Since its passage in 1977, the United States’ Community Reinvestment Act (CRA) encourages 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. While the CRA has changed over the past four decades, all prudential regulators recognize the need for substantial revisions to the law.
Significant revisions are necessary because of massive technological advances within the financial services industry and an increased emphasis on nationwide lending, online banking and digitization. Therefore, ‘CRA modernization’ is on all regulators’ 2019 agendas, including FDIC Chairman Jelena McWilliams, Comptroller of the Currency Joseph Otting, Fed Chairman Jerome Powell and NCUA Chairman J. Mark Watters.
While we await final amendments to the CRA, one might ask the question, “Why does a successful CRA Examination matter?” Here’s our view:
- CRA ratings and performance are made public. Anyone can walk into a depository institution and ask to see the CRA Public File, which must include the most recent CRA Performance Evaluation or Public Disclosure. The CRA Public File describes the depository institution and highlights its lending activity, including community development loans, investments and services, innovative and flexible lending, branch accessibility, qualified donations, and more – all within a key performance context. With this being the case, don’t you want your CRA Public Disclosure to reflect favorably on your institution by highlighting the good that your organization does in the communities it serves? If so, then it’s essential to proactively analyze lending and investment activity, promote community outreach, comply with the technical requirements of the law, and ensure ongoing compliance with other fair lending laws and regulations including the Equal Credit Opportunity Act (ECOA), Fair Housing Act and Home Mortgage Disclosure Act (HMDA).
- Satisfactory CRA ratings facilitate growth and expansion. The highly competitive US community banking landscape consists of over 5,000 financial institutions, and continued growth and expansion are crucial to remaining relevant. Desired growth can occur organically or through mergers and acquisitions. Satisfactory and Outstanding CRA ratings enable financial institutions to benefit from expedited processing of branch and merger/acquisition applications and increase the likelihood of approval by regulators. Doesn’t the peace of mind that comes with satisfactory or better CRA ratings sound appealing and goal-worthy?
- Helping to meet community credit needs fuels the economy. Historically, depository institutions are instrumental in fueling the local economy by originating consumer loans, residential mortgages, and small business loans. This rich history within #communitybanking is commendable. Aside from the basic tenets of CRA, doesn’t your institution want to help your customers realize their dreams of owning a home, getting a mortgage, buying a car, or starting a small business?
- Lending activity accounts for more than 50 percent of an institution’s CRA rating. A depository institution’s lending activity, including lending to low and moderate-income borrowers and within low and moderate-income geographies, generally accounts for more than 50 percent of an institution’s CRA rating. Usually, lending activity is measured using HMDA Data (for HMDA reporters) as well as small business lending activity. Therefore, ongoing analysis of your institution’s lending activity is critical to ensuring ongoing compliance with important laws and regulations, as well as adherence to your overall CRA Program or Plan. Are you prepared for your next CRA Examination?
- Leading by example. Given the many challenges that the US faces today, including, political division, terrorist attacks, cybercrime, and discriminatory acts and practices, everyone willing has a role to play in tackling these challenges. Faithful compliance with the CRA is an important part of everything depository institutions do to support the communities they serve. Adherence to fair and responsible banking practices is a winning formula for prosperous growth. Wouldn’t you and your organization like to contribute toward our country’s promising future, and receive some well-deserved CRA credit along the way?
Did you know that Capco performs mock CRA Performance Evaluations, CRA and Fair Lending Statistical Analyses, Fair Lending Risk Assessments, and CRA and HMDA Scrubs? Please contact Pamela Buckley, Managing Principal at Capco, for additional information.