IBA Compliance Connection

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Our cash management department would like to offer a discount to a nonprofit organization with a mission consistent with the Community Reinvestment Act (CRA). Would we receive CRA credit under the large institution service test for providing discounted cash management services? We cannot find definitive guidance or precedent to make our case.

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As you noted, there is no definitive guidance on how discounted cash management services would be characterized in the context of a CRA regulatory evaluation. The service test is not a mathematical test and does not lend itself to an easy “cook book” approach. 

Here, you would have to show that by providing discounted cash management services, your bank is providing “community development services.” The Interagency Q&As Regarding Community Reinvestment may help you make your case; the Q&As provide some concrete examples of community development services, including “technical assistance on financial matters” provided to certain nonprofits. Among the examples of technical assistance activities are “contributing accounting/bookkeeping services . . . [and] providing services reflecting a financial institution's employees’ areas of expertise . . . .”

While the Q&As do not mention discounts or fee waivers, you could argue that by providing discounted cash management services, you are at least assisting the nonprofit organization by decreasing the cost of its financial services. However, it is unlikely that you will receive the same amount of CRA credit as you would for contributing services outright or providing an employee’s services directly to the nonprofit.

Your regulator may be interested in how creative and unique your approach is to community development service and whether this discount program fits into other strategies that the bank is employing to otherwise provide loans, investments and services to low- and moderate-income communities. For example, we believe it would strengthen your case if the bank also is lending to or investing in projects that the nonprofit is sponsoring.

For resources related to our guidance, please see:

  • Interagency Q&As Regarding Community Reinvestment, Section 12(i) (“Examples of community development services include, but are not limited to, the following: Providing technical assistance on financial matters to nonprofit, tribal, or government organizations serving low- and moderate-income housing or economic revitalization and development needs; Providing technical assistance on financial matters to small businesses or community development organizations, including organizations and individuals Start Printed Page who apply for loans or grants under the Federal Home Loan Banks' (FHLB) Affordable Housing Program; Lending employees to provide financial services for organizations facilitating affordable housing construction and rehabilitation or development of affordable housing; . . .”)

  • Interagency Q&As Regarding Community Reinvestment, Section 12(i) (“Examples of technical assistance activities that are related to the provision of financial services and that might be provided to community development organizations include: . . . contributing accounting/bookkeeping services; . . . and providing services reflecting a financial institution’s employees’ areas of expertise at the institution, such as human resources, information technology, and legal services.”)