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FDIC, FRB, OCC: Proposed Revisions to the CRA Questions & Answers

ABA Contact: Compliance Staff
Published: 70 Federal Register 64850; November 10, 2005
Comments Due: January 9, 2006
Disposition: Filed

Final Revisions to Q&As issued March 2, 2006:

The banking Agencies issued final Q&As that were adopted almost entirely as proposed. The Agencies did provide for a 3-year time period after a disaster area loses its disaster designation for continuing CRA community development activities. Additionally, the Agencies adjusted what qualified for CRA credit in a disaster area to reflect the need for assistance to all residents, as ABA recommended. The final guidance states:

"The revised answer states that the Agencies generally will consider an activity to revitalize or stabilize a designated disaster area if it helps to attract new, or retain existing, businesses or residents and is related to disaster recovery. An activity will be presumed to revitalize or stabilize the area if the activity is consistent with a bona fide government revitalization and stabilization plan or disaster recovery plan. The Agencies generally will consider all activities related to disaster recovery that revitalize or stabilize a designated disaster area, but will give greater weight to those activities that are most responsive to community needs, including needs ofLMI individuals or neighborhoods."

Additionally, the Agencies state that "Under the regulations' definition of "community development loan," a loan that has been reported as a small business loan or small farm loan as required by the CRA regulations, or as a mortgage loan under the Home Mortgage Disclosure Act (HMDA), is not a community development loan, even if the loan has a primary purpose of community development. Small banks, however, are not required by the CRA regulations to report small business loans or small farm loans; and some small banks, as well as some large banks, are not required by HMDA to report home mortgage loans. Thus, after the definition of "community development loan" was adopted,... the Agencies adopted Q&A §§ __.12(i) & 563e.12(h) –2, which indicates that examiners will not consider a loan by a small bank that meets the definition of either a "small business loan" or a "small farm loan" as a community development loan regardless of the purpose of the loan, even though the regulation does not require a small bank to report small business or small farm loans." The same was applied to loans that might be HMDA-reportable. The Agencies now intend to seek comment on whether that Q&A should be removed, so the ISB's may have their small business, small farm and HMDA-reportable (but not reported) loans count as Community Development loans.

ABA supported most of the proposed Q&A, but made several recommendations. The lag period for CRA credit after a designation of distressed, underserved or disaster should be at least 3 years, not the year proposed. Also, CRA credit for disaster areas should not be limited to LMI neighborhoods or residents. Please see the "ABA Comment Letter" link for more detail.

Background

On August 2, 2005, the FDIC, FRB and OCC published revisions to their CRA regulations, raising the threshold of the small bank examination to $1 billion, creating an intermediate small bank examination for banks between $250 million and $1 billion, and changing the definition of community development for all banks. These agencies now propose changes to the CRA Q&A, last revised in mid-2001, to address some of the changes in the regulation. There are 13 new questions.

Seven questions address the new definition of "community development."

First, the proposed guidance clarifies that the revised definition of "community development" applies to all banks, not just intermediate small banks. It also discusses what is meant by a designated disaster area. Disaster areas are designated by Federal agencies or States, and these designations are made public. Therefore, the agencies do not intend to maintain a separate list of all government-designated disaster areas.

The guidance also proposes a one year "lag period" during which a bank may continue to receive consideration for activities in a disaster area for which the Federal or state designation has expired. The lag will help promote investments that may take an extended period of time to arrange and that have extended periods of duration that may continue to provide meaningful benefits to the community after the government designation has ended. Comment is specifically requested on the appropriateness of a one-year lag period.

Comment is also requested on the appropriate description of a disaster designation's duration. The proposed guidance would recognize the revitalization and stabilization efforts in disaster areas during such time that Federal, State, or local governments have determined that the area continues to be affected by the disaster event, and provides a one-year period after the expiration of the disaster designation in which revitalization and stabilization activities targeted to those areas will receive favorable recognition. The agencies seek comment on whether the period starting with "designation " and ending with "expiration " of the designation is the most appropriate and meaningful way to describe the duration or should the guidance be more broadly worded to reflect other relevant governmental measures of the duration of a disaster event?

The proposed guidance next explains that all revitalization activities in designated disaster areas are not considered equally—those that are most responsive to community needs, including the needs of low- or moderate-income individuals, may be given more weight than other revitalization and stabilization activities in designated disaster areas. Bank activities to revitalize and stabilize a designated disaster area will be evaluated, as appropriate, based on the particular circumstances and needs of the area. The guidance also includes a statement regarding loans to individuals displaced by a disaster and refers to relevant existing guidance. The proposed guidance also describes the criteria that the agencies use to identify distressed or underserved nonmetropolitan middle-income geographies and states that the list of such geographies will be reviewed and updated annually. Similar to the "lag period " proposed in connection with activities in designated disaster areas, a one-year lag period also is proposed during which a bank may continue to receive consideration for activities in a distressed or underserved middle-income nonmetropolitan area that has been removed from the list. Comment is specifically requested on the appropriateness of a one-year lag period.

The proposed guidance also clarifies that revitalization and stabilization activities in middle-income nonmetropolitan distressed geographies are evaluated differently than those in middle-income nonmetropolitan underserved geographies. Generally, a revitalization or stabilization activity in a distressed middle-income nonmetropolitan geography that helps to attract and retain businesses and residents or is part of a bona fide revitalization or stabilization plan will receive positive consideration.

In an underserved middle-income nonmetropolitan area, revitalization or stabilization activities are activities that facilitate 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. These activities generally will be considered to meet essential community needs and qualify for consideration as a community development activity, so long as the infrastructure, facility, or affordable housing serves low- and moderate-income individuals.

Finally, the proposed guidance explains when housing for middle- and upper-income persons in distressed or underserved nonmetropolitan middle-income geographies or designated disaster areas may be considered as a community development activity.

Three questions address the community development test for intermediate small banks.

First, the proposed guidance discusses what examiners will consider when they review the responsiveness of an intermediate small bank's community development activities to the community development needs of the area. Next, the proposed guidance addresses how the community development test for intermediate small banks will be applied flexibly so that banks can address community development needs in their assessment areas in the most responsive manner. Finally, the proposed guidance includes a question and answer that explains what examiners will consider when evaluating the provision of community development services by an intermediate small bank in the community development test.

Treatment of Small Banks' Affiliates' Activities

The proposed guidance clarifies that any small bank (including an intermediate small bank) may request that activities of an affiliate in the small bank's assessment area(s) be considered in its performance evaluation. Those activities will be considered in the small bank's performance evaluation subject to the same constraints that apply to large institutions' affiliate activities, including that the activities have not also been considered in the CRA evaluation of another institution.

Small Bank Asset Threshold Adjustments

One question and answer is proposed that explains that the asset size thresholds for "small bank " and "intermediate small bank " will be adjusted annually based on changes to the Consumer Price Index. Any changes in the asset size thresholds will be published in the Federal Register.

Consideration of Prior-Period Qualified Investments

A new question and answer is proposed that would apply to banks of all sizes. It explains that examiners will assess qualitative factors for the weighting given to both current period and outstanding prior period qualified investments. For example, a prior-period outstanding investment with a multi-year impact that addresses assessment area community development needs may receive more consideration than a current period investment of a comparable amount that is less responsive to area community development needs.

Three revisions to existing questions and answers are also proposed.

The first proposed revision adds a bullet to the existing question and answer that provides examples of community development services (existing §§l_.12(j) & 563e.12(i)–3). The new bullet clarifies that the provision of financial services to low- and moderate-income individuals through branches and other facilities located in low- and moderate-income areas is a community development service, unless the provision of such services has been considered in the evaluation of a bank's retail banking services under the service test.

The second proposed revision would add another new bullet to the existing question and answer providing examples of community development services (existing §§ll.12(j) & 563e.12(i)–3) that states that a community development service may include "providing international remittances services that increase access to financial services by low- and moderate-income persons (for example, by offering reasonably priced international remittances services in connection with a low-cost account)."

The last proposed revision would revise the existing question and answer that provides examples of qualified investments (existing §§ll.12(s) & 563e.12(r)–4) to also include banks' investments in Rural Business Investment Companies (RBICs). The Rural Business Investment Program (RBIP), which is a joint initiative between the U.S. Small Business Administration and the U.S. Department of Agriculture, is intended to promote economic development by financing small businesses located primarily in rural areas.

Regulatory Proposals Chart
Federal Register
ABA Comment Letter