THE COMMUNITY REINVESTMENT ACT

Tools for Improving Community Development Lending, Services and

Investments

WOODSTOCK I NSTI TUTE CONVENOR OF THE CHICAGO CRA COALITION

Source: www.syracusethenandnow.org

PURPOSE OF CRA AND CRA ADVOCACY

Redlining – the refusal to loan money secured by a property because of its location in a specific area.

Under CRA, banks have a continuing and affirmative responsibility to provides loans and services in areas from which they accept deposits.

Banks as Community PartnersCRA Provides a Valuable Mandate

Local Financial Institutions

CBOs

CDFIs

grants

equity

Consumers

loans

and

servi

ces

Government

CRA

Fair Lending and CRAHOW THEY WORK TOGETHER

Community Reinvestment Act

Banks have a continuing and affirmative obligation to serve all communities in their chartered service area – including low income areas

-Income-Geography

Fair Lending

It is unlawful to refuse credit or impose restrictive conditions to credit on the basis of

-Race-Gender-Disability, or other protected status

19751977

1989

1992-96

1995

Home Mortgage Disclosure Act (HMDA)

1977-87

1990

Community Reinvestment Act (CRA)

Limited adherence to CRA requirements

“The Color of Money” story printed

New data added to HMDA

Boston Fed analyses of

CRA reports Lending, Investments, Services test added

COMMUNITY REINVESTMENTACT HISTORY

1989 CRA Exams made public

2005 “ISB” regulations

The Impact of the CRABILLIONS OF DOLLARS IN REINVESTMENT

Areas with high levels of CRA activism see increased levels of lending

CRA related home mortgage and small business lending is profitable

Banks across US make CRA pledges to communities to increase lending, investments and services

Federal Financial Institutions Examination CouncilInteragency regulatory body

Office of the Comptroller of the Currencyregulates national banks

Office of Thrift Supervisionregulates thrifts and S&Ls

Federal Deposit Insurance Corp.regulates non-federal reserve member state banks

Federal Reserve Boardregulates member banks and holding companies

ENFORCEMENT OF CRAWHO IS RESPONSIBLE FOR BANK REGULATION?

Description of Institution

Institution Assessment Area(s)

Type of Exam Large Bank Small Bank

Bank Performance Rating Outstanding Satisfactory Needs to Improve Substantial Non-Compliance

Bank Performance and EvaluationHOW TO READ A CRA EXAM

FFIEC Interagency CRA Rating Search

www.ffiec.gov/cracf/crarating/main.cfm

Searching for CRA Exams OnlineHOW DOES YOUR BANK STACK UP?

The Large Bank ExamHOW THE LENDING TEST WORKS

Borrower characteristics

Geographic distribution of loans

Number and dollar amount of loans

Community development lending

Innovative or flexible lending practices

The Large Bank ExamHOW THE INVESTMENT TEST WORKS

Equity Investments, and EQ2s

Operating and program grants

CRA targeted mortgage-backed securities

Affordable housing, economic development, technical assistance

The Large Bank ExamHOW THE SERVICE TEST WORKS

Branch distribution, opening and closing

Affordable bank accounts

Relationships with fringe finance companies?

Financial literacy curriculum

The Small Bank ExamSTREAMLINED EXAMS FOR SMALLER BANKS

Lending test only, not examined for services, investments

Percent of loans in assessment area, loan to deposit ratios

Action taken on written complaints

No small business data

“Wink and Nod” test, neither rigorous nor comprehensive

The Intermediate Small Bank ExamNEW CRA REGULATIONS FOR MIDSIZED BANKS

Lending test examines the distribution of loans in banks assessment area

Community development test examines bank branch distribution, community development investments and loans

Examination focuses on the bank’s opportunity and capacity and the need for community development funding

No longer required to disclose small business lending

Data AnalysisPublicly available data and data from banks

HMDA and small business data is available online at FFIEC website

Collect newspaper articles

Look up financial and branch information on FDIC website

Review community development loans

Investigate features and requirements for checking and savings accounts

Technical AssistanceWHAT IS AVAILABLE?

Works with banks to develop policies and programs to promote community development

Woodstock Institute provides quarterly listings of upcoming CRA exams – when is your bank examined?

Organizes to influence local, regional and national banking policy

Bank Branches

Residential Lending

Small Business Lending

Grants and Investments

Affordable Bank Products

Financial Literacy Training

Community Needs AnalysisREINVESTMENT GOALS FOR YOUR AREA

Making Your “Ask”Confrontation and follow-through

Identify appropriate bank staff such as CRA Officer or community development specialist

Review investment goals or grant making guidelines

Submit and discuss your analysis

Discuss your organization’s program areas and how they can fill gaps in CRA lending, grants and investments, or services

Critical IssuesPRESERVING AND STRENGTHENING CRA

Key issues for community based organizations:

Grade Inflation

CRA Sunshine requirements

Regulatory erosion of CRA

Attacks on CRACAN BANKS REALLY FAIL THE CRA EXAM?

0

100

200

300

400

500

Satisfactory

SubstantialNon-Compliance

Outstanding

Needs to Improve

Since 1990, few banks have failed a CRA exam

ATTACKS ON CRAGRAMM-LEACH-BLILEY ADDS SUNSHINE PROVISION

Nonprofits must disclose CRA related loans and grants

Regulation is burdensome and vague

Woodstock Institute published Reinvestment Alert 17: CRA Sunshine Rules and You to clarify regulation

Attacks on CRAFDIC AND OTS WATER DOWN CRA

Large Bank Exam

Small Bank Exam

OCC OTSFDICFederalReserve

Greater than$250 million

Greater than$1 billion

“Intermediate” Small Bank Exam

Chicago CRA Coalition and Woodstock Institute

Provides technical assistance for community needs analysis

Works to strengthen CRA and improve reinvestment activities in member service areas through

Steering committee and task forces meet regularly to discuss best practices, funding opportunities and relevant policy decisions effecting reinvestment in the Chicago region

Steering Committee

Economic Development

HousingFinancial Services

Grants andInvestments