Community Developments Investments (May 2018)
Community Reinvestment Act Consideration for Collaborations That Promote Community Development
David Black, Community Development Expert, OCC
The Community Reinvestment Act (CRA), passed in 1977, encourages national banks and federal savings associations (collectively, banks) to help meet the credit needs of all segments of their communities, including low- and moderate-income (LMI) neighborhoods. Today, federal financial supervisory agencies, including the Office of the Comptroller of the Currency (OCC), evaluate financial institutions on their performance regarding activities that qualify for consideration under the CRA.
This article reviews ways in which banks may receive CRA consideration from partnerships with other financial institutions, including minority depository institutions (MDI), women-owned financial institutions, and low-income credit unions (MWLI financial institutions).
Community Development Activities
All federally regulated financial institutions, regardless of minority ownership designation, may receive CRA consideration for certain community development activities conducted in partnership with other entities, including other Federal Deposit Insurance Corporation-insured financial institutions.
Community development activities include loans, investments, and services that have a primary purpose of “community development,” which is defined in the CRA regulations.1 The definition of “community development” includes affordable housing for LMI individuals, community services targeted to LMI individuals, activities that promote economic development by financing eligible small businesses and farms, and activities that revitalize or stabilize LMI geographies or other geographies designated in the CRA regulations.
A bank may receive CRA consideration for community development activities provided the activities benefit the bank’s assessment area(s) or, in most cases, a broader statewide or regional area that includes the bank’s assessment area(s).
Examples of partnerships between banks and other entities to promote community development include2
- loans made to a financial institution that primarily lends to promote community development.
- purchasing or selling a participation in a larger community development loan made by another financial institution. Loan participations can allow smaller institutions to originate larger loans when other banks agree to purchase participations.
- investments or holding shares in, or making grants or deposits available to, a financial institution that primarily lends or facilitates lending in LMI areas or to LMI individuals.
- grants that allow a financial institution to undertake community development activities, such as financial counseling to LMI individuals.
- technical assistance, in-kind contributions, or other community development services to a financial institution whose primary purpose is community development.
Sales or Donations of Bank Branches in Predominantly Minority Neighborhoods
Under some circumstances, a sale of a bank branch on favorable terms or a branch donation to a minority- or women-owned depository institution, as these terms are defined in the CRA statute, may receive CRA consideration. The bank branch must be located in a predominantly minority neighborhood.3 The amount of the contribution or the amount of the loss incurred in connection with such activity may be a factor in determining whether the depository institution is meeting the credit needs of the institution’s community.4
Partnerships Between Majority-Owned Institutions and MWLIs
CRA consideration is permitted for majority-owned institutions that partner with MWLI financial institutions. The federal financial agencies may provide CRA consideration for capital investments, loan participations, and other ventures undertaken by a majority-owned institution in cooperation with MWLI financial institutions, provided that the activities help meet the credit needs of local communities in which the MWLI financial institutions are chartered. The majority-owned institution may receive consideration for such activities even if the MWLI financial institution is not located in, or the activities do not benefit, the majority-owned institution’s assessment area(s) or broader statewide or regional area that includes the institution’s assessment area(s).5
For more information, contact David Black at email@example.com.