In the webinar, staff from the OCC, FDIC, and the FRB reviewed the 2013 revisions to the Interagency Q&As. As the speakers noted, the 2013 Q&As supplement the 2010 CRA Q&As, so we have to view both the 2010 and the 2013 versions to review the full list of Q&As. The speakers highlighted the two new Q&As and the five revised Q&As, which cover topics such as activities in the broader statewide or regional area (BSRA), the meaning of “regional area,” investments in nationwide funds, community services, and CD services. The speakers also mentioned the Interagency Large Institution CRA Examination Procedures in a brief discussion. The final thirty minutes of the webinar were reserved for audience questions, and the speakers answered over twenty-five questions.
Commentary on the Revised and New Q&As
§ _.12(h)-6: CD Activities in the BSRA
This Q&A addresses when community development activities in the BSRA will be considered for purposes of a bank’s CRA evaluation. Community development activities in the BSRA that do not benefit the bank’s assessment area may still enhance the bank’s performance if the bank is responsive to the needs within its assessment area. In determining responsiveness to the assessment area, examiners will analyze (1) responsiveness to needs and opportunities, (2) activities that have a direct benefit, and (3) activities with a purpose, mandate, or function that includes serving the assessment area. The examiners will also consider the performance context. The speakers noted that activities in the BSRA are always considered if there is a direct benefit to the bank’s assessment area, or the purpose, mandate, or function is to serve the assessment area.
This Q&A clarifies the definition of “regional area,” which may include an intrastate area or a multistate area that includes the bank’s assessment area. The speakers noted that commonly accepted “regional area” descriptions include the “tri-county area” or “Mid-Atlantic states,” with specific examples of regional areas.
§ _.23(a)-2: Qualified Investments in Nationwide Funds
This Q&A provides examples of qualified investments in nationwide funds. If a financial institution has no interstate branches and does not provide documentation to demonstrate the benefits of the investment on the assessment area or the BSRA, the investment will not be considered during the CRA evaluation. The speakers pointed out that assessment areas are the primary focus of a CRA evaluation. Although documentation is not required for consideration, the agencies encourage financial institutions to provide documentation to support their national fund investments.
§ _.12(g)(2)-1: Community Services Targeted to Low- or Moderate-Income Individuals
This Q&A adds two proxies for determining whether the beneficiaries of community services were low- or moderate-income individuals: (1) if the service is provided to students or their families where a majority of students at the school qualify for free or reduced-price meals under the USDA’s National School Lunch Program and (2) if the community service is targeted to individuals who receive or are eligible to receive Medicaid. A question was later asked about whether financial institutions are required to use these two proxies — the speakers responded that using the proxies is not required, but they serve as accepted methods to demonstrate a financial institution’s community development efforts. Banks should be prepared to demonstrate that other proxies they use meet income qualifications. Another question asked whether the first proxy would apply where the majority of students in an entire school district took free or reduced-price meals, and the speakers responded that the first proxy could be used only if a specific school had a majority of students taking free or reduced-price meals.
§ _.12(i)-3: Examples of Community Development Services
This Q&A provides additional examples of services that financial institutions and their employees can provide to community development organizations that will qualify as community development services. For example, an employee of a financial institution that works in human resources may provide career support services such as mock interviews and consultations through a community development organization.
§ _.12(t)-9: Types of Investments
This Q&A distinguishes investments where the entire investment is used to support a community development organization and investments where the income from the investment is used to support a community development organization. For those investments where only income supports community development, an institution will receive CRA credit only for those income amounts — not for the full investment.
§ _.22(b)(4)-2: Community Development Lending
This Q&A clarifies how much weight is given to community development lending in an evaluation. Strong retail lending performance can compensate for weak community development lending performance, and vice versa. Additionally, the speakers stated that there is no mandate to lend in all assessment areas, and examiners will consider an institution’s particular context when weighing the lending component of a CRA evaluation.
Question & Answer Session
The staff answered over twenty-five questions about the 2013 Q&As. Below are a few questions that caught our attention.
Do the Q&As apply retroactively?
Answer: The speakers did not specifically state that the Q&As will apply retroactively. They said that because the Q&As only clarify guidance, they do not change the agency’s CRA policies. They did say that examiners are trained for consistency going forward.
How can you identify low- and middle-income areas or individuals?
Answer: The various federal banking agencies have lists of such areas on their websites.
How can a bank receive consideration for its directors’ services? Additionally, how can a bank demonstrate that the director is acting on behalf of the bank?
Answer: The bank should document that the bank has asked the director to represent the bank. A bank can also list the director as representing the bank in various materials, or the organization could provide a letter validating the bank’s contribution through the director’s service. This guidance applies to service hours of any bank employee.
What type of documentation do the agencies want to see from financial institutions to document their community development service?
Answer: There are no standardized forms that institutions are required to use to document their community development activities. Often, financial institutions provide promotional materials and brochures about fundraising activities and volunteering services as evidence of their community development activities. Additionally, documents from specific loans or investments may be used.
Do the Q&A restrictions on investments where only the income is used apply to community loans with similar characteristics?
Answer: Yes, the guidance applies to investments and loans. An organization must express a bona fide intent to deploy the funds from investments and loans in a manner that primarily serves a community development purpose in order for a financial institution to receive credit under the applicable test.
Will a bank receive the most CRA credit for community development activities performed within their assessment area?
Answer: It depends. An examiner will first look at what the financial institution does in its assessment area. The next step is to look at the activities performed in the BSRA that could benefit the assessment area. If the financial institution has been responsive within its assessment area, then examiner may also consider activities in the BSRA that do not benefit the financial institution’s assessment area. An activity that is outside of the assessment area could have an even greater impact than an activity that is in the assessment area. It will depend on performance context factors and the activities themselves.