Proposed Revisions to Community Reinvestment Act (CRA) Guidance Focus on Community Development Activities of Depository Institutions

Last week the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (Agencies) published a request for comments on proposed revisions to the “Interagency Questions and Answers Regarding Community Reinvestment.” The Questions and Answers provide guidance to financial institutions and the public on the Agencies’ Community Reinvestment Act (CRA) regulations.

The proposed revisions are notable because as they primarily focus on the community development activities of depository institutions, which are considered as part of CRA performance tests for institutions both large and small.  Additionally, small institutions may use community development activities to receive consideration toward an outstanding CRA rating.

First enacted by Congress in 1977, the purpose of the Community Reinvestment Act (CRA) is to encourage depository institutions to “help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations.”  Today, CRA requires that all insured depository institution be periodically evaluated by federal regulators to assess the record of lending and investment by these financial institutions in the low- and moderate-income communities they serve.

CRA also helps to ensure that these institutions are accountable to the communities these serve.  According to the National Community Reinvestment Coalition (NCRC), if a regulator finds that an institution is not serving these communities, the regulator can delay or deny that institution’s request to merge with another lender or to open a branch or expand any of its other services.  The regulator can also conditionally approve a merger subject to specific improvements in that institution’s lending or investment record in low- and moderate-income communities.  Further, community groups can get involved in the CRA evaluation process, including offering written comments to regulators on how well their local financial institution is serving the needs of low- and moderate-income communities.

According to the OCC, the proposed amendments to the Questions and Answers would provide additional clarification and guidance on:

• How the Agencies consider community development activities that benefit a broader statewide or regional area that includes an institution’s assessment area
• The consideration of, and documentation associated with, investments in nationwide funds
• The consideration given to certain community development services
• The treatment of qualified investments to organizations that use only a portion of the investment to support a community development purpose
• How community development lending should be evaluated in such a way that it may have a positive, neutral, or negative impact on the large institution lending test rating

The impact of CRA lending in local communities is significant.  In his recent remarks at the at the National Community Reinvestment Coalition’s annual conference, Comptroller of the Currency Thomas J. Curry noted that in 2011, banks originated nearly $47 billion in community development loans, with large banks providing 97% of these loans.  Further, Curry discussed how the proposed revisions are part of larger efforts to adapt to changes in the banking industry and “improve the administration of CRA and provide clearer guidance so that bankers can better understand how to meet their obligations under CRA.”

Additional information on the CRA, including the Questions and Answers and the Agencies’ CRA regulations can be found on the FFIEC website.  Depository institutions as well as members of the public are encouraged to submit any comments on the proposed revisions online via the Federal Register website by May 17, 2013.

If your organization is a regulated financial institution, how would the revised guidelines impact your community development lending and activities?  What additional clarifications and guidelines on community development activities should be added to the proposed revisions to ensure that banks are accountable to their local communities?

CDFI Fund Announces Interim Rule on the CDFI Bond Guarantee Program

The CDFI Fund has released the long-anticipated interim rule on the CDFI Bond Guarantee Program.  The interim rule was published in the Federal Register on Tuesday, February 5 and the CDFI Fund seeks public comment on the rule through April 8, 2013, at which time the rule will go into effect.

The CDFI Bond Program was originally established by the Small Business Jobs Act of 2010 and directs the Treasury Department to guarantee the full amount of bonds or notes issued to support CDFIs that make investments for eligible community or economic development purposes.  The bonds or notes will support CDFI lending and investment by providing a source of low-cost, long-term capital to CDFIs.

The Treasury may guarantee up to 10 bonds per year, each at a minimum of $100 million, but the total of all bonds cannot exceed $1 billion per year; the program is currently authorized through fiscal year 2014.  Eligible uses of the bond or note proceeds include various uses of financial assistance authorized under the Riegle Act, as well as the provision of community or economic development in ‘‘low-income or underserved rural areas’’ (complete definitions of eligible uses can be found in the rule).

Many FUND Consulting clients are pleased to see that implementation is moving forward, and we look forward to seeing the Bond Program deliver on its promise of injecting new and substantial capital into low-income and underserved communities.  If your CDFI is interesting in learning more about the Bond Program, a copy of the presentation from the information sessions held last month is now available on the CDFI Fund’s website.  Additionally, the CDFI Fund will be holding a series of application workshops and webinars in the coming months.

How would the Bond Program impact your CDFI?  Does your organization plan to participate in the program?