CRA Revisions: Flexibility and New Choices: Changes in the Community Reinvestment Act (CRA) Will Allow Banks More Flexibility to Satisfy Requirements through a Broader Definition of Community Development Activities

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In addition, a new category of small banks will have more latitude in choosing assessment criteria. The revised act also addresses the impact of discrimination and other illegal credit practices on an institution's CRA rating.

Revision of the CRA was published as a joint final rule of the Board of Governors, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation in August 2005 and became effective in September 2005.

While the regulatory "facelift," which acknowledges banks' activities in under-served, distressed and disaster-affected areas, is good news for financial institutions, it will doubtless create challenges as banks and regulators adjust to the revised criteria.

New community development criteria for all banks

CRA's revised definition of community development, which applies to all banks, offers financial institutions credit for activities that revitalize or stabilize communities designated as distressed or under-served, nonmetropolitan, middle-income census tracts. A financial institution can also receive credit for disaster recovery activities that revitalize or stabilize a federally designated disaster area in its assessment range.

Areas that qualify as distressed and under-served, nonmetropolitan, middle-income census tracts will be determined by federal regulatory agencies and listed annually on the Federal Financial Institutions Examination Council's website@www.ffiec.gov. Designated disaster areas are identified by the Federal Emergency Management Agency (FEMA).

The range of activities considered revitalizing or stabilizing for communities will vary depending on the geography. In distressed, nonmetropolitan, middle-income geographies, activities will be required to serve the primary purpose of community development by helping to attract and retain residents and businesses (including through job creation). They can also qualify if they are part of a bona fide plan to revitalize or stabilize the geography. Banks must demonstrate that their endeavors provide long-term direct benefit to the entire community, including low--and moderate-income individuals and neighborhoods.

For areas designated as under-served, nonmetropolitan, middle-income geographies, examiners will determine ff banks' activities help meet essential community needs, including those of low--or moderate-income individuals. Financing for the construction, expansion, improvement, maintenance or operation of essential infrastructure or facilities for health services, education, public safety, public services, industrial parks or affordable housing will be considered under these criteria to determine if they qualify.

The regulations distinguish between activities that qualify for consideration in under-served geographies and those that qualify in distressed geographies. Financial institutions should contact their federal regulators to obtain clear guidance about which activities will satisfy the criteria.

Disaster recovery activities will be evaluated according to the same guidelines that would be applied to a low- or moderate-income geography or a distressed, nonmetropolitan, middle-income geography.

Since the goals of many community development activities are only achieved over time, regulating agencies instituted a lag period of 12 months for both distressed and under-served, nonmetropolitan, middle-income tracts. Revitalization and stabilization activities undertaken by banks during the 12 months following the lifting of an area's under-served or distressed status will be assessed as if the area were still designated as distressed or under-served.

Banks serving federally designated disaster areas will receive credit for disaster recovery-related activities for 36 months following the date of designation by the federal government.

The FFIEC website will indicate annually which designated distressed or underserved census tracts are in their lag period. …