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Changes in Community Reinvestment Act Questions and Answers May bring Some Welcome News

25 January 2016

One of the more difficult tasks that our clients must accomplish is to try to meet the community development and community service tests in the Community reinvestment Act (“CRA”).  For many community banks the opportunities to do community service that qualifies under the requirements of the CRA are very limited.  The same is true with opportunities to conduct community development activities while staying within ones assessment area.    In many cases, the service opportunities have been limited to teaching classes at organizations that serve community needs.  Lending and investment opportunities are often “gobbled up” by the large banks in the assessment area, leaving the community banks to scramble to try and comply with the requirements of the regulation.

In November of 2013, the FFIEC announced changes to the Community Reinvestment Act  Q & A that have the potential to greatly expand a bank’s ability to meet the tests of CRA while doing CRA activities outside of the assessment area.  [1] In addition, the ability to perform community service has also been expanded.  Just remember along with new powers come additional responsibilities and therefore additional risks!

The Changes

There are actually several changes that were adopted in November, 2013.  We are only discussing a few that we believe directly impact compliance with the community development tests for small and intermediate banks.  Large Banks are encouraged to read the full text of the changes.

In the past there was wording that suggested that banks could do community development activities outside of the assessment area, the caveat for how these activities might qualify for credit to the bank performing them was unclear.     The original Q & A stated the following:

 Q&A .12(h) – 6 stated that examiners would consider such activities if an institution, considering its performance context, had adequately addressed the community development needs of its assessment area(s).

In particular, the language created doubt that activities outside of a defined assessment area would be given credit at all.  The agencies first proposed new language that indicated that as long as these activities were performed in a safe and sound manner and weren’t done in lieu of activities within the assessment area, they would be okay.  However, because many comments were received [2] the language was changed.  The adopted new language says:

Q&A   .12(h) – 6 states, with respect to community development activities that are conducted in the broader statewide or regional area that includes the institution’s assessment area(s), that “examiners will consider these activities even if they will not benefit the institution’s assessment area(s), as long as the institution has been responsive to community development needs and opportunities in its assessment area(s).”

The definition of what a broader statewide or regional area was left fairly open to a common sense application.  There are not specific guidelines for defining these.   It is safe to say that a definition that includes contiguous counties or economic zones that cross state lines (Lake Tahoe in California and Nevada for example) would be an acceptable definition.

Another significant change is the service that can qualify as community service on the part of bank employees.   The current Q & A stated that service to a community group was defined as

Q&A     .12(i) – 3 stated that providing technical assistance to organizations that engage in community development activities (as defined by the regulation) is considered a community development service

For many of our clients this language has been taken to limit the things that bank employees may do to get credit for the community service.  The FFIEC clearly wanted to expand that definition and in particular wanted to add that serving on the Board of community service organization can indeed count as community service

Q&A    .12(i) – 3 to clarify that service on the board of directors of a community development organization is an explicit example of a technical assistance activity that could be provided to community development organizations that would receive consideration as a community development service

The idea here is that the service on the Board of these organizations must be active and not symbolic.  In what looked almost like a throw away, the FFIEC also added the following:

In addition, in response to commenters’ suggestions, the Agencies are adding the following example of a technical assistance activity that might be provided to community development organizations: providing services reflecting financial institution employees’ areas of expertise at the institution, such as human resources, information technology, and legal services.

Of course this language greatly expands the sort of services that a bank may provide to community development organizations while meeting the service requirements of the CRA.

Broader Implications

Simply put, the more work you do upfront, the more leeway you get!   For example, being able to prove that there is broader region that you serve outside of your assessment area and that this region is legitimately economically connected is an important step in being able to perform community development activities out of the assessment area.

The second step is being able to show that the plan for activities allows the bank to serve the needs of the immediate assessment area while expanding.

We believe that for a plan to expand to activities beyond the assessment must be well thought out, and there must be documentation to show that the plan does not ignore low to moderate income groups within the assessment area.  However, for banks that do not have these populations directly within the established assessment area, this is a significant opportunity to expand and reach new levels of community development that had heretofore been unattainable.

The key to a successful expansion is being able to document the idea that the Bank understands the credit needs of the people within the established assessment area.   In conjunction with understanding those needs the bank must be able to show how their activities meet those needs.

[1] For the full text of the changes see
[2] We continue to remind our clients that the agencies do read and consider comments they receive!