Community Reinvestment Act “CRA” An Overview

1. Community Reinvestment Act “CRA” An Overview John Meeks FDIC Community Affairs

2. 1936 Home Owners Loan Corp map of Philadelphia

3. Summary of CRA • Legislation passed in 1977 • Requires 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

4. CRA Ratings • Outstanding • Satisfactory • Needs to Improve • Substantial Noncompliance Public Disclosure

5. 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 Only • Strategic Plan • All institutions

6. 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 billion • Holding company size not a factor

7. Small Bank Performance Criteria • Loan to Deposit Ratio • Loans Inside Assessment Area • Geographic Distribution • Income Distribution • Response to Complaints

8. Intermediate Small Bank Performance Criteria • Small bank factors plus • A single rating factor that includes the level of qualified Community Development loans, investments and services.

9. Large Bank Performance Criteria • Lending Test • Investment Test • Service Test

10. Revised CRA Regulation • When?EffectiveSeptember 1, 2005 • Why?To reduce regulatory burden

11. Major Changes of Regulation Adds new element to definition of Community Development • Original elements: • Affordable Housing • Community Service • Small business/farm financing • Activities that revitalize or stabilize low- or moderate- income geographies.

12. Major Changes of Regulation • New elements added to “Activities that revitalize or stabilize” • Designated Disaster Areas • Distressed or underserved non-metropolitan middle-income geographies.

13. 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

14. Major Changes to Regulation • Distressed • Unemployment >1.5X national average or • Poverty rate of 20% or more • Population loss of 10% or more between last two censuses or • Population loss of 5% or more over 5 year period preceding most recent census

15. Major Changes to Regulation • Underserved • Low 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.

16. 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

17. Major Changes to Regulation • ISB’s need not : • collect and report CRA loans • Collect 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)

18. 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

19. 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

20. Major Changes to Regulation • The “innovation” and “complexity” of Community Development activities are not a weighting factor as with large banks

21. 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.

22. 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.

23. 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.

24. Major Changes to Regulation • Examples provided of practices that can be considered in CRA rating • Discrimination against applicants on a prohibited basis in violation of ECOA or FHA • Illegal referral practices in violation of Section 8 of RESPA • Violations of Truth in Lending relating to the customers right of rescission. • Violations of Home Ownership and Protection Act • Evidence of unfair and deceptive credit practices under Section 5 of the Federal Trade Commission Act

25. The End Division of Supervision and Consumer Protection