2016 16693 PDF

Vol.
81 Monday,
No. 142 July 25, 2016
Part II
Department of the Treasury

Office of the Comptroller of the Currency
Federal Reserve System
Federal Deposit Insurance Corporation

12 CFR Parts 25, 195, 228, et al.
Community Reinvestment Act; Interagency Questions and Answers
Regarding Community Reinvestment; Guidance
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48506 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations
DEPARTMENT OF THE TREASURY FOR FURTHER INFORMATION CONTACT: The Agencies first published the
OCC: Bobbie K. Kennedy, Bank Questions and Answers under the
Office of the Comptroller of the Examiner, Compliance Policy Division, auspices of the Federal Financial
Currency (202) 649–5470; Vonda Eanes, National Institutions Examination Council
Bank Examiner and District Community (FFIEC) in 1996 (61 FR 54647). The
12 CFR Parts 25 and 195 Affairs Officer, Community Affairs, Questions and Answers were last
(202) 649–6420; or Margaret Hesse, published in full by the Agencies on
[Docket ID OCC–2014–0021]
Senior Counsel, Community and March 11, 2010 (2010 Questions and
FEDERAL RESERVE SYSTEM Consumer Law Division, (202) 649– Answers) (75 FR 11642). In 2013, the
6350, Office of the Comptroller of the Agencies adopted revised guidance on
12 CFR Part 228 Currency, 400 7th Street SW., community development topics that
Washington, DC 20219. amended and superseded five Q&As and
[Docket No. OP–1497] Board: Catherine M.J. Gates, Senior added two new Q&As (2013 Questions
Project Manager, (202) 452–2099; or and Answers) (78 FR 69671), which
FEDERAL DEPOSIT INSURANCE Theresa A. Stark, Senior Project supplemented the 2010 Questions and
CORPORATION Manager, (202) 452–2302, Division of Answers. This document supplements,
Consumer and Community Affairs, revises, republishes, and supersedes the
12 CFR Part 345 Board of Governors of the Federal 2010 Questions and Answers and the
Reserve System, 20th Street and 2013 Questions and Answers.
Community Reinvestment Act; The Questions and Answers are
Constitution Avenue NW., Washington,
Interagency Questions and Answers grouped by the provision of the CRA
DC 20551.
Regarding Community Reinvestment; regulations that they discuss, are
FDIC: Patience R. Singleton, Senior
Guidance presented in the same order as the
Policy Analyst, Supervisory Policy
AGENCY: Office of the Comptroller of the Branch, (202) 898–6859; Sharon B. regulatory provisions, and employ an
Currency, Treasury (OCC); Board of Vejvoda, Senior Examination Specialist, abbreviated method of citing to the
Governors of the Federal Reserve Compliance and CRA Examinations regulations. For example, for thrifts, the
System (Board); Federal Deposit Branch, (202) 898–3881; Surya Sen, small savings association performance
Insurance Corporation (FDIC). Section Chief, Supervisory Policy standards appear at 12 CFR 195.26; for
Branch, (202) 898–6699, Division of national banks, the small bank
ACTION: Guidance on the interpretation
Depositor and Consumer Protection; or performance standards appear at 12 CFR
and application of the Community
Richard M. Schwartz, Counsel (202) 25.26; for Federal Reserve System
Reinvestment Act regulations.
898–7424; or Sherry Ann Betancourt, member banks supervised by the Board,
SUMMARY: The OCC, Board, and FDIC Counsel, (202) 898–6560, Legal they appear at 12 CFR 228.26; and for
(the Agencies) are adopting as final Division, Federal Deposit Insurance state nonmember banks, they appear at
revisions to the Interagency Questions Corporation, 550 17th Street NW., 12 CFR 345.26. Accordingly, the citation
and Answers Regarding Community Washington, DC 20429. would be to 12 CFR ll.26. Each Q&A
Reinvestment (Questions and Answers) is numbered using a system that
SUPPLEMENTARY INFORMATION:
based on the proposal issued on consists of the regulatory citation and a
September 10, 2014 addressing I. Background number, connected by a dash. For
alternative systems for delivering retail The Agencies implement the example, the first Q&A addressing 12
banking services; community Community Reinvestment Act (CRA) (12 CFR ll.26 would be identified as
development-related issues; and the U.S.C. 2901 et seq.) through their CRA § ll.26–1.
qualitative aspects of performance, Although a particular Q&A may
regulations. See 12 CFR parts 25, 195,
including innovative or flexible lending provide guidance on one regulatory
228, and 345. The CRA is designed to
practices and the responsiveness and provision, e.g., 12 CFR ll.22, which
encourage regulated financial
innovativeness of an institution’s loans, relates to the lending test applicable to
institutions to help meet the credit
qualified investments, and community large institutions, its content may also
needs of their entire communities. The
development services. The Agencies are be applicable to, for example, small
CRA regulations establish the
clarifying nine of the 10 proposed institutions, which are evaluated
framework and criteria by which the
questions and answers (Q&A), revising pursuant to small institution
Agencies assess an institution’s record
four existing Q&As for consistency, and performance standards found at 12 CFR
of helping to meet the credit needs of its
adopting two new Q&As. The Agencies ll.26. Thus, readers with a particular
community, including low- and
are not adopting one of the proposed interest in small institution issues, for
moderate-income neighborhoods,
revisions to guidance that addressed the example, should review Q&As relevant
consistent with safe and sound
availability and effectiveness of retail to other financial institutions as well.
operations. The regulations provide
banking services. Finally, the Agencies different evaluation standards for A. The 2014 Proposal and Overview of
are making technical corrections to the institutions of different asset sizes and Comments
Questions and Answers to update cross- types. On September 10, 2014, the Agencies
references and remove references The Agencies publish the Questions proposed to revise six existing Q&As.2
related to the Office of Thrift and Answers 1 to provide guidance on Two Q&As addressed the availability
Supervision (OTS) as obsolete. The the interpretation and application of the and effectiveness of retail banking
Agencies are publishing all of the new CRA regulations to agency personnel, services 3 and one Q&A addressed
and revised Q&As, as well as those financial institutions, and the public. innovative or flexible lending
Q&As that were published in 2010 and
practices.4 The other three proposed
2013 and that remain in effect in this 1 Throughout this document, ‘‘Questions and
final guidance. Answers’’ refers to the ‘‘Interagency Questions and

2 75FR 53838 (Sept. 10, 2014).
Answers Regarding Community Reinvestment’’ in
DATES: This document goes into effect its entirety; ‘‘Q&A’’ refers to an individual question 3 Q&As § ll.24(d)–1 and § ll.24(d)(3)–1.
on July 25, 2016. and answer within the Questions and Answers. 4 Q&A § ll.22(b)(5)–1.
Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations 48507
revised Q&As addressed community as well as outreach for bankers and ‘‘support permanent job creation,
development-related issues, including other interested parties. retention, and/or improvement for
economic development, community persons who are currently low- or
II. Revisions to Existing Q&As
development loans, and activities that moderate-income, or support permanent
are considered to revitalize or stabilize A. Community Development job creation, retention, and/or
an underserved nonmetropolitan Community development is an improvement either in low- or
middle-income geography.5 The important component of community moderate-income geographies or in
Agencies also proposed to add four new reinvestment and is considered in the areas targeted for redevelopment by
Q&As, two of which addressed Federal, state, local, or tribal
CRA evaluations of financial
community development services,6 and governments.’’ The Q&A further
institutions of all types and sizes.
two of which provided general guidance explained, ‘‘[t]he Agencies will presume
Community development activities are
on responsiveness and innovativeness.7 that any loan to or investment in a
Together, the Agencies received 126 considered under the regulations’ large
SBDC, SBIC, Rural Business Investment
different comment letters on the institution, intermediate small
Company, New Markets Venture Capital
proposed Q&As, plus over 900 form institution, and wholesale and limited
Company, or New Markets Tax Credit-
letter submissions. The commenters purpose institution performance tests.
eligible Community Development Entity
included financial institutions and their See 12 CFR ll.22(b)(4), ll.23,
promotes economic development.’’
trade associations (collectively, industry ll.24(e), ll.26(c), and ll.25. In The Agencies proposed to revise
commenters), community development addition, small institutions may use existing Q&A § ll.12(g)(3)–1 to clarify
advocates and consumer organizations community development activities to what is meant by the phrase ‘‘promote
(collectively, community organization receive consideration toward an economic development,’’ and to better
commenters), state bank supervisors, outstanding rating. The Agencies align this Q&A with other guidance
Federal agencies, and other interested believe that community development provided in existing Q&As § ll.12(i)–
parties. generally improves the circumstances 1 and § ll.12(i)–3 regarding
Most commenters supported the for low- and moderate-income consideration of economic development
Agencies’ efforts to clarify the CRA individuals and stabilizes and activities undertaken by financial
guidance. Some commenters also revitalizes the communities in which institutions. Further, the Agencies
suggested revisions to the proposed new they live or work. proposed to revise the guidance to add
and revised Q&As, as well as posed The Agencies proposed to provide additional examples that would
questions or stated concerns about the additional clarification of three Q&As demonstrate a purpose of economic
Q&As. Comments received by the addressing community development- development, such as workforce
Agencies on each revised or new related topics. development and technical assistance
proposed Q&A are discussed in further i. Economic Development support for small businesses. In
detail below in Parts II and III. addition, the Agencies requested public
The CRA regulations define comment on seven questions regarding
B. Summary of Final Q&As community development to include the proposed revisions to the Q&A.
The Agencies are adopting nine of the ‘‘activities that promote economic The Agencies received 40 comments
10 proposed Q&As with clarifications to development by financing businesses or addressing proposed revised Q&A
reflect commenters’ suggestions. Parts II farms that meet the size eligibility § ll.12(g)(3)–1. Most commenters
and III below discuss the clarifications standards of the Small Business provided general comments about the
made to these nine Q&As. Further, as Administration’s Development proposed revised Q&A, with relatively
discussed more fully below in Part Company (SBDC) or Small Business few responding to the seven specific
II.C.i., in response to comments Investment Company (SBIC) programs questions posed by the Agencies.
received, the Agencies are not adopting (13 CFR 121.301) or have gross annual Commenters generally supported the
as final the proposed revisions to Q&A revenues of $1 million or less.’’ See 12 Agencies’ efforts to clarify the types of
§ ll.24(d)–1, one of the Q&As that CFR ll.12(g)(3). The Questions and activities that promote economic
addresses the availability and Answers provide additional guidance development. One industry commenter
effectiveness of retail banking services. on activities that promote economic mentioned that changing the format to
The Agencies are also revising four development in Q&As § ll.12(g)(3)–1, a bulleted list of activities that
additional existing Q&As 8 and adopting § ll.12(i)–1, § ll.12(i)–3, and demonstrate a purpose of economic
two new Q&As 9 based on questions and § ll.12(t)–4. development is helpful.
suggestions provided by the Existing Q&A § ll.12(g)(3)–1 A few industry commenters suggested
commenters. Finally, as discussed in explained the phrase ‘‘promote eliminating the purpose test altogether,
Part IV, the Agencies have made economic development.’’ This Q&A asserting that the regulations require
technical corrections to 25 Q&As to stated that activities promote economic only that activities relate to businesses
update, for example, regulatory development by financing small that meet Small Business
references, addresses, and references businesses or farms if they meet two Administration (SBA) size-eligibility
related to the former OTS. ‘‘tests’’: (i) A ‘‘size test’’ (the requirements. However, the Agencies
As has been done in the past, the beneficiaries of the activity must meet note the intent of the purpose test is to
Agencies intend to provide training on the size eligibility standards of the explain what is meant by the phrase
all aspects of the new and revised SBDC or SBIC programs or have gross ‘‘promote economic development.’’ The
Questions and Answers for examiners, annual revenues of $1 million or less); purpose test ensures that examiners
and (ii) a ‘‘purpose test,’’ which is consider only activities that promote
5 Q&As § ll.12(g)(3)–1; § ll.12(h)–1; and
intended to ensure that a financial economic development as activities
§ ll.12(g)(4)(iii)–4.
6 Q&As § ll.24(a)–1 and § ll.24(e)–2.
institution’s activities promote with a primary purpose of community
7 Q&As § ll.21(a)–3 and § ll.21(a)–4. economic development consistent with development. Other loans to small
8 Q&As § ll.12(g)–1, § ll.12(i)–3, § ll.12(t)– the CRA regulations. Existing Q&A businesses and small farms are
4, and § ll.26(c)(3)–1. § ll.12(g)(3)–1 stated that activities considered as retail loans if they meet
9 Q&As § ll.12(g)–4 and § ll.24(d)(4)–1. promote economic development if they certain loan-size standards (see 12 CFR
ll.12(v) and (w)); larger loans to small activities benefit low- or moderate- workforce development programs,
businesses and small farms that do not income individuals is to provide promote economic development.
meet the purpose test would not be evidence of low-wage jobs, which is not The Agencies note that only one of
considered in a CRA evaluation as small consistent with the spirit or intent of the the examples in the final Q&A explicitly
business or small farm loans. CRA. These commenters also expressed refers to permanent job creation,
Furthermore, they would not be concerns that the proposal did not retention, and/or improvement for low-
considered as community development include examples of methods that could or moderate-income persons. The
loans, unless they have an alternate be used to demonstrate that the persons Agencies encourage activities that
community development purpose as for whom jobs are created, retained, or promote economic development
defined in 12 CFR ll.12(g). improved are low- or moderate-income, through opportunities for low- and
The Agencies specifically asked what and asked that the Agencies incorporate moderate-income individuals to obtain
information is available to demonstrate examples into the final Q&A. higher wage jobs, such as through
that an activity meets the size and The Agencies are adopting revisions private industry collaborations with
purpose tests. One community to existing Q&A § ll.12(g)(3)–1 largely workforce development programs for
organization commenter suggested that as proposed, but with additional unemployed persons and are clarifying
examiners consider the size of the clarifications. that examiners will consider the
business by revenues or, alternatively, First, the Agencies recognize that qualitative aspects of performance
the mission statement of the financial institutions may rely on a related to all activities that promote
intermediary lender, if the statement variety of methods to demonstrate that economic development. In particular,
provides sufficient detail on the types of activities promote economic activities will be considered more
businesses served, to demonstrate an development. To make clear that responsive to community needs if a
activity meets the size test. A few financial institutions may provide majority of jobs created, retained, and/
industry commenters suggested that all various types of information to or improved benefit low- or moderate-
activities that support small businesses demonstrate that an activity meets the income individuals.
should be presumed to qualify and meet purpose test, the Agencies have added The Agencies also note that Q&A
the purpose test. a statement in the final Q&A clarifying § ll.12(g)(2)–1 provides examples of
As noted above, existing Q&A § ll that examiners will employ appropriate ways in which an institution could
.12(g)(3)–1 explained that the Agencies flexibility in reviewing any information determine that community services and,
will presume that any loan to or provided by a financial institution that therefore, other types of community
investment in a SBDC, SBIC, Rural reasonably demonstrates that the development activities, including
Business Investment Company, New purpose, mandate, or function of an economic development, are targeted to
Markets Venture Capital Company, or activity meets the purpose test. low- or moderate-income individuals. In
New Markets Tax Credit-eligible In addition to the above revisions, the particular, the example explaining that
Community Development Entity Agencies had proposed to add examples an institution may use readily available
promotes economic development. The of types of activities that would meet data for the average wage for workers in
Agencies proposed a revision to the the purpose test of promoting economic a particular occupation or industry
Q&A to add the following presumption: development. The Agencies are could be useful when determining
For loans to or investments in a adopting these examples largely as whether an activity promotes economic
Community Development Financial proposed, but with some clarifications development.
Institution (CDFI) that finances small and revisions to address commenters’ The Agencies specifically asked
businesses or small farms. As discussed concerns, as discussed more fully whether the proposed examples
below, the Agencies are adopting this below. Accordingly, the Agencies are demonstrating that an activity promotes
proposed amendment to Q&A adopting this final Q&A with reference economic development for CRA
§ ll.12(g)(3)–1 regarding CDFIs. to activities that are considered to purposes were appropriate, and whether
The Agencies also proposed to revise promote economic development if they there are other examples the Agencies
the existing Q&A support permanent job creation, should include. Most commenters
§ ll.12(g)(3)–1 by removing the retention, and/or improvement: generally agreed the proposed examples
reference to persons who are • For low- or moderate-income were appropriate. Several community
‘‘currently’’ low- or moderate-income in persons; organization commenters, as well as a
order to clarify that banks can focus on • in low- or moderate-income state bank supervisory agency
community development activities that geographies; commenter, suggested the Q&A should
extend beyond support for low-wage • in areas targeted for redevelopment also include a reference to the ‘‘quality
jobs. The Agencies specifically by Federal, state, local, or tribal of jobs’’ created, retained, or improved.
requested input on whether the governments; Industry commenters, however,
proposed revision would help to clarify • by financing intermediaries that opposed a ‘‘quality of jobs standard,’’
what is meant by job creation, retention, lend to, invest in, or provide technical expressing concerns related to increased
or improvement for low- or moderate- assistance to start-ups or recently subjectivity by examiners and the
income individuals. Commenters formed small businesses or small farms; Agencies and documentation burden on
generally agreed with removing the or institutions, small businesses or small
reference to persons who are • through technical assistance or farms, and examiners. The Agencies
‘‘currently’’ low- or moderate-income. supportive services for small businesses recognize that the term ‘‘quality’’ is
However, most commenters indicated or farms, such as shared space, subjective, not easily defined, and
that the proposal did not sufficiently technology, or administrative assistance. heavily influenced by local economic
clarify what is meant by job creation, The final Q&A also recognizes that conditions, needs, and opportunities.
retention, or improvement for low- or Federal, state, local, or tribal economic The amount of time, resources, and
moderate-income persons beyond the development initiatives that include expertise needed to fairly evaluate the
creation of low-wage jobs. Industry provisions for creating or improving quality of jobs created, retained, and/or
commenters reiterated concerns that the access by low- or moderate-income improved for low- or moderate-income
primary method to demonstrate that persons to jobs, or job training or individuals could be overly burdensome
for examiners, financial institutions, for example, for large institutions, under Commenters overwhelmingly
and small businesses or small farms. the retail lending evaluation criteria. supported adding CDFIs that finance
However, the Agencies note that The Agencies also proposed to add small businesses or small farms to the
examiners are not precluded from activities that support permanent job list of entities for which loans or
considering qualitative factors relative creation, retention, and/or improvement investments are presumed to promote
to a particular financial institution’s ‘‘[t]hrough workforce development and/ economic development; even so, some
performance context, including, at the or job or career training programs that questioned limiting the presumption to
institution’s option, any information target unemployed or low- or moderate- CDFIs that finance small businesses or
provided on the quality of jobs created, income persons’’ to the list of activities small farms. The Agencies are adopting
retained, or improved through any of that are considered to promote this revision as proposed. In order for a
the types of activities listed in the economic development under the CDFI to promote economic development
Q&A’s description of the purpose test as purpose test. Two government agency by financing small businesses and small
promoting economic development. commenters expressed concerns that farms, it follows that any CDFI
these activities, in and of themselves, presumed to promote economic
The Agencies proposed that development would need to finance
may not involve financing small
permanent job creation, retention, and/ small businesses or small farms.
businesses or small farms and, therefore,
or improvement is supported ‘‘through Additionally, the Agencies are further
would not meet the size test. To address
the creation or development of small revising the statement granting
these concerns, the final Q&A does not
businesses or farms’’ and, therefore, incorporate this example in the list of presumptions for activities related to the
such activity would be considered to those types of activities that promote specified entities to include services
promote economic development and economic development under the provided to these entities, as well loans
meet the ‘‘purpose test.’’ The Agencies purpose test. However, the Agencies are and investments.
proposed this example in an effort to amending existing Q&As § ll.12(g)–1 Several commenters representing the
recognize the impact small businesses and § ll.12(t)–4 to clarify that Historic Tax Credit (HTC) industry
have on job creation in general, and to activities related to workforce suggested changes to the proposed Q&A
address industry concerns that activities development or job training programs that would expand and clarify the
in support of intermediary lenders or for low- or moderate-income or circumstances under which CRA
other service providers, such as unemployed persons are considered consideration would be available for
business incubators that lend to start-up qualified community development loans and investments related to
businesses and help businesses become activities. projects involving HTCs. These
bankable and sustainable, are often not The last example of a type of activity commenters suggested the Agencies
considered under the purpose test. that would be considered to promote amend Q&A § ll.12(g)(3)–1 to create a
Industry commenters have previously economic development that the presumption that activities related to
indicated that such activities are not Agencies proposed referred to ‘‘Federal, HTC projects qualify for CRA
considered because it is not clear under state, local, or tribal economic consideration as promoting economic
the purpose test that these activities development initiatives that include development by financing small
help promote economic development provisions for creating or improving businesses and small farms. Because not
since any job creation, retention, or access by low- or moderate-income all HTC projects would meet the
improvement would occur in the persons, to jobs, affordable housing, requirements to qualify for CRA
future—after the businesses are financial services, or community consideration under 12 CFR
organized or more established. services.’’ Industry and community ll.12(g)(3), the Agencies believe it
However, there were concerns that the organization commenters suggested would be inappropriate to grant such a
proposed guidance stating that amending or eliminating this proposed presumption. Nonetheless, in instances
permanent job creation, retention, and/ activity altogether because it blurs the in which loans to, or investments in,
or improvement ‘‘through the creation line between activities that support projects that receive HTCs do meet the
or development of small business or economic development and those that regulatory definition of community
farms’’ may be overly broad and could support other types of community development, including the geographic
result in diffuse potential benefit to low- development and could create restrictions, the Agencies concur that
or moderate-income persons or confusion. Although the Agencies’ CRA consideration should be provided.
geographies. The Agencies are adopting original intention was to recognize all For example, a loan to, or investment in,
this example with revisions to clarify Federal, state, local, or tribal economic an HTC project that does, in fact, relate
that examiners will consider activities development initiatives, the Agencies to a facility that will house small
that support permanent job creation, agree with these commenters and have businesses that support permanent job
retention, and/or improvement by eliminated references to affordable creation, retention, or improvement for
financing intermediaries that lend to, housing, financial services, and low- or moderate-income individuals, in
invest in, or provide technical community services, which would low- or moderate-income areas, or in
assistance to start-up or recently formed receive consideration under other areas targeted for redevelopment by
small businesses or small farms. This prongs of the definition of ‘‘community Federal, state, local, or tribal
example applies to loans to, investments development.’’ However, the Agencies governments may receive CRA
in, or services to intermediaries that, in have otherwise retained the example in consideration as promoting economic
turn, lend to, invest in, or provide the final Q&A being adopted, and have development. Further, a loan to or
technical assistance to small businesses added a reference to governmental investment in an HTC project that will
or small farms, and not to activities economic development initiatives that provide affordable housing or
provided directly by an institution to include job training or workforce community services for low- or
small businesses or small farms. A loan development programs, because those moderate-income individuals would
to a small business or small farm would initiatives are closely related to job meet the definition of community
be considered under the lending test creation, retention, and/or development as affordable housing or a
applicable to a particular institution— improvement. community service targeted to low- or
moderate-income individuals, Agencies long ago recognized that many or rehabilitated communications
respectively. Similarly, loans to or small businesses, particularly start-up infrastructure as an example of an
investments in HTC projects may also companies, are not immediately activity that would be considered to
meet the definition of community prepared for, or qualified to engage in, revitalize or stabilize a nonmetropolitan
development when the project traditional bank financing and, middle-income geography. These
revitalizes or stabilizes a low- or therefore, included providing technical commenters, primarily representing
moderate-income geography, designated assistance to small businesses and small community organizations, generally
disaster area, or a designated distressed farms as a community development expressed the view that CRA
or underserved nonmetropolitan activity. However, the Agencies consideration should be used as a
middle-income geography. Greater understand that reasoning may not be means of encouraging financial
weight will be given to those HTC- clear to examiners or financial institutions to find more direct ways to
related activities that are most institutions. To address this issue, the meet the needs of low- or moderate-
responsive to community credit needs, Agencies have amended the description income individuals and geographies.
including the needs of low- or of the ‘‘size test’’ in the final Q&A to One individual commenter that opposed
moderate-income individuals or explain that the term ‘‘financing’’ in this the addition of the example expressed
geographies. See Q&As § ll.12(g)–1, context is considered broadly and concern that ‘‘regulatory creep’’ was
§ ll.12(g)(2)–1, § ll.12(g)(4)–2, includes technical assistance that moving the focus of the CRA away from
§ ll.12(g)(4)(i)–1, and readies a business that meets the size its original mission of helping to meet
§ ll.12(g)(4)(ii)–2 through–4. eligibility standards to obtain financing. community credit needs.
In response to the Agencies’ request The Agencies intend this explanation to In contrast, most industry
for input on the types of information ensure that technical assistance that commenters, as well as a few
examiners should review when readies a small business or small farm community organization commenters,
determining the performance context of to obtain financing is an activity that supported the addition of the new
an institution, some community promotes economic development and, example addressing communications
organizations suggested consulting local thus, would receive consideration as a infrastructure. These commenters stated
studies and Federal Reserve Bank credit community development activity. that such an example would provide
surveys; talking with CDFIs, local further clarity regarding what
municipalities, and community ii. Revitalize or Stabilize Underserved constitutes an activity that could
organizations that work directly with Nonmetropolitan Middle-Income revitalize or stabilize underserved
small businesses; reviewing municipal Geographies nonmetropolitan middle-income
needs assessments; and evaluating The definition of ‘‘community geographies. Many commenters who
business and local demographic data. development’’ includes ‘‘activities that supported the addition of the new
One industry commenter suggested revitalize or stabilize . . . underserved example noted the importance of
examiners could review financial nonmetropolitan middle-income communications infrastructure, and in
institution Consolidated Reports of geographies . . . .’’ See 12 CFR particular broadband access, to the
Condition and Income (Call Reports) ll.12(g)(4)(iii). The CRA regulations economic viability of underserved
and academic or governmental further provide that activities revitalize nonmetropolitan middle-income
economic development reports or or stabilize underserved geographies’ residents and businesses in
adopted plans. Another industry nonmetropolitan middle-income the current marketplace. Further, many
commenter suggested that existing geographies if they help to meet of these commenters noted that the
Q&As explain that an institution may essential community needs, including addition of the new example also may
provide examiners with any relevant the needs of low- or moderate-income help to improve access to alternative
information and, therefore, provide individuals. See 12 CFR systems of delivering retail banking
sufficient guidance without overlaying ll.12(g)(4)(iii)(B). Existing Q&A services, which require reliable access
prescriptive changes that could be § ll.12(g)(4)(iii)–4 provided further to broadband.
counter-productive to an institution’s guidance by listing examples of The Agencies are adopting the new
efforts to balance innovativeness and activities that would be considered to example describing a new or
responsiveness with its unique business help to revitalize or stabilize rehabilitated communications
strategy. Also regarding performance underserved nonmetropolitan middle- infrastructure because they continue to
context, community organization income geographies. The Agencies believe that, consistent with the CRA
commenters called for examiners to proposed to revise this guidance by regulatory definition of ‘‘community
conduct ‘‘robust’’ analyses of local adding a new example describing an development,’’ communications
needs, including localized data on activity related to a new or rehabilitated infrastructure is an essential community
employment needs and opportunities communications infrastructure in service. Specifically, the definition of
for low- or moderate-income recognition that the availability of ‘‘community development’’ provides
individuals. The Agencies will consider reliable communications infrastructure, that activities that help meet ‘‘essential
commenters’ suggestions going forward. such as broadband Internet service, is community needs’’ revitalize and
Finally, one community organization important in helping to revitalize or stabilize underserved nonmetropolitan
commenter noted that activities that stabilize underserved nonmetropolitan middle-income geographies. Further,
support technical assistance may not middle-income geographies. existing Q&A § ll.12(g)(4)(iii)–4
involve ‘‘financing’’ small businesses or The Agencies received 66 comments clarifies that ‘‘financing for the
small farms and, therefore, may not be addressing the proposed addition of the construction, expansion, improvement,
consistent with the size test. Providing new example involving maintenance, or operation of essential
technical assistance on financial matters communications infrastructure. infrastructure’’ may qualify for
to small businesses is currently cited as Commenters’ views on whether the new revitalization or stabilization
an example of a community example should be added to Q&A consideration. As noted above, in the
development service in Q&A § ll.12(g)(4)(iii)–4 were mixed. Agencies’ view, reliable
§ ll.12(i)–3 and involves the A number of commenters expressed communications infrastructure is
provision of financial services. The concern regarding the addition of a new increasingly essential to the economic
viability of all residents of underserved included in Q&A § ll.12(g)(4)(iii)–4 is investing in renewable energy facilities
nonmetropolitan middle-income not exhaustive. qualifies for CRA consideration under,
geographies, including low- and In response to these comments, the for example, 12 CFR ll.12(g)(4)(iii), or
moderate-income individuals. Agencies are adopting a new Q&A any of the other provisions within the
Several industry and community § ll.12(g)–4. This new Q&A explains definition of community development,
organization commenters, as well as a that examples included throughout the then the financial institution would
commenter representing a state banking Questions and Answers are not receive consideration for the activity.
supervisor, sought clarification exhaustive; rather, the Agencies provide Therefore, the Agencies are not
regarding the extent to which the new examples to illustrate the types of expressly adding a reference to
or rehabilitated communications activities that may qualify for renewable energy facilities to the list of
infrastructure must benefit low- or consideration under a particular examples in Q&A
moderate-income individuals or provision of the regulations. § ll.12(g)(4)(iii)–4.
geographies. The Agencies considered Nonetheless, the Agencies emphasize Other commenters suggested that
whether to provide additional that the examples that are expressly loans enabling flood control measures
clarification addressing these comments provided are not the only activities that should be considered as an example of
and determined that additional might receive CRA consideration. In a community development loan.
guidance was not necessary. First, addition, new Q&A § ll.12(g)–4 Although these comments were offered
existing Q&A § ll.12(g)(4)(iii)–4 states explains that financial institutions may as a suggestion for an example of a
that, to receive CRA consideration on receive consideration for a community community development loan in
the basis of revitalizing or stabilizing an development activity, such as a connection with Q&A § ll.12(h)–1,
underserved nonmetropolitan middle- qualified investment, if it serves a the Agencies believe that the
income geography, a project must meet similar community development commenters’ suggestion of a new or
essential community needs, including purpose as an activity described in an rehabilitated flood control measure is
the needs of low- or moderate-income example related to a different type of another example of essential
individuals. Although the geographies community development activity, such infrastructure that could qualify as an
(a term defined at 12 CFR ll.12(k) as as a community development loan. If a activity that revitalizes or stabilizes an
census tracts) addressed by Q&A financial institution can demonstrate underserved nonmetropolitan middle-
§ ll.12(g)(4)(iii)–4 are designated as that an activity it has undertaken has a income geography. As such, the
middle-income, there typically are low- primary purpose of community Agencies have added the following new
and moderate-income individuals and development and meets the relevant example in Q&A § ll.12(g)(4)(iii)–4:
neighborhoods interspersed throughout geographic requirements, that activity ‘‘a new or rehabilitated flood control
these nonmetropolitan geographies. should receive CRA consideration.
The Agencies considered whether the measure, such as a levee or storm drain,
Second, the CRA regulations 10 and that serves the community, including
example pertaining to a new or
Q&A § ll.12(g)(4)(iii)–4 do not require low- and moderate-income residents.’’
rehabilitated communications
that financial institutions demonstrate
infrastructure should be added to any iii. Community Development Loans
that projects primarily benefit the low-
other Q&As, such as Q&A
and moderate-income individuals or The Agencies’ CRA regulations define
§ ll.12(g)(4)(iii)–3, but declined to
neighborhoods in these geographies in ‘‘community development loan’’ to
add the example to any other Q&As. The
order to receive CRA consideration for mean a loan that has community
Agencies believe that new Q&A
revitalizing or stabilizing the development as its primary purpose.
§ ll.12(g)–4, described above, should
underserved nonmetropolitan middle- provide guidance as to whether a new See 12 CFR ll.12(h). Existing Q&A
income geographies. The Agencies or rehabilitated communications § ll.12(h)–1 provides examples of
believe that the current explanation in infrastructure might receive CRA community development loans. The
Q&A § ll.12(g)(4)(iii)–4 is clear consideration in other contexts. The Agencies proposed to add a new
regarding the benefits to an underserved Agencies do not believe it is necessary example of loans to finance certain
nonmetropolitan middle-income to add the same example to any other renewable energy or energy-efficient
geography and the low- and moderate- Q&As. technologies. The proposed example
income individuals within that Some industry and community was intended to clarify that such loans
geography. organization commenters, as well as the may be considered as community
Two industry commenters and one U.S. Environmental Protection Agency development loans when the renewable
community organization commenter (EPA), requested that the Agencies add energy or energy-efficiency
requested that the proposed new additional examples of activities that improvements help reduce operational
example not be limited to Q&A qualify for consideration as activities costs and maintain the affordability of
§ ll.12(g)(4)(iii)–4, asserting that that revitalize or stabilize underserved single-family or multifamily housing or
communications infrastructure should nonmetropolitan middle-income community facilities that serve low- and
also be considered to be an activity that geographies. For example, the EPA moderate-income individuals.
revitalizes or stabilizes distressed suggested expanding Q&A The Agencies received 43 distinct
nonmetropolitan middle-income, and § ll.12(g)(4)(iii)–4 to address comments and 917 form letters
low- or moderate-income, geographies. renewable energy facilities, which it addressing the proposed example in
One industry commenter stated that it posited could be considered ‘‘public Q&A § ll.12(h)–1. Industry and
should be made clear that investments services.’’ (As discussed below, loans to community organization commenters, as
in new or rehabilitated communications finance certain renewable energy well as commenters representing
infrastructure, and not just loans related facilities has been added to the environmental organizations, generally
to such activities, would receive CRA examples of community development supported adding the proposed example
consideration. In addition, a few loans in Q&A § ll.12(h)–1.) Consistent to the Q&A. However, a few community
commenters requested generally that the with the explanation in new Q&A organization commenters expressed
Agencies clarify that the list of examples § ll.12(g)–4, if a financial institution differing opinions regarding how the
were to submit information Agencies proposed to describe that an
10 See 12 CFR ll.12(g)(4)(iii). demonstrating that financing or indirect benefit from renewable energy
improvements would be considered. A facility that serves low- or moderate- improvements in schools. The Agencies
few community organization income individuals. believe that inclusion of this language in
commenters believed that the benefit to The EPA suggested adding Q&A § ll.12(h)–1 is unnecessary. A
low- or moderate-income households or ‘‘revitalizing a contaminated property school that primarily serves low- or
geographies should be more clear and by installing renewable energy’’ to the moderate- income students could be
direct. These commenters asserted that list of examples of community considered as a community facility, and
loans financing renewable energy or development loans in the revision of a loan for energy efficiency
energy-efficiency initiatives should be Q&A § ll.12(h)–1. A community improvements at that school would
required to result in a demonstrable development loan must have a primary qualify as a community development
reduction in the operating or purpose of community development loan, consistent with the example in the
maintenance cost for affordable housing (see Q&A § ll.12(h)–8). The Agencies revised Q&A.
or community facilities serving low- or do not believe it is clear that revitalizing A number of community organization
moderate-income individuals in order to a contaminated property by installing commenters suggested broadening the
renewable energy facilities would language in Q&A § ll.12(h)–1 to
qualify for CRA consideration as
always have a primary purpose of include water conservation
community development loans. In
community development, as defined in improvements. The Agencies agree that
response to these comments, the
12 CFR ll.12(g). Therefore, the water conservation improvements can
Agencies agree that there should be a Agencies have not added this particular promote sustainable affordable housing
discernible benefit to the affordable example. or community facilities serving low- or
housing or community facilities serving Several renewable energy-related moderate-income individuals by
low- or moderate-income individuals. industry commenters discussed the job lowering operating costs and,
Thus, the Agencies have revised the creation and job training aspects of accordingly, have modified the example
example in Q&A § ll.12(h)–1 to installing renewable energy to include water conservation. In
remove the reference to ‘‘indirect improvements and requested greater addition, activities related to water
benefit.’’ However, to provide further CRA consideration of the impact of jobs conservation improvements may also
clarification, the Agencies have added during the construction phase. The qualify as having a different community
an example illustrating how renewable agencies note that Q&A § ll.12(h)–5, development purpose if an institution
energy facilities could benefit low- or in offering guidance on community were to maintain information
moderate-income individuals by development activities that revitalize or demonstrating that the activity meets
reducing a tenant’s utility cost or the stabilize a low- or moderate-income the applicable community development
cost of providing utilities to common geography, states that some activities definition as explained in new Q&A
areas in an affordable housing provide only indirect or short-term § ll.12(g)–4.
development. benefits to low- or moderate-income Although some commenters also
In addition, a number of commenters individuals and, as such, do not receive suggested adding flood control
representing the renewable energy CRA consideration. Construction jobs improvements to the example in Q&A
industry asked the Agencies to consider are used as an illustration of this type § ll.12(h)–1, the Agencies concluded
renewable energy facilities that are not of short-term benefit. Consistent with that financing for flood control
attached directly on the affordable this guidance, the Agencies do not improvements may more appropriately
housing or community services facility, believe that additional consideration be considered as essential infrastructure
should be given to short-term job addressing the need for revitalization
explaining that this approach could be
creation related to the installation of and stabilization of underserved
more efficient, technologically simpler,
renewable energy improvements nonmetropolitan middle-income
or less costly if a particular building site
benefitting affordable housing or a geographies. See Q&A
is not oriented to optimize renewable
community facility that serves low- or § ll.12(g)(4)(iii)–4.
energy generation. In response to these The final paragraph of existing Q&A
moderate-income individuals and are
comments, the Agencies have revised not amending the Q&A as suggested by § ll.12(h)–1 stated that the
the example in the final Q&A to clarify the commenters. rehabilitation and construction of
that a renewable energy project may be A few renewable energy-related affordable housing or community
located on-site or off-site. This industry commenters suggested that facilities may include the abatement or
clarification would apply, for example, CRA consideration should be given for remediation of environmental hazards,
to a community-scale or micro-grid loans to low- or moderate-income and provided lead-based paint as an
renewable energy facility or solar panels homeowners to install renewable energy example. The Agencies received many
placed on carports instead of being facilities or energy-efficient comments from community and
physically mounted on the main improvements. A loan to a homeowner environmental organizations suggesting
building, so long as the benefit from the for these purposes would be considered the inclusion of more explicit
energy generated is provided to an as a consumer loan or home mortgage enumeration of several additional
affordable housing project or a loan. Under the existing regulation and examples of environmental hazards and
community facility that has a guidance, these loans may be have added to the example ‘‘asbestos,
community development purpose. To considered in an institution’s CRA mold, or radon’’ as other examples of
demonstrate that activities related to a evaluation under the lending test environmental hazards that may be
renewable energy facility or project have relevant to the particular institution, so abated or remediated as part of a
a primary purpose of community the Agencies have not made any rehabilitation or construction project.
development, an institution may additional revisions to the Questions One renewable energy-related
provide a copy of the contractual and Answers in response to this industry commenter noted that the
agreement, such as a lease, power comment. discussion in the preamble of the
purchase agreement, or energy service One environmental organization September 2014 Federal Register notice
contract, that allocates energy or suggested broadening the proposed addressing the proposed revision to
otherwise reduces energy cost to benefit language in Q&A § ll.12(h)–1 to Q&A § ll.12(h)–1 may affect certain
affordable housing or a community expressly cover energy efficiency energy financing programs. The
Agencies reiterate that all loans acknowledges these programs as a type by the Agencies intended to address this
considered in an institution’s CRA of lending activity that is likely to be issue. The Agencies have revised the
evaluation, including loans that finance responsive in helping to meet the credit introductory paragraph of the final Q&A
renewable energy or energy-efficient needs of many communities. See Q&A to make clearer that innovative or
technologies, must be consistent with § ll.22(a)–1. However, the Agencies flexible lending practices are not
the safe and sound operation of the believed that outreach initiatives offered required to obtain a specific CRA rating.
institution and should not include in conjunction with small dollar loan In addition, the final Q&A is revised to
features that could compromise any programs improve the success of those cross-reference Q&A § ll.28–1, which
lender’s existing lien position. affiliated lending programs in meeting explains how innovativeness is
The Agencies want to make clear that the credit needs of low- and moderate- considered in the rating process.
the addition of this example does not income individuals and communities Current Q&A § ll.28–1 explicitly
expand the definition of community and, therefore, merit qualitative states, among other things, that the lack
development, but rather clarifies that consideration as an example of an of innovative lending practices will not
consideration will be given for loans innovative or flexible lending practice. result in a ‘‘Needs to Improve’’ CRA
financing renewable energy facilities or The second example proposed by the rating. Rather, the guidance notes that
energy-efficient improvements in Agencies described mortgage or the use of innovative lending practices
affordable housing or community consumer lending programs that utilize may augment the consideration given to
facilities that otherwise meet the alternative credit histories in a manner an institution’s performance under the
existing definition of community that would benefit low- or moderate- quantitative criteria, resulting in a
development. income individuals. The Agencies higher performance rating.
believed that considering alternative One industry commenter addressed
B. Lending Test—Innovative or Flexible
credit histories to supplement the Agencies’ proposed language stating
Lending Practices
conventional trade line information that examiners will consider whether,
The CRA regulations provide that a with additional information about the and the extent to which, innovative or
financial institution’s lending borrower, such as rent and utility flexible practices augment the success
performance is evaluated by, among payments, could provide some and effectiveness of an institution’s
other things, an institution’s ‘‘use of additional creditworthy low- or lending program. This commenter
innovative or flexible lending practices moderate-income individuals an questioned whether the proposed
in a safe and sound manner to address opportunity to gain access to credit, guidance would be sufficient to help
the credit needs of low- or moderate- consistent with safe and sound examiners or bankers understand and
income individuals or geographies.’’ See underwriting practices. The Agencies identify innovative or flexible lending
12 CFR ll.22(b). Existing guidance also solicited comment on whether the activities since examiner discretion
contained in Q&A § ll.22(b)(5)–1 proposed guidance was sufficient to determines what is considered
provides two examples that illustrate encourage institutions to design more ‘‘innovative’’ or ‘‘flexible.’’ The
the range of practices that examiners innovative and flexible lending Agencies recognize that the terms
may consider when evaluating the programs that are responsive to ‘‘innovative’’ and ‘‘flexible’’ are
innovativeness or flexibility of an community needs; whether the benefits qualitative in nature and, thus,
institution’s lending practices. The of using alternative credit histories examiner judgment is needed to assess
Agencies believed that the current outweighed any concerns; and if this the unique characteristics and
guidance would benefit from additional additional guidance would better enable differences in an institution’s lending
examples of innovative or flexible examiners and institutions to identify programs. However, the Agencies
lending practices and therefore, those cases in which alternative credit believe additional guidance concerning
proposed to expand the list of examples. histories benefit low- or moderate- what constitutes an innovative activity
First, the Agencies proposed to revise income individuals. would be helpful to the review process
Q&A § ll.22(b)(5)–1 to emphasize that The Agencies received 87 comments undertaken by examiners. Bankers and
an innovative or flexible lending addressing the proposed revisions and examiners may also find additional
practice is not required to obtain a the three related questions the Agencies guidance in new Q&A § ll.21(a)–4,
specific rating, but rather is a qualitative posed for comment. Because discussed in further detail below, which
consideration that, when present, can commenters’ more general observations explains, among other things, that
enhance a financial institution’s CRA also addressed the three questions, their ‘‘innovative activities are especially
performance. Second, the Agencies responses to the questions are integrated meaningful when they emphasize
proposed to explain that examiners will into the broader discussion of the serving, for example, low- or moderate-
consider whether, and to what extent, comments received by the Agencies. income consumers or distressed or
the innovative or flexible practices Most commenters were supportive of underserved nonmetropolitan middle-
augment the success and effectiveness the Agencies’ intent to clarify how income geographies in new or more
of the institution’s lending program. examiners evaluate an institution’s effective ways.’’ Although examiner
Third, the Agencies proposed two new innovative or flexible lending practices. judgment and discretion remain in
examples of innovative or flexible However, several commenters determining what lending practices are
lending practices. The first example representing both the banking industry deemed innovative or flexible, the
described small dollar loan programs as and community organizations expressed Agencies believe the additional
an innovative or flexible practice when some concerns about the revisions, as guidance in Q&A § ll.21(a)–4
such loans are made in a safe and sound discussed more fully below. provides further clarification on when
manner with reasonable terms, and are A few industry commenters asked the an activity should be considered
offered in conjunction with outreach Agencies to further clarify that innovative or flexible.
initiatives that include financial literacy innovative activities, such as small Most commenters addressing
or a savings component. A small dollar dollar lending programs and alternative proposed Q&A § ll.22(b)(5)–1
loan program currently receives credit histories, are not required to commented on the two examples
consideration under the lending test obtain a specific CRA rating, and had proposed by the Agencies. Concerning
and, therefore, the guidance already concerns despite the revision proposed the small dollar loan example, most
community organization commenters value, but could have a institution’s traditional underwriting
recognized that such programs could be disproportionately negative impact on standards. Further, when such a
a feasible alternative to higher-cost low- or moderate-income individuals program is used to demonstrate that
loans offered by payday lenders. and people of color. These commenters consumers have a timely and consistent
Industry commenters were also suggested that the Agencies clarify the record of paying their obligations, the
supportive of small dollar lending types of data sources that should be program may be considered an
programs. For example, one industry used in alternative credit history reports innovative or flexible practice that
commenter stated that small dollar that could be considered innovative, but augments the success and effectiveness
loans are a path for a bank’s clients with that would not have a negative impact of the lending program. The Agencies
thin credit files or a lack of credit on low- or moderate-income note that, similar to the small dollar
history to build or establish a credit individuals. loan program example and the other
score. Nevertheless, some community Industry commenters were also examples in this Q&A, the use of
organization commenters expressed supportive of the proposed example alternative credit histories as an
concern that the proposed example on concerning alternative credit histories. innovative or flexible lending practice is
small dollar loans did not make A few industry commenters not required for the financial institution
reference to any consumer protection acknowledged that the use of alternative to obtain a specific CRA rating. See Q&A
standards. credit histories could be effective in § ll.28–1.
In particular, one state agency expanding access to credit to low- or Finally, the Agencies revised the
expressed concern that the small dollar moderate-income individuals. However, introductory paragraph of this Q&A to
loan example did not sufficiently these industry commenters believed that make clear that, although many
emphasize consumer protection and the access to credit should be balanced financial institutions have used
safety and soundness aspects of against safety and soundness innovative or flexible lending practices,
individual small dollar loans. This considerations. These industry such as a small dollar loan program or
commenter suggested that the Agencies commenters urged the Agencies to work consideration of alternative credit
consider adding the phrase ‘‘based on a closely with each other to provide a histories, to customize loans to their
borrower’s ability to repay’’ to the small consistent message regarding the customers’ specific needs in a safe and
dollar loan example because it would activities that could be innovative and sound manner and consistent with
emphasize that small dollar loans made flexible while ensuring delivery in a statutes, regulations, and guidance, such
in a safe and sound manner are safe and sound manner. practices are not required to obtain a
evaluated with respect to individual The Agencies are finalizing the specific CRA rating. Further, the CRA
loans and not the entire portfolio. example addressing consideration of regulations provide that a financial
Similarly, several community alternative credit histories largely as institution is not required to make loans
organization commenters asked that the proposed with clarifying revisions based or investments or to provide services
Agencies give CRA consideration for on comments received. The Agencies that are inconsistent with safe and
small dollar loan programs only if the agree with commenters that certain data sound operations. Financial institutions
loans are safe and sound alternatives to sources provide little or no predictive are permitted and encouraged to
high-cost predatory programs. value. Hence, the Agencies intend to develop and apply flexible underwriting
In response to these comments, the consider an institution’s use of standards for loans that benefit low- or
Agencies are adopting the small dollar alternative credit histories that are moderate-income geographies or
loan program example largely as consistent with safe and sound banking individuals only if consistent with safe
proposed with a revision to ensure practices and that would benefit
and sound operations. See 12 CFR ll
consistency with Q&A § ll.22(a)–1. otherwise creditworthy low- or
.21(d).
Finally, one industry commenter moderate-income individuals who
requested that the Agencies clarify the would otherwise be denied credit. C. Service Test
term ‘‘reasonable terms’’ in the context Individuals that may benefit from such
i. Availability and Effectiveness of
of small dollar lending programs. This programs are those who may not qualify
Retail Banking Services
commenter expressed concern that for credit based on the use of
‘‘reasonable terms’’ was undefined and, conventional credit bureau reports The CRA regulations provide that the
thus, would add confusion as to what because they have little, or no, Agencies evaluate the availability and
would receive CRA consideration. The reportable credit history with the effectiveness of a financial institution’s
Agencies note that whether a lending national credit bureaus (hence a credit systems for delivering retail banking
program has ‘‘reasonable terms’’ would denial due to a low, or no, credit score services under the service test pursuant
depend on the facts and circumstances with the national credit bureaus), but to four criteria: (1) The current
and, therefore, defining the term would have a timely and consistent record of distribution of the institution’s branches
not be practicable. paying obligations (such as rent and among low-, moderate-, middle-, and
Most community organization utility bills). The Agencies believe that upper-income geographies; (2) the
commenters were supportive of the the use of alternative credit histories to institution’s record of opening and
proposed new example addressing supplement (not substitute for) the closing branches, particularly those
consideration of alternative credit institution’s traditional underwriting located in low- or moderate-income
histories as an innovative or flexible programs, may open opportunities to geographies or primarily serving low- or
lending practice. Several community some creditworthy low- or moderate- moderate-income individuals; (3) the
organization commenters, however, income individuals to gain access to availability and effectiveness of
expressed concern over the risk of using credit. Accordingly, the Agencies have alternative systems for delivering retail
certain alternative data sources, such as modified the example to clarify that banking services in low- and moderate-
social media, checking account history, alternative credit histories should be income geographies and to low- and
voter registration records, and criminal used to evaluate low- or moderate- moderate-income individuals; and (4)
convictions, to establish credit history. income individuals who lack sufficient the range of services provided in low-,
According to these commenters, such conventional credit histories and who moderate-, middle-, and upper-income
data sources provide no predictive would be denied credit based on the geographies and the degree to which the
services are tailored to meet the needs important in providing financial Commenters generally believed the
of those geographies. services to low- and moderate-income proposed factors were reasonable and
The Agencies proposed to revise geographies. However, the Agencies are sufficiently flexible. Community
current Q&A § ll.24(d)–1, which making a minor revision to the Q&A to organization commenters emphasized
addresses how examiners should remove references to automated teller the importance of determining whether
evaluate the availability and machines (‘‘ATMs’’) as the only alternative services and products were
effectiveness of an institution’s systems example of alternative delivery systems not just offered, but adopted and used
for delivering retail banking services. to acknowledge that many other consistently by consumers. These
Specifically, the Agencies proposed to alternative delivery channels are commenters suggested that the cost of
delete the statements that ‘‘performance utilized by financial institutions. The products is most relevant in the
standards place primary emphasis on Agencies note that other Q&As being consideration of whether an alternative
full-service branches’’ and that finalized in this document provide delivery system is available to, and used
alternative delivery systems are additional guidance on how examiners by, low- and moderate-income
considered ‘‘only to the extent’’ that will evaluate criteria under the retail individuals.
they are effective alternatives in service test to ensure that appropriate Some community organization
providing needed services to low- or consideration is given to branches, commenters suggested that the Agencies
moderate-income geographies and alternative delivery systems, and refrain from placing too much emphasis
individuals. The proposal was intended financial services tailored to meet the on alternative delivery systems until
to encourage broader availability of needs of low- and moderate-income usage data can be accessed and used by
alternative delivery systems to low- or individuals or geographies. See Q&As the public to independently monitor the
moderate-income geographies and § ll.24(d)(3)–1 and § ll.24(d)(4)–1. industry’s performance. Furthermore,
individuals without diminishing the these commenters suggested that the
value full-service branches offer to ii. Alternative Systems for Delivering Agencies clarify that financial
communities. Retail Banking Services institutions will not receive CRA
The Agencies received 41 comments The Agencies proposed to revise Q&A consideration for serving low- or
on proposed revisions to Q&A § ll.24(d)(3)–1, which addresses how moderate-income individuals or areas
§ ll.24(d)–1. Nearly all of the industry examiners evaluate the availability and outside of their assessment areas using
commenters supported the revision, effectiveness of alternative delivery online or mobile technology.
including commenters that stressed the systems in the context of the retail Conversely, industry commenters
continued importance of branches to the service test. The proposed revisions focused on the difficulty of evaluating
communities they serve. Some industry were responsive to suggestions that the the availability and effectiveness of
commenters, however, voiced concern Agencies update the guidance to reflect services based on the income of the
about how the Agencies would technological advances used to deliver recipient because such information is
implement the revision and asked for retail banking services by: (1) Adding collected only in the context of a loan
further clarification on how examiners examples of such technologically application.
would weigh branches and alternative advanced systems, even though the The Agencies specifically sought
delivery systems and utilize examples were not, and are not, comment on whether the factors
performance context considerations in intended to limit consideration of new proposed were sufficiently flexible to be
rating the different delivery systems’ methods as technology evolves; and (2) used by examiners as the financial
performance under the service test. In providing additional guidance on how services marketplace evolves, and if
contrast, almost all community examiners will evaluate the availability other factors should be included.
organization commenters opposed the and effectiveness of alternative delivery Commenters that addressed this
proposed revisions, asserting that systems. question were largely supportive.
branches continue to be uniquely Proposed Q&A § ll.24(d)(3)–1 Industry commenters indicated that the
important to low- and moderate-income identified additional factors that factors were sufficiently flexible, but
neighborhoods and individuals, elderly examiners may consider when noted that additional guidance was
customers, and local businesses. Many evaluating whether a financial needed regarding the use of proxies for
of these community organization institution’s alternative delivery systems income and how the criteria would be
commenters highlighted the importance are available and effective in delivering weighted. Community organization
of face-to-face contact in order to retail banking services in low- and commenters were also generally
overcome language barriers and moderate-income geographies and to supportive of the proposed factors but
effectively provide essential financial low- and moderate-income individuals. offered suggestions on how to
services, such as opening accounts, These proposed factors included: (1) implement them.
applying for loans, and explaining terms Ease of access, whether physical or One industry commenter opposed the
and conditions. These commenters virtual; (2) cost to consumers, as proposed factor that would evaluate the
believed the proposed changes compared to other delivery systems; (3) comparative cost of alternative delivery
regarding how examiners should weigh range of services delivered; (4) ease of systems to the consumer because it
branches and alternative delivery use; (5) rate of adoption; and (6) would give examiners broad discretion
systems would result in more branches reliability of the system. The proposed when evaluating the pricing of banking
being closed. Moreover, these Q&A further explained that examiners services. Other industry commenters
commenters stated that the proposed will consider any information an suggested that the Agencies provide
revisions to Q&A § ll.24(d)–1 would institution maintains and provides to more clarity regarding how the factors
not resolve the CRA regulations’ examiners to demonstrate that the would be weighted. Yet another
outdated definition of assessment area. institution’s alternative delivery systems industry commenter suggested that the
In consideration of the comments are available to, and used by, low- and Agencies clearly specify that the list of
received, the Agencies are withdrawing moderate-income individuals, such as factors is not intended to be exhaustive
the proposed revisions to Q&A data on customer usage or transactions. and requested that the guidance clearly
§ ll.24(d)–1 to avoid the unintended The Agencies received 41 comments state that there is no regulatory
inference that branches are less on the proposed Q&A § ll.24(d)(3)–1. requirement to provide banking services
at a reduced cost. Finally, another The Agencies did not include industry commenters stated that
industry commenter suggested that additional explanation to the ‘‘ease of financial institutions do not collect
consideration should be given to the access’’ factor, as suggested by some income information from customers and
continuum of access channels that an commenters, but note that evaluation of most suggested that the income level of
institution provides, rather than ‘‘ease of access’’ could include the census tract where the customer
comparing services within delivery consideration of language access, resides is the best available proxy for
channels. This commenter further stated disability accommodation, and the income. Another industry commenter
that financial institutions providing a ability to use a system with alternative counseled against any effort to collect
full range of access channels should forms of identification. Similarly, the income information when opening
receive greater consideration than Agencies did not revise the final Q&A deposit accounts, asserting that opening
mono-line or limited-channel to address how the various factors will a bank account needs to be as simple as
institutions. be weighted since the availability and possible to increase access to banking
Community organization commenters applicability of information regarding services. This commenter believed that
focused on the importance of evaluating each factor will vary depending on the the more questions a financial
the actual impact of financial services type of delivery system under institution asks, the fewer people would
on low- and moderate-income consideration and the performance finish the process and, more
communities. These commenters context of the institution. The factors importantly, that income information
suggested evaluating the sustainability cited in the final Q&A are examples of collected in this way would quickly
of accounts opened, the range of information that is relevant to the become stale and statistically invalid.
services offered through alternative evaluation of whether alternative One industry commenter suggested
delivery systems, and the degree to delivery systems are available and that some financial institutions may
which they are tailored to meet the effective, and they are meant to be maintain information, such as internal
needs of low- or moderate-income flexible. operations reports, industry rankings,
individuals. In addition, some The Agencies did not revise the and customer surveys, that would be
community organization commenters guidance to address the comment helpful in understanding their
suggested that the Agencies provide suggesting that the proposed measures performance context, but, since the
additional explanation on the ‘‘ease of of availability and effectiveness of types of information that institutions
access’’ factor to include consideration alternative delivery systems should be maintain vary widely, such information
of language access, disability made applicable to branches and third- would be difficult to use for anything
accommodation, and ability to use a party service providers. The Agencies other than context. A community
system with alternative forms of share the commenter’s view that organization commenter suggested that
identification. financial institutions should provide examiners evaluate the frequency of
One commenter, a public policy high-quality service delivery overall; transactions, adoption and attrition
organization, supported the proposed however, the measures of availability rates, as well as any geographic and
factors, but suggested that they be and effectiveness in Q&A § income data available.
applied to determine the effectiveness of ll.24(d)(3)–1 were designed to Two commenters addressed the
branches as well as alternative delivery evaluate alternative delivery systems. information available regarding the
systems. This commenter stated that As provided in the Interagency CRA reliability of alternative delivery
high-cost or inconvenient branches are Examination Procedures, examiners systems. The first, representing a
no more beneficial than poorly utilized assess the quantity, quality, and community organization, suggested that
alternative delivery platforms, and accessibility of the financial examiners evaluate the alternative
asserted that the Agencies’ objective institution’s service delivery systems delivery systems’ ability to handle peak
should be to encourage high-quality provided in low-, moderate-, middle-, transaction volumes, the frequency of
service delivery through both branches and upper-income geographies. system crashes, the number of service
and alternative channels. This Examiners also consider the degree to shut downs for system maintenance,
commenter also stated that the use of which services are tailored to the and the information security of systems.
intermediaries, such as community- convenience and needs of each The other comment, from a financial
based organizations that provide face-to- geography (e.g., extended business institution, suggested that the Agencies
face interaction with customers, should hours, including weekends, evenings, or provide specific guidance on, and
be considered as an effective substitute by appointment, providing bilingual examples of, the types of information
for branch activity. services in specific geographies, etc.). that might be relevant to the evaluation
In general, the commenters agreed The second question on which the of a system’s reliability.
that the factors proposed are reasonable Agencies requested comment asked The comment letters indicated that
and sufficiently flexible. The Agencies about the types of information routinely the types of information collected and
are finalizing the proposed factors in maintained by financial institutions that maintained by financial institutions that
final Q&A § ll.24(d)(3)–1 largely as would be useful to demonstrate the would be relevant to an evaluation of
proposed, but with two modifications. availability and effectiveness of its the availability and effectiveness of
First, to address commenters’ concern alternative delivery systems to low- or alternative delivery systems vary
that availability of alternative delivery moderate-income individuals. One widely. The Agencies, therefore, are
systems alone does not demonstrate a industry commenter described the data retaining the proposed language stating
system’s responsiveness to community that it has begun to collect and retain to that examiners will consider any
needs, the Agencies have revised the comprehensively assess all delivery information that an institution
factor regarding the rate of adoption to systems, including customer complaint maintains and provides to demonstrate
read ‘‘the rate of adoption and use’’ metrics, cost of delivery (including the availability and effectiveness of its
(emphasis added). Second, the Agencies third-party costs), new account/product alternative delivery systems to low- or
clarified the language regarding the cost volume, account/product closure moderate-income individuals.
to consumers as compared with the volume, current accounts/product Third, the Agencies asked what other
bank’s other delivery systems, as volume, and Service Level Agreements sources of data and quantitative
discussed more fully below. metrics (uptime/downtime). Other information examiners could use to
evaluate the proposed factors and related to determining the relative cost alternative delivery systems to
whether financial institutions have such of alternative delivery systems, suggest consumers as compared with other
data readily available for examiners to that the distinction between delivery delivery systems, as well as the range of
review. One industry trade association systems and financial products is not services delivered relative to other
commenter suggested that market clear. For example, many commenters delivery systems, (i) offered by the
studies be used to determine alternative focused on how the costs of financial institution, (ii) offered by institutions
delivery systems’ usage because income products tailored to meet the needs of within the institution’s assessment
data is not available. Another industry low- and moderate-income customers, area(s), or (iii) offered by the banking
commenter suggested that the such as prepaid cards and low-cost industry generally. Two industry
interagency examination procedures be checking accounts, should be evaluated, commenters stated that an evaluation of
modified to require that examiners rather than addressing information that the cost to consumers compared to other
gather cost data from advertisements, could be used to determine the relative delivery systems is best evaluated
brochures, online product lists, and costs of delivery systems, such as usage within the specific context of each
similar sources to compare service costs or access fees for online accounts and financial institution. One of these
across banks and within broad mobile banking platforms. commenters suggested that it would be
geographic areas. This commenter also In order to more clearly distinguish unreasonably burdensome to expect an
suggested that examiners should gather between delivery systems and financial institution to survey and monitor costs
information from the community products tailored to meet the needs of related to other institutions’ delivery
regarding the cost of services locally in low- or moderate-income individuals, systems. One industry commenter
the course of examinations. the Agencies have revised Q&A suggested that it would be preferable to
A community organization § ll.12(i)–3, which lists examples of evaluate the cost to consumers within
commenter noted the lack of useful data community development services, to each assessment area, recognizing that
regarding the actual geographic location remove from that list any examples of examiners are required to reach a
of a person or business holding deposits retail banking services that are tailored conclusion on a financial institution’s
and suggested that the Summary of to meet the needs of low- or moderate- performance in each of its assessment
Deposits 11 information collected by the income individuals. This revised Q&A areas. One community organization
FDIC be improved to provide better data is discussed more fully below under commenter stated that the cost to
regarding depositor location. Another III.A.i. However, these examples of consumers of a particular delivery
community organization commenter retail services will continue to be given system should not be considered along
suggested that examiners evaluate consideration under the service test as with other factors, such as the rate of
punitive fees, prohibitive minimum provided pursuant to 12 CFR adoption and sustained use. Another
balances, and narrow risk assessments ll.24(d)(4). community organization commenter
associated with bank products. A third The Agencies have also added a new asserted that examiners should consider
community organization commenter Q&A § ll.24(d)(4)–1 addressing how the total cost of products because fees
suggested that examiners refer to online examiners evaluate whether retail are a primary factor preventing
sources to provide cost comparisons of services are tailored to meet the needs households from obtaining bank
products across providers. This of geographies of different income products and retaining banking
commenter also suggested that levels. The Agencies are adopting Q&A relationships.
examiners consider a comparison of § ll.24(d)(4)–1 in response to the After reviewing the comments
many comments received regarding how received in response to this question,
costs relative to other banks in the
examiners evaluate alternative delivery the Agencies agree that it would be most
assessment area and the industry
systems. Many of these commenters appropriate to compare the costs of a
overall. Still another community
indicated that some confusion exists in financial institution’s alternative
commenter focused on how prepaid
distinguishing alternative delivery delivery systems with its other delivery
cards could be evaluated for
systems from financial products that are systems because of significant
effectiveness, suggesting that examiners
tailored to meet the needs of low- or differences in size, capacity, and
evaluate whether the cardholder’s credit
moderate-income geographies and business strategy among institutions. As
score had improved as a measure of
individuals. The Agencies believe that a result, the Agencies have revised the
whether the card helped accountholders
this new guidance makes clear that, in final Q&A to clarify that costs of
save money, build credit, and improve addition to evaluating the range of alternative delivery systems will be
financial literacy. This commenter also services provided in geographies of compared to the financial institution’s
suggested that income could be different incomes, examiners will also other delivery systems.
estimated from direct deposits of review any other information provided Lastly, the Agencies asked whether
employment checks. by the institution to demonstrate that its the proposed revisions adequately
The Agencies found these comments
services are tailored to meet the needs address changes in the way financial
helpful in thinking about the types of
of its customers in the various institutions deliver products in the
information that may be useful in geographies of its assessment area(s). context of assessment area(s) based on
evaluating the availability and The final guidance further explains that the location of a financial institution’s
effectiveness of alternative delivery this information may include data branches and deposit-taking ATMs.
systems. Moreover, the Agencies noted regarding the costs and features of loan While most commenters noted that the
that the comments, particularly those and deposit products, account usage proposed Q&A offered helpful guidance
and retention, geographic location of on how examiners would evaluate the
11 The Summary of Deposits (SOD) is the annual
survey of branch office deposits as of June 30 for accountholders, the availability of availability and effectiveness of
all FDIC-insured institutions, including insured information in languages other than alternative delivery systems, they also
U.S. branches of foreign banks. This survey has English, and any other relevant observed that the proposed guidance
been conducted since 1934. Instructions, survey information maintained by the did not adequately address the trend in
results, market share reports, contact information,
and survey facsimiles are available through the institution. the financial services industry toward
FDIC’s Summary of Deposits Web site at https:// Fourth, the Agencies asked whether non-branch delivery systems and its
www2.fdic.gov/sod/. examiners should evaluate the cost of impact on financial institutions’
performance within their branch-based by the institution that demonstrates In reviewing the comments, the
assessment areas. Similarly, one community development services are Agencies noted that much of the
industry commenter and one responsive to those needs in order to confusion surrounding the distinction
community organization commenter address concerns that examiners have between retail banking services and
noted that the Agencies should clarify refused to consider certain types of community development services can
that the evaluation of alternative documentation. be traced to the inclusion of retail
delivery systems is conducted strictly The Agencies solicited comment on services or products that are tailored to
within the assessment areas defined by all aspects of this proposed new Q&A meet the needs of low- or moderate-
branches and emphasize that CRA and specifically requested commenters’ income individuals in existing Q&A
evaluations do not consider alternative views on two questions, as discussed § ll.12(i)–3, which lists examples of
delivery systems outside of an below. The Agencies received 26 community development services. Of
institution’s assessment area. Currently, comments that were generally the 11 examples of community
the regulations provide for supportive of the intent of the Q&A; development services listed in Q&A
consideration of alternative delivery however, most of these commenters did § ll.12(i)–3, five are related to branch
systems to the extent that they meet the not believe that the proposed Q&A delivery systems and retail products or
needs of low- and moderate-income would achieve its stated purpose. A services. They involve: (i) providing
individuals within an institution’s number of commenters asserted that the financial services to low- or moderate-
assessment area. proposal did not elevate the relative income individuals through branches
importance of community development and other facilities located in low- or
III. New Questions and Answers services compared to retail banking moderate-income geographies; (ii)
Proposed in 2014 services as the Agencies had intended. increasing access to financial services
A. Community Development Services The Agencies specifically requested by opening or maintaining branches or
comment on whether the proposed other facilities that help to revitalize or
i. Evaluating Retail Banking and guidance provided sufficient clarity stabilize a low- or moderate-income
Community Development Services regarding how examiners evaluate retail geography, a designated disaster area, or
The Agencies proposed a new Q&A and community development services a distressed or underserved
§ ll.24(a)–1 to clarify how examiners under the large institution service test nonmetropolitan middle-income
evaluate retail and community and if not, suggestions that would make geography; (iii) providing electronic
development services under the large the Q&A clearer. Community benefits transfer and point of sale
institution service test to improve organization and industry commenters terminal systems; (iv) providing
consistency and reduce uncertainty responded generally that the proposed international remittance services; and
regarding the performance criteria in the Q&A did not clarify how retail services (v) providing other financial services
service test, and to encourage additional that benefit low- and moderate-income with the primary purpose of community
community development services. individuals or geographies and that are development, such as low-cost savings
For retail banking services, the described as community development or checking accounts, including
proposed new Q&A stated that services under existing Q&A electronic transfer accounts, individual
‘‘examiners consider the availability and § ll.12(i)–3 (such as low-cost development accounts, or free or low-
effectiveness of an institution’s systems transaction accounts and electronic cost government, payroll, or other check
for delivering banking services, benefit transfer accounts) are evaluated. cashing services.
particularly in low- and moderate- Rather, at least one commenter believed The Agencies have revised Q&A
income geographies and to low- and the proposed Q&A exacerbated the § ll.24(a)–1 in response to these
moderate-income individuals; the range confusion that currently exists. One comments. The final Q&A incorporates,
of services provided in low-, community organization commenter as examples, most of the retail banking
moderate-, middle-, and upper-income contended that the Agencies incorrectly services currently listed as community
geographies; and the degree to which labelled low-cost transaction and development services under Q&A
the services are tailored to meet the savings accounts as community § ll.12(i)–3. These examples
needs of those geographies.’’ With development services, rather than as demonstrate retail banking services that
regard to community development retail banking services. This sentiment improve access to financial services, or
services, the proposed Q&A stated that was shared by a few other commenters decrease costs, for low- or moderate-
examiners would consider the extent of who asserted that basic transaction income individuals. The examples
community development services savings and checking accounts should include: low-cost deposit accounts;
offered. be considered retail banking services. electronic benefit transfer accounts and
The proposed Q&A sought to Commenters noted that, under existing point of sale systems; individual
differentiate retail services that are also guidance, these services could be development accounts; free or low-cost
considered community development classified as either retail banking or government, payroll, or other check
services under existing Q&A community development services. cashing services; and reasonably priced
§ ll.12(i)–3 (such as low-cost banking These commenters and others urged international remittance services.
accounts targeted to low- or moderate- the Agencies to more clearly demarcate In turn, as mentioned above, the
income individuals) from other retail the boundaries between retail banking Agencies have deleted all of the retail
banking services by stating that services and community development banking services from the list of
examiners would consider whether services in the Questions and Answers. examples of community development
these retail banking services are They requested that the Agencies services in Q&A § ll.12(i)–3. This
responsive and effective in that they provide specific examples or additional conforming change is intended to
‘‘improve or increase access to financial explanation that more clearly identifies address commenters’ concerns that
services by low- and moderate-income which products and services will be including examples of retail banking
individuals or in low- or moderate- evaluated under the retail banking services, even when such services
income geographies.’’ In addition, the services criteria and which will be increase access by, or reduce costs for,
proposed Q&A stated that examiners considered as community development low- or moderate-income individuals or
will consider any information provided services. geographies, in the list of examples for
community development services leads planned to weigh the relative and services offered are responsive to
to confusion and inconsistencies importance of retail banking and community needs. A few industry and
regarding how retail services are community development services under community organization commenters,
considered during the evaluation the service test pursuant to the proposed however, sought further clarification
process. Q&A. For instance, one industry regarding the types of information that
The Agencies are also adopting commenter urged the Agencies to state would be considered to ensure
conforming revisions to existing Q&A that community development services consistency.
§ ll.26(c)(3)–1 to ensure these will be reflected in the total ‘‘score’’ that The Agencies specifically requested
activities are appropriately evaluated in is attributed to the service test. Other comment on what types of information
intermediate small institutions. This commenters noted that the Agencies financial institutions are likely to
Q&A addresses what activities appear to give more consideration to maintain that may demonstrate that an
examiners consider when evaluating the branches than other services when institution’s community development
provision of community development evaluating a large institution’s service services are responsive to the needs of
services by an intermediate small test performance. low- or moderate-income individuals or
institution. To ensure that intermediate In response to these comments, the in low- or moderate-income
small institutions continue to receive Agencies have revised Q&A geographies. In response to this
consideration under their community § ll.24(a)–1 to stress that both retail question, both community organization
development test for retail banking banking and community development and industry commenters provided
services that increase access by, or services are important factors under the several examples of the types of
reduce costs for, low- or moderate- large institution service test. The information that are or should be
income individuals, the Agencies are revision to the Q&A now states: ‘‘Retail maintained to demonstrate such
revising existing Q&A § ll.26(c)(3)–1. banking services and community responsiveness, including: (i)
Although the revised Q&A labels development services are two Documentation evidencing attendance
services such as electronic benefit components of the service test and are at and involvement in applicable
transfer accounts, individual both important in evaluating a large community events; (ii) surveys
development accounts, and free or low- institution’s performance.’’ The completed by the financial institution to
cost government, payroll, or other check Agencies note that, as with other aspects ascertain community needs; (iii) an
cashing services as retail services, of the CRA evaluation process, the institution’s records of discussions with
examiners will continue to consider relative weighting of retail banking and community contacts; and (iv) publicly
these services when evaluating the community development services will available market research data that
provision of community development depend on the financial institution’s support the importance to low- or
services for an intermediate small performance context. moderate-income families for a
institution when the services increase Several commenters asserted that the particular type of service, such as
access by, or reduce costs for, low- or proposed Q&A did not sufficiently financial literacy education services or
moderate-income individuals. This Q&A explain how qualitative factors, such as Volunteer Income Tax Assistance
is revised to clarify also that branches ‘‘effectiveness’’ and ‘‘availability,’’ (VITA) tax preparation. Some
and other facilities in low- or moderate- would be evaluated in the context of commenters suggested that the
income geographies, designated disaster retail banking and community examples would be useful and effective
areas, or distressed or underserved development services. These additions to the final Q&A.
nonmetropolitan middle-income commenters urged the Agencies to The examples offered by commenters
geographies are considered as providing provide more specificity by defining key are practical suggestions of the types of
community development services under terms or providing concrete examples of information institutions could collect or
the community development test the metrics for the key concepts of maintain to demonstrate the
applicable to intermediate small ‘‘availability and effectiveness’’ and responsiveness of a community
institutions. ‘‘responsiveness.’’ The Agencies did not development service. However, the
The Agencies made one additional revise Q&A § ll.24(a)–1 to address the Agencies have chosen not to include the
revision based on these comments. qualitative factors associated with retail above suggested examples in the final
Because all of the examples of banking and community development Q&A because some examiners and
community development services that services because the Agencies believe bankers may view examples as
now remain in revised Q&A other Q&As adequately discuss what is requirements, which could lead to
§ ll.12(i)–3 are more direct examples meant by ‘‘availability and unintended burden on financial
of community development services, the effectiveness’’ and ‘‘responsiveness.’’ institutions. The Agencies remind
Agencies added a cross-reference to See Q&As § ll.24(d)–1 and institutions that they can provide any
Q&A § ll.12(i)–3 in the discussion of § ll.21(a)–3, respectively. information to examiners that
community development services in The proposed Q&A stated that demonstrates responsiveness.
new Q&A § ll.24(a)–1. examiners will consider any One community organization
In addition to addressing the information provided by the institution commenter opined that community
confusion between retail and that demonstrates its community development services are currently
community development services, some development services are responsive to defined too narrowly and urged the
commenters asserted that proposed the needs of low- or moderate-income Agencies to broaden the definition of
Q&A § ll.24(a)–1 did not adequately individuals and low- or moderate- community development services to
emphasize the importance of income geographies. Industry include access for small businesses.
community development services or commenters were particularly This commenter contended that
address concerns that community supportive of this proposal. These financial institutions should receive
development services are not given commenters opined that examiners CRA consideration when loan officers
sufficient consideration in the service often impose excessive and refer a small business applicant to an
test relative to retail banking services. A unreasonable documentation intermediary when the applicant does
few commenters contended that it requirements on institutions to not qualify for a bank loan. The
remained unclear how the Agencies demonstrate that particular products Agencies note that Q&A § ll.12(i)–3
already addresses bank referral effective and responsive. However, ‘‘responsiveness,’’ respectively, to direct
programs for small businesses and commenters disagreed on whether the readers to additional guidance regarding
provides that they may qualify for proposed Q&A fully achieved its stated these criteria.
community development service goal of clarifying the assessment of Further, the final Q&A discusses how
consideration when the financial qualitative and quantitative factors or qualitative performance criteria
institution ‘‘[provides] technical explaining the importance of qualitative augment the consideration given to
assistance on financial matters to small factors. community development services by
businesses or community development The Agencies specifically requested recognizing that community
organizations, including organizations feedback on whether the proposed development services sometimes require
and individuals who apply for loans or guidance sufficiently explained the special expertise and effort on the part
grants under the Federal Home Loan importance of the qualitative factors of the financial institution and provide
Banks’ Affordable Housing Program.’’ related to community development benefit to the community that would not
Finally, to reflect more closely the services. Commenters addressing this otherwise be possible. The final Q&A
regulatory factors used to evaluate question were divided, with a slight states that these assessments will
community development services, the majority stating the proposed Q&A depend on the impact of a particular
Agencies have revised final Q&A sufficiently explained the importance of activity on community needs and the
§ ll.24(a)–1 to state clearly that the qualitative factors related to benefits received by a community and
examiners evaluate the extent of community development services. For illustrates this point with an example of
community development services and example, one community organization a community development service that
their innovativeness and responsiveness commenter found the guidance on would be considered responsive to
to community needs. examiners taking into consideration the credit and community needs.
degree to which community In addition, some commenters,
ii. Quantitative and Qualitative representing both the industry and
development services are responsive to
Measures of Community Development community organizations, asserted that
community needs helpful. Other
Services the proposed Q&A did not provide
commenters, representing both the
The Agencies proposed new Q&A industry and community organizations, sufficient guidance regarding how the
§ ll.24(e)–2 to clarify how community noted that clarifying that examiners quantitative and qualitative factors
development services are quantitatively should not rely solely on quantitative would be comparatively weighted under
and qualitatively evaluated. The new factors, such as hours spent by the service test. Some commenters
Q&A is meant to address inconsistencies employees conducting financial literacy expressed support for a balanced
in how community development workshops, was adequate guidance and approach to how qualitative and
services have been evaluated would help give examiners needed quantitative factors are evaluated in
quantitatively and to respond to direction to consider other factors assessing community development
concerns that qualitative factors, such as besides hours worked when making service performance, while others
whether community development evaluations of community development indicated a preference for weighting one
services are effective or responsive to services. Other commenters viewed that factor over the other. For instance, one
community needs, receive inadequate statement as inadequate. These industry commenter preferred using the
consideration. Thus, the proposed Q&A commenters noted the proposed Q&A hours spent by employees performing
noted that both quantitative and mentioned only that the review ‘‘is not community development services as the
qualitative aspects of community limited to a single quantitative factor’’ baseline measure, augmented with a
development services are considered rather than listing examples of the review of responsiveness, innovation,
during an institution’s evaluation. qualitative factors that examiners could leadership, complexity, and flexibility,
With regard to quantitative factors, consider. Commenters further noted that to the extent that the institution chooses
the proposed Q&A stated that examiners the proposed Q&A did not adequately to provide such information. State
assess the extent to which community explain qualitative factors, such as financial regulator commenters took an
development services are offered and responsiveness, and asserted that the opposing position, suggesting that
used by the community. This review is proposal could benefit from the qualitative aspects of community
not limited to a single quantitative inclusion of specific examples of how development services should serve as
factor, such as the number of hours that examiners assess the degree to which the primary driver in determining
financial institution staff devotes to a services are responsive to community whether services are effective and
particular community development needs. responsive.
service. Rather, an evaluation of The Agencies have revised Q&A The Agencies do not believe it is
community development services § ll.24(e)–2 to address some of these necessary to revise the Q&A to address
assesses the degree to which those comments. The final Q&A incorporates these comments. First, the Agencies
services are responsive to community language that, consistent with regulatory note that examiners do not use a
needs. Finally, the proposed Q&A stated factors, more explicitly states that specific formula when quantitatively
that examiners would consider any examiners will consider community and qualitatively evaluating community
relevant information provided by the development services qualitatively by development services. As with all
institution and from third parties to assessing the degree to which those aspects of an institution’s CRA
quantify the extent and responsiveness services are innovative or responsive to performance evaluation, the
of community development services. community needs. The proposed Q&A performance context of the institution
Overall, the Agencies received 19 did not include a reference to will affect how the qualitative and
comments addressing this proposed ‘‘innovativeness,’’ although it is a quantitative factors are considered
Q&A. Commenters unanimously qualitative factor included in the under the service test. Similarly, some
supported the Agencies’ intent to clarify regulation. See 12 CFR ll.24(e). In industry commenters asserted that the
the quantitative and qualitative factors addition, the Agencies added cross- Q&A should specify how many
that examiners review when evaluating references to Q&As § ll.21(a)–4 and community development services
community development services to § ll.21(a)–3, which discuss the would be needed in order to obtain a
determine whether these services are qualitative factors ‘‘innovativeness’’ and rating of ‘‘outstanding’’ or
‘‘satisfactory.’’ However, examiners do receive favorable CRA consideration. needs of their communities based on
not utilize specific benchmarks. Instead, The commenter asserted that, while their performance context. The
the nature of each community quantitative information is necessary in proposed new Q&A indicated that
development service and the assessing whether a community examiners would look at not only the
performance context of the institution development service is effective in volume and types of an institution’s
are considered. assisting low- or moderate-income activities, but also how effective those
The proposed Q&A stated that individuals and families to access the activities have been. The proposed Q&A
examiners will consider any relevant financial system, obtaining this noted that examiners always evaluate
information provided by the institution information can be very expensive and responsiveness in light of an
or from a third party to quantify the resource intensive. The commenter institution’s performance context. The
extent and responsiveness of maintained that providing an incentive proposed new Q&A also suggested
community development services. to finance data collection systems in several information sources that could
Industry commenters were particularly nonprofit organizations would increase inform examiners’ evaluations of
supportive of this aspect of the proposal the availability and quality of this much performance context and
because they viewed it as a flexible needed information. The Agencies note responsiveness.
policy. that the CRA regulations allow for the The Agencies received 28 public
With regard to relevant information, consideration of grants or other funding comments addressing the proposed new
the Agencies specifically asked what to nonprofit organizations with a Q&A. With few exceptions, the
types of information financial community development purpose as commenters were supportive of the
institutions and third parties would be qualified investments or community Agencies’ intent to clarify how
likely to maintain that may be used to development loans. Such funding could examiners evaluate an institution’s
demonstrate the extent to which be used by these recipients for a variety responsiveness to credit and community
community development services are of purposes, including data collection. development needs. However, a number
offered and used. In response, of commenters, representing both the
commenters provided several examples B. Responsiveness and Innovativeness industry and community organizations,
of relevant information that may be i. Responsiveness questioned whether the proposed new
available, including: (i) data on the Q&A would help examiners or bankers
number of low- and moderate-income The term ‘‘responsiveness’’ is found understand that a project or program has
individuals attending counseling throughout the CRA regulations and the been responsive to credit and
sessions; (ii) demographic information Questions and Answers. Generally, the community development needs.
on clients or customers benefitting from Agencies’ regulations and guidance The Agencies requested comment on
a service; (iii) records of the number and promote an institution’s responsiveness three questions relating to proposed
types of community development to credit and community development new Q&A § ll.21(a)–3. First, the
service provided; and (iv) attestations needs by providing that the greater an Agencies asked whether the proposed
collected via a survey of employees, institution’s responsiveness to credit new Q&A appropriately highlighted the
directors, and officers that tracks hourly and community development needs in importance of responsiveness to credit
involvement in community its assessment area(s), the higher the and community development needs and
development services. CRA rating that is assigned to that provided a flexible, yet clear, standard
Rather than referring to only a single institution. See, e.g., 12 CFR ll, for determining how financial
quantitative factor as an example, final appendix A, section (b)(2)(i). institutions would receive
Q&A § ll.24(e)–2 includes a list of Responsiveness is generally a consideration. An industry commenter
examples of quantitative factors that consideration in all of the ratings that and a community organization
examiners may assess to determine the the Agencies assign. commenter agreed that the importance
extent to which community The Agencies’ Questions and Answers of responsiveness to credit and
development services are offered and address responsiveness in various community development needs was
used. The expanded list should provide contexts. For example, Q&A highlighted, but that there was also an
additional clarity and address concerns § ll.21(a)–2 explains that increase in subjectivity in the evaluation
that examiners and institutions may responsiveness is meant to lend a process and burden to institutions, as
default to ‘‘the number of hours qualitative element to the rating system. well as a shortage of detail. To help
financial institution staff devotes to a Other Q&As state that examiners should clarify how the Agencies review
particular community development give greater weight to those activities responsiveness and the flexible
service’’ as the only quantitative that are most responsive to community approach taken, a new sentence was
measure of community development needs, including the needs of low- or added at the beginning of the answer to
services. The final Q&A includes the moderate-income individuals and provide a road map of the three factors
following additional examples of geographies. See, e.g., Q&A that examiners consider when
quantitative factors: (i) The number of § ll.12(g)(4)(ii)–2. evaluating responsiveness: quantity,
low- and moderate-income individuals Because the concept of quality, and performance context. The
participating in a community ‘‘responsiveness’’ is utilized in the CRA answer then describes each of the three
development activity; (ii) the number of regulations and Questions and Answers factors.
organizations served by a community applicable to all covered institutions, The Agencies also asked whether
development activity; and (iii) the the Agencies proposed a new Q&A there were other sources of information
number of sessions of a community § ll.21(a)–3 to set forth general that examiners should consider when
development service activity. guidance on how examiners evaluate evaluating an institution’s

Finally, a community organization whether a financial institution has been responsiveness to credit and community
commenter suggested that the Agencies responsive to credit and community development needs. Commenters
revise the proposed Q&A to explicitly development needs. The Agencies representing both the industry and
state that institutions’ funding of intended the proposed Q&A to community organizations suggested a
community organizations to enable encourage institutions to think number of information sources,
them to collect quantitative data will strategically about how to best meet the including targeted outreach to local
organizations; local, state, and Federal development activities to support. In participation in the organization or
information compilations; reports and support of their views, commenters activity. New Q&A § ll.21(a)–3, as
studies by academic institutions; and asserted that (i) the requirement to first adopted, also includes an example of
the Consumer Financial Protection demonstrate responsiveness to such an investment.
Bureau’s (CFPB) complaint database. assessment area needs is too vague to Finally, several industry commenters
Two community organization cause a change in institutions’ noted that the proposed new Q&A stated
commenters asserted that examiners investment strategies; (ii) due to that ‘‘activities are particularly
should be required to review increased subjectivity and additional responsive to community development
information from all of the sources cited burden of proof in the evaluation needs if they benefit low- or moderate-
in the proposed Q&A. An industry process, institutions will likely maintain income individuals, low- or moderate-
commenter stated that, although the their focus on assessment area activities; income geographies, designated disaster
Agencies should accept information (iii) the proposed Q&A does not provide areas, or distressed or underserved
from financial institutions, care must be insight to help institutions make nonmetropolitan middle-income
taken not to require institutions to determinations on which community geographies.’’ They asked whether any
perform needs assessments or evaluate development activities to support; and activity that has a community
the institutions on the quality of (iv) a bright line test would be development purpose, as defined in the
information they provide, consistent preferable to an evaluation of whether CRA regulations, would be
with Q&A § ll.21(b)(2)–1. Another the financial institution has been ‘‘particularly’’ responsive. If so, they
industry commenter suggested that the responsive to credit and community noted that financing for small
Agencies should ensure that regulatory development needs and opportunities. businesses or small farms should also be
requirements, guidelines, and actions by On the other hand, the sixth commenter, included. And, if not, the Agencies
examiners are flexible and do not create representing the industry, stated that the should clarify what is meant by that
unnecessary burden. Two other proposed Q&A may encourage financial statement. In addition, two community
commenters, one representing the institutions to focus on community organization commenters addressed the
industry and the other a community development activities that benefit low- importance of the ‘‘impact’’ of
organization, stated that they and moderate-income individuals or responsive activities. These commenters
appreciated the clarification that geographies, disaster areas, and asserted that responsiveness must be
examiners should not rely so heavily on distressed or underserved demonstrated through impact and
quantitative factors. They noted that the nonmetropolitan middle-income outcomes in meeting a documented
unique needs and opportunities in an geographies. This commenter believed community need. To address these
institution’s local community should be that recognizing responsiveness rather related comments, the Agencies have
the basis for evaluating the institution’s than placing all the emphasis on deleted the statement addressing
performance. quantitative benchmarks will encourage activities that would be ‘‘particularly
In response to these comments, the financial institutions to engage in responsive’’ that caused the confusion.
Agencies expanded the list of sources of various community development In its place, the final Q&A explains that,
information about credit and activities. when evaluated qualitatively, some
community development needs and activities are more responsive than
opportunities that examiners may To respond to commenters’ assertion others, and that activities are more
consider by adding ‘‘consumer that new Q&A § ll.21(a)–3, as responsive if they are successful in
complaint information.’’ To address proposed, would not assist a financial meeting identified credit and
commenters’ concern that a formal institution in determining whether a community development needs. The
needs assessment will be expected from community development activity in the final Q&A also includes an example of
financial institutions, the Agencies have broader statewide or regional area that two community development activities,
deleted the reference to an assessment includes the institution’s assessment one of which would be considered more
prepared by the institution and have area(s) would receive CRA responsive than the other, to describe
clarified that examiners will consider consideration, the Agencies have added this concept.
any relevant information provided to to the final Q&A a new paragraph
discussing how examiners will ii. Innovativeness
examiners by the financial institution
that is maintained by the institution in determine whether an institution has The Agencies proposed a new Q&A
its ordinary course of business. been responsive to the credit and § ll.21(a)–4 in response to reports
Finally, the Agencies asked whether community development needs of its about inconsistencies in the types of
the new Q&A would help a financial assessment area(s). First, examiners will activities considered innovative and
institution in making decisions about consider as responsive all of the requests from financial institutions that
the community development activities institution’s community development the Agencies provide clarification of the
in which it will participate, particularly activities in its assessment area(s). ‘‘innovativeness’’ standard found
if those activities benefit individuals or Examiners will also consider as throughout the CRA regulations. For
geographies located somewhere in the responsive to assessment area needs any example, the large institution lending
broader statewide or regional area that community development activities that test evaluates the complexity and
includes the institution’s assessment support an organization or activity that innovativeness of community
area(s), but that may not benefit the covers an area that is larger than, but development lending and the
institution’s assessment area(s). See includes, the institution’s assessment institution’s use of innovative or flexible
Q&A § ll.12(h)–6. Of the six area(s). If the purpose, mandate, or lending practices in a safe and sound
commenters who addressed this function of the organization or activity manner to address the credit needs of
question, five commenters (two includes serving the institution’s low- or moderate-income individuals or
representing the industry and three assessment area(s), it will be considered geographies. See 12 CFR ll.22(b)(4)
representing community development responsive to assessment area needs and (5). The large institution investment
funds) believed that proposed Q&A even if the institution’s assessment test evaluates the innovativeness or
§ ll.21(a)–3 would not help bankers area(s) did not receive an immediate or complexity of qualified investments.
to determine which community direct benefit from the institution’s See 12 CFR ll.23(e)(2). Similarly, the
large institution service test evaluates needs and had a positive demonstrable With regard to comments we received
the innovativeness and responsiveness impact on the communities they were about innovative products and services
of community development services. meant to serve. Industry commenters already in the market, the Agencies
See 12 CFR ll.24(e)(2). The sought language stating that continue to believe that innovativeness
performance criteria in the community innovativeness is not required, lack of it could include a financial institution’s
development test for wholesale or will not have a negative impact, and, adoption of products, services, or
limited purpose banks include an when present, innovativeness will result delivery systems already in the market
evaluation of the use of innovative or in positive consideration. These under certain circumstances. This is
complex qualified investments, commenters also sought language especially true for smaller institutions
community development loans, or specifically tying ‘‘innovativeness’’ to and institutions that have, to date,
community development services. See the requirement that CRA activities offered only traditional products,
12 CFR ll.25(c)(2). Finally, when must be consistent with safe and sound services, or delivery systems. For sake of
evaluating a strategic plan, the Agencies banking practices. clarity, the Agencies amended the final
evaluate a plan’s measurable goals With regard to the proposed Q&A Q&A by removing the potentially
according to the regulatory criteria, all statement addressing consideration for ambiguous terms ‘‘capacity’’ and
of which mention innovativeness. See entities that do not have the ‘‘capacity ‘‘market leader.’’ Specifically, the
12 CFR ll.27(g)(3). to be market leaders,’’ commenters had Agencies replaced the reference to
The proposed new Q&A stated that an differing points of view. One industry ‘‘market leader’’ with ‘‘leaders in
innovative practice or activity will be commenter found that statement to be innovation’’ and explained that some
considered when an institution overly broad, open to wide financial institutions may not be leaders
implements meaningful improvements interpretation, and contrary to the intent in innovation ‘‘due to, for example,
to products, services, or delivery of the Q&A. This general view was also available financial resources or
systems that respond more effectively to shared by two other commenters. On the technological expertise.’’
customer and community needs, other hand, one community
particularly to the needs of those organization commenter was expressly IV. Technical Corrections
segments enumerated in the definition in favor of that statement, although The Agencies also have revised the
of community development. Then, the another community organization Questions and Answers to address a
proposed Q&A addressed commenter stated that a financial number of events that have occurred
innovativeness in terms of an institution should not receive since the 2010 Questions and Answers
institution’s market and customers, consideration for innovativeness when were published, including, for example,
specifically stating that innovation bringing another institution’s innovative the elimination of the OTS and the
includes the introduction of products, product to its assessment area(s) unless Thrift Financial Report (TFR), changes
services, or delivery systems by it is doing so in a way that could not in data sources for income-level
institutions, which do not have the have been, or was not otherwise, done. information, and the transfer to the
capacity to be market leaders in In response to comments, the CFPB of rulemaking authority for
innovation, to their low- or moderate- Agencies are adopting Q&A § l certain consumer financial laws. The
income customers or segments of l.21(a)–4 with revisions to provide Agencies have made technical changes
consumers or markets not previously additional clarification. As stated above, to a number of Q&As to provide this
served. the Agencies note that ‘‘innovativeness’’ updated information.
The Agencies’ proposal stressed that is a regulatory consideration in a variety
A. Elimination of the OTS
institutions should not innovate simply of performance tests. The Agencies
to meet this criterion of the applicable continue to believe that there is a The Dodd-Frank Wall Street Reform
test, particularly if, for example, existing benefit in clarifying the term, while not and Consumer Protection Act of 2010,
products, services, or delivery systems overemphasizing its importance. The Public Law 111–203 (July 21, 2010)
effectively address the needs of all final Q&A continues to make the point (Dodd-Frank Act), transferred powers of
segments of the community. The that ‘‘innovative’’ practices need to be the OTS to the OCC, the FDIC, and the
proposed Q&A also indicated that responsive to community needs but are Board, and eliminated the OTS.
practices that cease to be innovative not required if existing products, Specifically, among other changes, the
may still receive qualitative services, or delivery systems effectively Dodd-Frank Act transferred rulemaking
consideration for being flexible, address the needs of all segments of the and supervisory authority over savings
complex, or responsive. community. The final Q&A also adds a and loan holding companies and
The majority of commenters cross-reference to Q&A § ll.28–1, supervisory authority over their non-
addressing Q&A § ll.21(a)–4 were which explains how innovativeness is depository subsidiaries to the Board;
largely supportive of the Agencies’ considered in the rating process and transferred rulemaking authority over
intent to clarify how examiners evaluate states, in part: ‘‘The lack of innovative Federal savings associations and state
an institution’s innovativeness. lending practices, innovative or savings associations, and supervisory
Nevertheless, several of the commenters complex qualified investments, or authority over Federal savings
posed questions about the import of innovative community development associations, to the OCC; and transferred
‘‘innovativeness’’ generally, services alone will not result in a ‘needs supervisory authority over state savings
notwithstanding the specific references to improve’ CRA rating. However, under associations to the FDIC. See 12 U.S.C.
to that term in the various CRA these tests, the use of innovative lending 5412–5413; see also 12 U.S.C. 2905. The
performance tests. practices, innovative or complex OCC transferred the CRA rules
Rather than focusing on qualified investments, and innovative applicable to savings associations from
innovativeness, several of the community development services may 12 CFR part 563e to 12 CFR part 195.
community organization commenters augment the consideration given to an The Agencies’ rules are substantially
urged the Agencies to address institution’s performance under the similar throughout so that a general
strengthening performance context quantitative criteria of the regulations, reference to the section and paragraph
when evaluating whether the subject resulting in a higher performance of the rule (e.g., 12 CFR ll.12(a))
CRA activities were responsive to local rating.’’ continues to describe the same
provision in all four of the rules. same time, the FFIEC announced that it Interagency Questions and Answers
However, 12 CFR 195.11(c), which is would begin using ACS data to update Regarding Community Reinvestment
applicable to savings associations, geographic incomes every five years. § ll.11—Authority, Purposes, and
includes one less paragraph than the Q&A § ll.12(m)–1 has been revised to Scope
rules applicable to national and state reflect the current data sources used to
banks. As a result, the citation to section calculate income level data for § ll.11(c) Scope
11 of the rule in the related Q&As must geographies and individuals. §§ ll.11(c)(3) & 195.11(c)(2) Certain
separately mention the rule applicable
E. Data Reporting Special Purpose Institutions
to savings associations. Therefore, the
Agencies have changed the references §§ ll.11(c)(3) & 195.11(c)(2)—1: Is
in the two Q&As addressing Q&As § ll.42–1, § ll.42–2, and the list of special purpose institutions
§§ ll.11(c)(3) & 563e.11(c)(2) to § ll.42–6 address data submission, exclusive?
§§ ll.11(c)(3) & 195.11(c)(2), validation, and software, respectively. A1. No, there may be other examples
respectively. The Agencies have revised these Q&As of special purpose institutions. These
to include updated data submission institutions engage in specialized
B. Elimination of the Thrift Financial instructions and the correct Board activities that do not involve granting
Report contact information for submitting credit to the public in the ordinary
In 2010, when the Questions and questions about CRA data submission, course of business. Special purpose
Answers were last updated, banks filed validation, and software. institutions typically serve as
Call Reports and savings associations correspondent banks, trust companies,
filed TFRs. Beginning with the first F. Outdated Reference or clearing agents or engage only in
quarterly filing in 2012, all savings specialized services, such as cash
Q&A § ll.12(g)(4)–1 advises that the
associations began filing Call Reports. management controlled disbursement
The Agencies are removing the revised definition of ‘‘community
development,’’ which became effective services. A financial institution,
references to the TFR in 12 Q&As. One however, does not become a special
additional Q&A refers to the Uniform in 2005 for banks and 2006 for savings
purpose institution merely by ceasing to
Thrift Performance Report (UTPR), associations, is applicable to all
make loans and, instead, making
which was phased out when savings institutions. Because this revised
investments and providing other retail
associations began filing Call Reports. definition has been in effect for around banking services.
Uniform Bank Performance Reports are 10 years, it has been shortened to omit §§ ll.11(c)(3) & 195.11(c)(2)—2: To
now produced for savings associations, the historical information about its be a special purpose institution, must
so the Agencies have removed the effective dates. The revised version an institution limit its activities in its
reference to the UTPR in Q&A merely affirms that the definition of charter?
§ ll.26(b)(1)–1. The Agencies have ‘‘community development’’ is A2. No. A special purpose institution
also adopted a consistent citation to the applicable to all institutions. may, but is not required to, limit the
relevant sections of the Call Report and scope of its activities in its charter,
have made revisions to effect those G. OCC Address Changes
articles of association, or other corporate
changes where necessary throughout the Q&A Appendix B to Part ll–1 organizational documents. An
Questions and Answers. includes OCC-specific contact institution that does not have legal
C. Home Mortgage Disclosure Act information. The OCC’s headquarters limitations on its activities, but has
(HMDA) Regulation moved in December 2012; thus, the voluntarily limited its activities,
Q&A has been revised to reflect the however, would no longer be exempt
The Dodd-Frank Act transferred from Community Reinvestment Act
exclusive rulemaking authority to the OCC’s new street address, which is to be
included in national banks’ and Federal (CRA) requirements if it subsequently
CFPB for certain consumer financial engaged in activities that involve
laws, including the HMDA. The CFPB savings associations’ public notices. In
addition, a Web site URL has been granting credit to the public in the
subsequently published its own rule to ordinary course of business. An
implement HMDA, 12 CFR part 1003.12 added that national banks and Federal
institution that believes it is exempt
Four Q&As referred to home mortgage savings associations may include in
from CRA as a special purpose
data collected under the HMDA and their public notices that will allow
institution should seek confirmation of
provided a citation to the Board’s interested parties to find information this status from its supervisory Agency.
HMDA rule at 12 CFR part 203. The about planned OCC CRA evaluations in
Agencies have updated those citations upcoming quarters. Similarly, an email § ll.12—Definitions
to refer to the CFPB’s HMDA rule at 12 address has been added that national § ll.12(a) Affiliate
CFR part 1003. banks and Federal savings associations
may include in their public notices to § ll.12(a)—1: Does the definition of
D. Income Level Data Sources ‘‘affiliate’’ include subsidiaries of an
which commenters may submit
Q&A § ll.12(m)–1 discusses the institution?
electronic comments about institutions’
sources of income level data for A1. Yes, ‘‘affiliate’’ includes any
performance in helping to meet
geographies and individuals. Beginning company that controls, is controlled by,
community credit needs.
with the FFIEC’s geographic income or is under common control with
data published in 2012, the FFIEC The text of the final Interagency another company. An institution’s
discontinued using decennial census Questions and Answers follows: subsidiary is controlled by the
data to calculate geographic income institution and is, therefore, an affiliate.
levels and began using the U.S. Census
§ ll.12(f) Branch
Bureau’s American Community Survey
(ACS) five-year estimate data. At the § ll.12(f)—1: Do the definitions of
‘‘branch,’’ ‘‘automated teller machine
12 See 80 FR 66127 (Oct. 28, 2015). (ATM),’’ and ‘‘remote service facility
(RSF)’’ include mobile branches, ATMs, middle-income area, if the mall consideration under the applicable test.
and RSFs? stabilizes the adjacent low-income The same would be true if the
A1. Yes. Staffed mobile offices that community by providing needed community development activity
are authorized as branches are shopping services that are not otherwise described in a particular Q&A were a
considered ‘‘branches,’’ and mobile available in the low-income community. qualified investment or community
ATMs and RSFs are considered ‘‘ATMs’’ § ll.12(g)—3: Does the regulation development service. For example, Q&A
and ‘‘RSFs.’’ provide flexibility in considering § ll.12(h)–1 provides an example of a
§ ll.12(f)—2: Are loan production performance in high-cost areas? community development loan to a not-
offices (LPO) branches for purposes of A3. Yes, the flexibility of the for-profit organization supporting
the CRA? performance standards allows primarily low- or moderate-income
A2. LPOs and other offices are not examiners to account in their housing needs. Similarly, a grant to the
‘‘branches’’ unless they are authorized evaluations for conditions in high-cost same not-for-profit organization would
as branches of the institution through areas. Examiners consider lending and be considered a qualified investment or
the regulatory approval process of the services to individuals and geographies technical assistance, such as writing a
institution’s supervisory Agency. of all income levels and businesses of grant proposal for the not-for-profit
§ ll.12(g) Community Development all sizes and revenues. In addition, the organization, would be considered as a
flexibility in the requirement that community development service.
§ ll.12(g)—1: Are community community development loans, Further if a financial institution engaged
development activities limited to those community development services, and in all of these activities, each would be
that promote economic development? qualified investments have as their considered under the applicable test.
A1. No. Although the definition of ‘‘primary’’ purpose community See Q&A § ll.23(b)–1.
‘‘community development’’ includes development allows examiners to Moreover, lists of examples included
activities that promote economic account for conditions in high-cost throughout the Questions and Answers
development by financing small areas. For example, examiners could are not exhaustive. A Q&A may include
businesses or farms, the rule does not take into account the fact that activities examples to demonstrate activities that
limit community development loans address a credit shortage among middle- may qualify under that Q&A, but the
and services and qualified investments income people or areas caused by the examples are not the only activities that
to those activities. Community disproportionately high cost of building, might qualify. Financial institutions
development also includes community- maintaining or acquiring a house when may submit information about activities
or tribal-based child care, educational, determining whether an institution’s they believe meet the definition of
health, social services, or workforce loan to or investment in an organization community development loan, qualified
development or job training programs that funds affordable housing for investment, or community development
targeted to low- or moderate-income middle-income people or areas, as well service to examiners for consideration.
persons, affordable housing for low- or as low- and moderate-income people or
moderate-income individuals, and areas, has as its primary purpose § ll.12(g)(1) Affordable Housing
activities that revitalize or stabilize low- community development. See also Q&A (Including Multifamily Rental Housing)
or moderate-income areas, designated § ll.12(h)–8 for more information on for Low- or Moderate-Income
disaster areas, or underserved or ‘‘primary purpose.’’ individuals
distressed nonmetropolitan middle- § ll.12(g)—4: Can examples of § ll.12(g)(1)—1: When determining
income geographies. community development activities whether a project is ‘‘affordable housing
§ ll.12(g)—2: Must a community discussed in a particular Q&A also for low- or moderate-income
development activity occur inside a low- apply to other types of community individuals,’’ thereby meeting the
or moderate-income area, designated development activities not specifically definition of ‘‘community
disaster area, or underserved or discussed in that Q&A if they have a development,’’ will it be sufficient to use
distressed nonmetropolitan middle- similar community development a formula that relates the cost of
income area in order for an institution purpose? ownership, rental, or borrowing to the
to receive CRA consideration for the A4. Yes. The Interagency Questions income levels in the area as the only
activity? and Answers Regarding Community factor, regardless of whether the users,
A2. No. Community development Reinvestment (Questions and Answers) likely users, or beneficiaries of that
includes activities, regardless of their provide examples of particular activities affordable housing are low- or
location, that provide affordable that may receive consideration as moderate-income individuals?
housing for, or community services community development activities. A1. The concept of ‘‘affordable
targeted to, low- or moderate-income Because a particular Q&A often housing’’ for low- or moderate-income
individuals and activities that promote describes a single type of community individuals does hinge on whether low-
economic development by financing development activity, such as a or moderate-income individuals benefit,
small businesses and farms. Activities community development loan, the or are likely to benefit, from the
that stabilize or revitalize particular corresponding examples are of housing. It would be inappropriate to
low- or moderate-income areas, community development loans. give consideration to a project that
designated disaster areas, or However, because community exclusively or predominately houses
underserved or distressed development loans, qualified families that are not low- or moderate-
nonmetropolitan middle-income areas investments, and community income simply because the rents or
(including by creating, retaining, or development services all must have a housing prices are set according to a
improving jobs for low- or moderate- primary purpose of community particular formula.
income persons) also qualify as development, a qualified investment or For projects that do not yet have
community development, even if the community development service that occupants, and for which the income of
activities are not located in these areas. supports a community development the potential occupants cannot be
One example is financing a supermarket purpose similar to the activity described determined in advance, or in other
that serves as an anchor store in a small in the context of the community projects where the income of occupants
strip mall located at the edge of a development loan would likely receive cannot be verified, examiners will
review factors such as demographic, school at which the majority of students Æ in areas targeted for redevelopment
economic, and market data to determine qualify for free or reduced-price meals by Federal, state, local, or tribal
the likelihood that the housing will under the U.S. Department of governments;
‘‘primarily’’ accommodate low- or Agriculture’s National School Lunch Æ by financing intermediaries that
moderate-income individuals. For Program. lend to, invest in, or provide technical
example, examiners may look at median • The community service is targeted assistance to start-ups or recently
rents of the assessment area and the to individuals who receive or are formed small businesses or small farms;
project; the median home value of either eligible to receive Medicaid. or
the assessment area, low- or moderate- Æ through technical assistance or
• The community service is provided
income geographies or the project; the supportive services for small businesses
to recipients of government assistance
low- or moderate-income population in or farms, such as shared space,
programs that have income
the area of the project; or the past technology, or administrative assistance;
qualifications equivalent to, or stricter
performance record of the or
than, the definitions of low- and • Federal, state, local, or tribal
organization(s) undertaking the project. moderate-income as defined by the CRA
Further, such a project could receive economic development initiatives that
Regulations. Examples include U.S. include provisions for creating or
consideration if its express, bona fide Department of Housing and Urban
intent, as stated, for example, in a improving access by low- or moderate-
Development’s section 8, 202, 515, and income persons to jobs or to job training
prospectus, loan proposal, or 811 programs or U.S. Department of
community action plan, is community or workforce development programs.
Agriculture’s section 514, 516, and The agencies will presume that any
development. Supplemental Nutrition Assistance loan or service to or investment in a
§ ll.12(g)(2) Community Services programs. SBDC, SBIC, Rural Business Investment
Targeted to Low- or Moderate-Income § ll.12(g)(3) Activities That Promote Company, New Markets Venture Capital
Individuals Economic Development by Financing Company, New Markets Tax Credit-
§ ll.12(g)(2)—1: Community Businesses or Farms That Meet Certain eligible Community Development
development includes community Size Eligibility Standards Entity, or Community Development
services targeted to low- or moderate- Financial Institution that finances small
income individuals. What are examples § ll.12(g)(3)—1: ‘‘Community businesses or small farms, promotes
of ways that an institution could development’’ includes activities that economic development. (See also Q&As
determine that community services are promote economic development by § ll.42(b)(2)–2, § ll.12(h)–2, and
offered to low- or moderate-income financing businesses or farms that meet § ll.12(h)–3 for more information
individuals? certain size eligibility standards. Are all about which loans may be considered
A1. Examples of ways in which an activities that finance businesses and community development loans.)
institution could determine that farms that meet the size eligibility Examiners will employ appropriate
community services are targeted to low- standards considered to be community flexibility in reviewing any information
or moderate-income persons include, development? provided by a financial institution that
but are not limited to: A1. No. The concept of ‘‘community reasonably demonstrates that the
• The community service is targeted development’’ under 12 CFR ll purpose, mandate, or function of the
to the clients of a nonprofit organization .12(g)(3) involves both a ‘‘size’’ test and activity meets the ‘‘purpose test.’’
that has a defined mission of serving a ‘‘purpose’’ test that clarify what Examiners will also consider the
low- and moderate-income persons, or, economic development activities are qualitative aspects of performance. For
because of government grants, for considered under CRA. An institution’s example, activities will be considered
example, is limited to offering services loan, investment, or service meets the more responsive to community needs if
only to low- or moderate-income ‘‘size’’ test if it finances, either directly, a majority of jobs created, retained, and/
persons. or through an intermediary, businesses or improved benefit low- or moderate-
• The community service is offered or farms that either meet the size income individuals.
by a nonprofit organization that is eligibility standards of the Small
located in and serves a low- or § ll.12(g)(4) Activities That Revitalize
Business Administration’s Development or Stabilize Certain Geographies
moderate-income geography. Company (SBDC) or Small Business
• The community service is Investment Company (SBIC) programs, § ll.12(g)(4)—1: Is the definition of
conducted in a low- or moderate-income or have gross annual revenues of $1 ‘‘community development’’ applicable
area and targeted to the residents of the million or less. For consideration under to all institutions?
area. the ‘‘size test,’’ the term financing is A1. The definition of ‘‘community
• The community service is a clearly considered broadly and includes development’’ is applicable to all
defined program that benefits primarily technical assistance that readies a institutions, regardless of a particular
low- or moderate-income persons, even business that meets the size eligibility institution’s size or the performance
if it is provided by an entity that offers standards to obtain financing. To meet criteria under which it is evaluated.
other programs that serve individuals of the ‘‘purpose test,’’ the institution’s § ll.12(g)(4)–2: Will activities that
all income levels. loan, investment, or service must provide housing for middle-income and
• The community service is offered at promote economic development. These upper-income persons qualify for
a workplace to workers who are low- activities are considered to promote favorable consideration as community
and moderate-income, based on readily development activities when they help
economic development if they support

available data for the average wage for to revitalize or stabilize a distressed or
workers in that particular occupation or • permanent job creation, retention, underserved nonmetropolitan middle-
industry (see, e.g., http://www.bls.gov/ and/or improvement income geography or designated
bls/blswage.htm (Bureau of Labor Æ for low- or moderate-income disaster areas?
Statistics)). persons; A2. An activity that provides housing
• The community service is provided Æ in low- or moderate-income for middle- or upper-income individuals
to students or their families from a geographies; qualifies as an activity that revitalizes or
stabilizes a distressed nonmetropolitan A1. Activities that revitalize or revitalization or stabilization activities
middle-income geography or a stabilize a low- or moderate-income in a particular disaster area to assist in
designated disaster area if the housing geography are activities that help to long-term recovery efforts, this time
directly helps to revitalize or stabilize attract new, or retain existing, period may be extended.
the community by attracting new, or businesses or residents. Examiners will § ll.12(g)(4)(ii)—2: What activities
retaining existing, businesses or presume that an activity revitalizes or are considered to ‘‘revitalize or
residents and, in the case of a stabilizes a low- or moderate-income stabilize’’ a designated disaster area,
designated disaster area, is related to geography if the activity has been and how are those activities considered?
disaster recovery. The Agencies approved by the governing board of an A2. The Agencies generally will
generally will consider all activities that Enterprise Community or Empowerment consider an activity to revitalize or
revitalize or stabilize a distressed Zone (designated pursuant to 26 U.S.C. stabilize a designated disaster area if it
nonmetropolitan middle-income 1391) and is consistent with the board’s helps to attract new, or retain existing,
geography or designated disaster area, strategic plan. They will make the same businesses or residents and is related to
but will give greater weight to those presumption if the activity has received disaster recovery. An activity will be
activities that are most responsive to similar official designation as consistent presumed to revitalize or stabilize the
community needs, including needs of with a Federal, state, local, or tribal area if the activity is consistent with a
low- or moderate-income individuals or government plan for the revitalization or bona fide government revitalization or
neighborhoods. Thus, for example, a stabilization of the low- or moderate- stabilization plan or disaster recovery
loan solely to develop middle- or upper- income geography. For example, plan. The Agencies generally will
income housing in a community in need foreclosure prevention programs with consider all activities relating to disaster
of low- and moderate-income housing the objective of providing affordable, recovery that revitalize or stabilize a
would be given very little weight if sustainable, long-term loan designated disaster area, but will give
there is only a short-term benefit to low- restructurings or modifications to greater weight to those activities that are
and moderate-income individuals in the homeowners in low- or moderate- most responsive to community needs,
community through the creation of income geographies, consistent with including the needs of low- or
temporary construction jobs. (Except in safe and sound banking practices, may moderate-income individuals or
connection with intermediate small help to revitalize or stabilize those neighborhoods. Qualifying activities
institutions, a housing-related loan is geographies. may include, for example, providing
not evaluated as a ‘‘community To determine whether other activities financing to help retain businesses in
development loan’’ if it has been revitalize or stabilize a low- or the area that employ local residents,
reported or collected by the institution moderate-income geography, examiners including low- and moderate-income
will evaluate the activity’s actual impact individuals; providing financing to
or its affiliate as a home mortgage loan,
on the geography, if information about attract a major new employer that will
unless it is a multifamily dwelling loan.
this is available. If not, examiners will create long-term job opportunities,
See 12 CFR ll.12(h)(2)(i) and Q&As
determine whether the activity is including for low- and moderate-income
§ ll.12(h)–2 and § ll.12(h)–3.) An
consistent with the community’s formal individuals; providing financing or
activity will be presumed to revitalize or
or informal plans for the revitalization other assistance for essential
stabilize such a geography or area if the
and stabilization of the low- or community-wide infrastructure,
activity is consistent with a bona fide
moderate-income geography. For more community services, and rebuilding
government revitalization or
information on what activities revitalize needs; and activities that provide
stabilization plan or disaster recovery
or stabilize a low- or moderate-income housing, financial assistance, and
plan. See Q&As § ll.12(g)(4)(i)–1 and
§ ll.12(h)–5. geography, see Q&As § ll.12(g)–2 and services to individuals in designated
§ ll.12(h)–5. disaster areas and to individuals who
In underserved nonmetropolitan have been displaced from those areas,
middle-income geographies, activities § ll.12(g)(4)(ii) Activities That including low- and moderate-income
that provide housing for middle- and Revitalize or Stabilize Designated individuals (see, e.g., Q&As § ll.12(i)–
upper-income individuals may qualify Disaster Areas 3; § ll.12(t)–4; § ll.22(b)(2) & (3)–4;
as activities that revitalize or stabilize § ll.12(g)(4)(ii)—1: What is a § ll.22(b)(2) & (3)–5; and § ll
such underserved areas if the activities ‘‘designated disaster area’’ and how .24(d)(3)–1).
also provide housing for low- or long does it last?
moderate-income individuals. For A1. A ‘‘designated disaster area’’ is a § ll.12(g)(4)(iii) Activities That
example, a loan to build a mixed- major disaster area designated by the Revitalize or Stabilize Distressed or
income housing development that Federal government. Such disaster Underserved Nonmetropolitan Middle-
provides housing for middle- and designations include, in particular, Income Geographies
upper-income individuals in an Major Disaster Declarations § ll.12(g)(4)(iii)—1: What criteria
underserved nonmetropolitan middle- administered by the Federal Emergency are used to identify distressed or
income geography would receive Management Agency (FEMA) (http:// underserved nonmetropolitan, middle-
positive consideration if it also provides www.fema.gov), but excludes counties income geographies?
housing for low- or moderate-income designated to receive only FEMA Public A1. Eligible nonmetropolitan middle-
individuals. Assistance Emergency Work Category A income geographies are those
(Debris Removal) and/or Category B designated by the Agencies as being in
§ ll.12(g)(4)(i) Activities That
(Emergency Protective Measures). distress or that could have difficulty
Revitalize or Stabilize Low- or

Examiners will consider institution meeting essential community needs
Moderate-Income Geographies
activities related to disaster recovery (underserved). A particular geography
§ ll.12(g)(4)(i)—1: What activities that revitalize or stabilize a designated could be designated as both distressed
are considered to ‘‘revitalize or disaster area for 36 months following and underserved. As defined in 12 CFR
stabilize’’ a low- or moderate-income the date of designation. Where there is ll.12(k), a geography is a census tract
geography, and how are those activities a demonstrable community need to delineated by the U.S. Bureau of the
considered? extend the period for recognizing Census.
A nonmetropolitan middle-income attract new, or retain existing, including children from low- and
geography will be designated as businesses or residents. An activity will moderate-income families;
distressed if it is in a county that meets be presumed to revitalize or stabilize the • a new or rehabilitated
one or more of the following triggers: (1) area if the activity is consistent with a communications infrastructure, such as
An unemployment rate of at least 1.5 bona fide government revitalization or broadband internet service, that serves
times the national average, (2) a poverty stabilization plan. The Agencies the community, including low- and
rate of 20 percent or more, or (3) a generally will consider all activities that moderate-income residents; or
population loss of 10 percent or more revitalize or stabilize a distressed • a new or rehabilitated flood control
between the previous and most recent nonmetropolitan middle-income measure, such as a levee or storm drain,
decennial census or a net migration loss geography, but will give greater weight that serves the community, including
of five percent or more over the five- to those activities that are most low- and moderate-income residents.
year period preceding the most recent responsive to community needs, Other activities in the area, such as
census. including needs of low- or moderate- financing a project to build a sewer line
A nonmetropolitan middle-income income individuals or neighborhoods. spur that connects services to a middle-
geography will be designated as Qualifying activities may include, for or upper-income housing development
underserved if it meets criteria for example, providing financing to attract while bypassing a low- or moderate-
population size, density, and dispersion a major new employer that will create income development that also needs the
that indicate the area’s population is long-term job opportunities, including sewer services, generally would not
sufficiently small, thin, and distant from for low- and moderate-income qualify for revitalization or stabilization
a population center that the tract is individuals, and activities that provide consideration in geographies designated
likely to have difficulty financing the financing or other assistance for as underserved. If an underserved
fixed costs of meeting essential essential infrastructure or facilities geography is also designated as a
community needs. The Agencies will necessary to attract or retain businesses distressed or a disaster area, additional
use as the basis for these designations or residents. See Q&As § ll activities may be considered to
the ‘‘urban influence codes,’’ numbered .12(g)(4)(i)–1 and § ll.12(h)–5. revitalize or stabilize the geography, as
‘‘7,’’ ‘‘10,’’ ‘‘11,’’ and ‘‘12,’’ maintained § ll.12(g)(4)(iii)—4: What activities explained in Q&As § ll.12(g)(4)(ii)–2
by the Economic Research Service of the are considered to ‘‘revitalize or and § ll.12(g)(4)(iii)–3.
U.S. Department of Agriculture. stabilize’’ an underserved
The Agencies publish data source nonmetropolitan middle-income § ll.12(h) Community Development
information along with the list of geography, and how are those activities Loan
eligible nonmetropolitan census tracts evaluated? § ll.12(h)—1: What are examples of
on the Federal Financial Institutions A4. The regulation provides that community development loans?
Examination Council (FFIEC) Web site activities revitalize or stabilize an A1. Examples of community
(http://www.ffiec.gov). underserved nonmetropolitan middle- development loans include, but are not
§ ll.12(g)(4)(iii)—2: How often will income geography if they help to meet limited to, loans to
the Agencies update the list of essential community needs, including
• borrowers for affordable housing
designated distressed and underserved needs of low- or moderate-income
rehabilitation and construction,
nonmetropolitan middle-income individuals. Activities, such as
including construction and permanent
geographies? financing for the construction,
A2. The Agencies will review and financing of multifamily rental property
expansion, improvement, maintenance,
update the list annually. The list is serving low- and moderate-income
or operation of essential infrastructure
published on the FFIEC Web site (http:// persons;
or facilities for health services,
www.ffiec.gov). • not-for-profit organizations serving
education, public safety, public
To the extent that changes to the primarily low- and moderate-income
services, industrial parks, affordable
designated census tracts occur, the housing or other community
housing, or communication services,
Agencies have determined to adopt a development needs;
will be evaluated under these criteria to
one-year ‘‘lag period.’’ This lag period • borrowers to construct or
determine if they qualify for
will be in effect for the 12 months rehabilitate community facilities that
revitalization or stabilization
immediately following the date when a are located in low- and moderate-
consideration. Examples of the types of
census tract that was designated as income areas or that serve primarily
projects that qualify as meeting essential
distressed or underserved is removed low- and moderate-income individuals;
community needs, including needs of
from the designated list. Revitalization low- or moderate-income individuals, • financial intermediaries including
or stabilization activities undertaken would be Community Development Financial
during the lag period will receive • a new or expanded hospital that Institutions (CDFI), New Markets Tax
consideration as community serves the entire county, including low- Credit-eligible Community Development
development activities if they would and moderate-income residents; Entities, Community Development
have been considered to have a primary • an industrial park for businesses Corporations (CDC), minority- and
purpose of community development if whose employees include low- or women-owned financial institutions,
the census tract in which they were moderate-income individuals; community loan funds or pools, and
located were still designated as • a new or rehabilitated sewer line low-income or community development
distressed or underserved. that serves community residents, credit unions that primarily lend or
§ ll.12(g)(4)(iii)—3: What activities including low- or moderate-income facilitate lending to promote community
are considered to ‘‘revitalize or residents; development;

stabilize’’ a distressed nonmetropolitan • a mixed-income housing • local, state, and tribal governments
middle-income geography, and how are development that includes affordable for community development activities;
those activities evaluated? housing for low- and moderate-income • borrowers to finance environmental
A3. An activity revitalizes or families; clean-up or redevelopment of an
stabilizes a distressed nonmetropolitan • a renovated elementary school that industrial site as part of an effort to
middle-income geography if it helps to serves children from the community, revitalize the low- or moderate-income
community in which the property is the small institution is an intermediate A4. No. Credit cards issued to low- or
located; small institution (see Q&A § ll.12(h)– moderate-income individuals for
• businesses, in an amount greater 3). Multifamily dwelling loans, household, family, or other personal
than $1 million, when made as part of however, may be considered as expenditures, whether as part of a
the Small Business Administration’s community development loans as well program targeted to such individuals or
504 Certified Development Company as home mortgage loans. See also Q&A otherwise, do not qualify as community
program; and § ll.42(b)(2)–2. development loans because they do not
• borrowers to finance renewable § ll.12(h)—3: May an intermediate have as their primary purpose any of the
energy, energy-efficient, or water small institution that is not subject to activities included in the definition of
conservation equipment or projects that HMDA reporting have home mortgage ‘‘community development.’’
support the development, rehabilitation, loans considered as community § ll.12(h)—5: The regulation
improvement, or maintenance of development loans? Similarly, may an indicates that community development
affordable housing or community intermediate small institution have includes ‘‘activities that revitalize or
facilities, such as a health clinic that small business and small farm loans stabilize low- or moderate-income
provides services for low- or moderate- and consumer loans considered as geographies.’’ Do all loans in a low- to
income individuals. For example, the community development loans? moderate-income geography have a
benefit to low- or moderate-income A3. Yes. In instances where stabilizing effect?
individuals may result in either a intermediate small institutions are not A5. No. Some loans may provide only
reduction in a tenant’s utility cost or the required to report HMDA or small indirect or short-term benefits to low- or
cost of providing utilities to common business or small farm loans, these moderate-income individuals in a low-
areas in an affordable housing loans may be considered, at the or moderate-income geography. These
development. Further, a renewable institution’s option, as community loans are not considered to have a
energy facility may be located on-site or development loans, provided they meet community development purpose. For
off-site, so long as the benefit from the example, a loan for upper-income
the regulatory definition of ‘‘community
energy generated is provided to an housing in a low- or moderate-income
development.’’ If small business or
affordable housing project or a area is not considered to have a
small farm loan data have been reported
community facility that has a community development purpose
to the Agencies to preserve the option
community development purpose. simply because of the indirect benefit to
The rehabilitation and construction of to be evaluated as a large institution, but
low- or moderate-income persons from
affordable housing or community the institution ultimately chooses to be
construction jobs or the increase in the
facilities, referred to above, may include evaluated under the intermediate small
local tax base that supports enhanced
the abatement or remediation of, or institution examination standards, then
services to low- and moderate-income
other actions to correct, environmental the institution would continue to have
area residents. On the other hand, a loan
hazards, such as lead-based paint, the option to have such loans for an anchor business in a low- or
asbestos, mold, or radon that are present considered as community development moderate-income area (or a nearby area)
in the housing, facilities, or site. loans. However, if the institution opts to that employs or serves residents of the
§ ll.12(h)—2: If a retail institution be evaluated under the lending, area and, thus, stabilizes the area, may
that is not required to report under the investment, and service tests applicable be considered to have a community
Home Mortgage Disclosure Act (HMDA) to large institutions, it may not choose development purpose. For example, in a
makes affordable home mortgage loans to have home mortgage, small business, low-income area, a loan for a pharmacy
that would be HMDA-reportable home small farm, or consumer loans that employs and serves residents of the
mortgage loans if it were a reporting considered as community development area promotes community development.
institution, or if a small institution that loans. § ll.12(h)—6: Must there be some
is not required to collect and report loan Loans other than multifamily immediate or direct benefit to the
data under the CRA makes small dwelling loans may not be considered institution’s assessment area(s) to
business and small farm loans and under both the lending test and the satisfy the regulations’ requirement that
consumer loans that would be collected community development test for qualified investments and community
and/or reported if the institution were a intermediate small institutions. Thus, if development loans or services benefit an
large institution, may the institution an institution elects to have certain institution’s assessment area(s) or a
have these loans considered as loans considered under the community broader statewide or regional area that
community development loans? development test, those loans may not includes the institution’s assessment
A2. No. Although small institutions also be considered under the lending area(s)?
are not required to report or collect test, and would be excluded from the A6. No. The regulations recognize that
information on small business and small lending test analysis. community development organizations
farm loans and consumer loans, and Intermediate small institutions may and programs are efficient and effective
some institutions are not required to choose individual loans within their ways for institutions to promote
report information about their home portfolio for community development community development. These
mortgage loans under HMDA, if these consideration. Examiners will evaluate organizations and programs often
institutions are retail institutions, the an intermediate small institution’s operate on a statewide or even
Agencies will consider in their CRA community development activities multistate basis. Therefore, an
evaluations the institutions’ originations within the context of the responsiveness institution’s activity is considered a
and purchases of loans that would have of the activity to the community community development loan or service
been collected or reported as small development needs of the institution’s or a qualified investment if it supports
business, small farm, consumer or home assessment area(s). an organization or activity that covers
mortgage loans, had the institution been § ll.12(h)—4: Do secured credit an area that is larger than, but includes,
a collecting and reporting institution cards or other credit card programs the institution’s assessment area(s). The
under the CRA or the HMDA. Therefore, targeted to low- or moderate-income institution’s assessment area(s) need not
these loans will not be considered as individuals qualify as community receive an immediate or direct benefit
community development loans, unless development loans? from the institution’s participation in
the organization or activity, provided majority of the entire activity’s benefits prepared to demonstrate the activities’
that the purpose, mandate, or function or dollar value, then the activity may qualifications.
of the organization or activity includes still be considered to possess the
§ ll.12(i) Community Development
serving geographies or individuals requisite primary purpose, and the
Service
located within the institution’s institution may receive CRA
assessment area(s). consideration for the entire activity, if § ll.12(i)—1: In addition to meeting
In addition, a retail institution will (1) the express, bona fide intent of the the definition of ‘‘community
receive consideration for certain other activity, as stated, for example, in a development’’ in the regulation,
community development activities. prospectus, loan proposal, or community development services must
These activities must benefit community action plan, is primarily one also be related to the provision of
geographies or individuals located or more of the enumerated community financial services. What is meant by
somewhere within a broader statewide development purposes; (2) the activity ‘‘provision of financial services’’?
or regional area that includes the is specifically structured (given any A1. Providing financial services
institution’s assessment area(s). relevant market or legal constraints or means providing services of the type
Examiners will consider these activities performance context factors) to achieve generally provided by the financial
even if they will not benefit the the expressed community development services industry. Providing financial
institution’s assessment area(s), as long purpose; and (3) the activity services often involves informing
as the institution has been responsive to accomplishes, or is reasonably certain to community members about how to get
community development needs and accomplish, the community or use credit or otherwise providing
opportunities in its assessment area(s). development purpose involved. credit services or information to the
§ ll.12(h)—7: What is meant by the Generally, a loan, investment, or community. For example, service on the
term ‘‘regional area’’? service will be determined to have a board of directors of an organization
A7. A ‘‘regional area’’ may be an ‘‘primary purpose’’ of community that promotes credit availability or
intrastate area or a multistate area that development only if it meets the criteria finances affordable housing is related to
includes the financial institution’s described above. However, an activity the provision of financial services.
assessment area(s). Regional areas involving the provision of affordable Providing technical assistance about
typically have some geographic, housing also may be deemed to have a financial services to community-based
demographic, and/or economic ‘‘primary purpose’’ of community groups, local or tribal government
interdependencies and may conform to development in certain other limited agencies, or intermediaries that help to
commonly accepted delineations, such circumstances in which these criteria meet the credit needs of low- and
as ‘‘the tri-county area’’ or the ‘‘mid- have not been met. Specifically, moderate-income individuals or small
Atlantic states.’’ Regions are often activities related to the provision of businesses and farms is also providing
defined by the geographic scope and mixed-income housing, such as in financial services. By contrast, activities
specific purpose of a community connection with a development that has that do not take advantage of the
development organization or initiative. a mixed-income housing component or employees’ financial expertise, such as
§ ll.12(h)—8: What is meant by the an affordable housing set-aside required neighborhood cleanups, do not involve
term ‘‘primary purpose’’ as that term is by Federal, state, or local government, the provision of financial services.
used to define what constitutes a also would be eligible for consideration § ll.12(i)—2: Are personal
community development loan, a as an activity that has a ‘‘primary charitable activities provided by an
qualified investment, or a community purpose’’ of community development at institution’s employees or directors
development service? the election of the institution. In such outside the ordinary course of their
A8. A loan, investment, or service has cases, an institution may receive pro employment considered community
as its primary purpose community rata consideration for the portion of development services?
development when it is designed for the such activities that helps to provide A2. No. Services must be provided as
express purpose of revitalizing or affordable housing to low- or moderate- a representative of the institution. For
stabilizing low- or moderate-income income individuals. For example, if an example, if a financial institution’s
areas, designated disaster areas, or institution makes a $10 million loan to director, on her own time and not as a
underserved or distressed finance a mixed-income housing representative of the institution,
nonmetropolitan middle-income areas, development in which 10 percent of the volunteers one evening a week at a local
providing affordable housing for, or units will be set aside as affordable community development corporation’s
community services targeted to, low- or housing for low- and moderate-income financial counseling program, the
moderate-income persons, or promoting individuals, the institution may elect to institution may not consider this
economic development by financing treat $1 million of such loan as a activity a community development
small businesses or farms that meet the community development loan. In other service.
requirements set forth in 12 CFR ll words, the pro rata dollar amount of the § ll.12(i)—3: What are examples of
.12(g). To determine whether an activity total activity will be based on the community development services?
is designed for an express community percentage of units set-aside for A3. Examples of community
development purpose, the agencies affordable housing for low- or moderate- development services include, but are
apply one of two approaches. First, if a income individuals. not limited to, the following:
majority of the dollars or beneficiaries of The fact that an activity provides • Providing technical assistance on
the activity are identifiable to one or indirect or short-term benefits to low- or financial matters to nonprofit, tribal, or
more of the enumerated community moderate-income persons does not government organizations serving low-
development purposes, then the activity make the activity community and moderate-income housing or
will be considered to possess the development, nor does the mere economic revitalization and
requisite primary purpose. presence of such indirect or short-term development needs;
Alternatively, where the measurable benefits constitute a primary purpose of • Providing technical assistance on
portion of any benefit bestowed or community development. Financial financial matters to small businesses or
dollars applied to the community institutions that want examiners to community development organizations,
development purpose is less than a consider certain activities should be including organizations and individuals
who apply for loans or grants under the home purchase or home improvement (HMDA–LAR), even if they fund the
Federal Home Loan Banks’ (FHLB) loans are consumer loans if they are loans. May an institution receive any
Affordable Housing Program; extended to one or more individuals for consideration under CRA for its home
• Lending employees to provide household, family, or other personal mortgage loan brokerage activities?
financial services for organizations expenditures. A2. Yes. A financial institution that
facilitating affordable housing § ll.12(j)—2: May a home equity funds home mortgage loans but
construction and rehabilitation or line of credit be considered a ‘‘consumer immediately assigns the loans to the
development of affordable housing; loan’’ even if part of the line is for home lender that made the credit decisions
• Providing credit counseling, home- improvement purposes? may present information about these
buyer and home maintenance A2. If the predominant purpose of the loans to examiners for consideration
counseling, financial planning or other line is home improvement, the line may under the lending test as ‘‘other loan
financial services education to promote only be reported under HMDA and may data.’’ Under Regulation C, the broker
community development and affordable not be considered a consumer loan. institution does not record the loans on
housing, including credit counseling to However, the full amount of the line its HMDA–LAR because it does not
assist low- or moderate-income may be considered a ‘‘consumer loan’’ if make the credit decisions, even if it
borrowers in avoiding foreclosure on its predominant purpose is for funds the loans. An institution electing
their homes; household, family, or other personal to have these home mortgage loans
• Establishing school savings expenditures, and to a lesser extent considered must maintain information
programs or developing or teaching home improvement, and the full amount about all of the home mortgage loans
financial education or literacy curricula of the line has not been reported under that it has funded in this way.
for low- or moderate-income HMDA. This is the case even though Examiners will consider these other
individuals; and there may be ‘‘double counting’’ because loan data using the same criteria by
• Providing foreclosure prevention part of the line may also have been which home mortgage loans originated
programs to low- or moderate-income reported under HMDA. or purchased by an institution are
homeowners who are facing foreclosure § ll.12(j)—3: How should an evaluated.
on their primary residence with the institution collect or report information
Institutions that do not provide
objective of providing affordable, on loans the proceeds of which will be
funding but merely take applications
sustainable, long-term loan used for multiple purposes?
A3. If an institution makes a single and provide settlement services for
modifications and restructurings. another lender that makes the credit
Examples of technical assistance loan or provides a line of credit to a
customer to be used for both consumer decisions will receive consideration for
activities that are related to the this service as a retail banking service.
provision of financial services and that and small business purposes, consistent
with the instructions for the Examiners will consider an institution’s
might be provided to community mortgage brokerage services when
development organizations include Consolidated Reports of Condition and
evaluating the range of services
• serving on the board of directors; Income (Call Report), the institution
provided to low-, moderate-, middle-
• serving on a loan review committee; should determine the major
and upper-income geographies and the
• developing loan application and (predominant) component of the loan or
the credit line and collect or report the degree to which the services are tailored
underwriting standards;
to meet the needs of those geographies.
• developing loan-processing entire loan or credit line in accordance
with the regulation’s specifications for Alternatively, an institution’s mortgage
systems;
• developing secondary market that loan type. brokerage service may be considered a
vehicles or programs; community development service if the
§ ll.12(l) Home Mortgage Loan primary purpose of the service is
• assisting in marketing financial
services, including development of § ll.12(l)—1: Does the term ‘‘home community development. An institution
advertising and promotions, mortgage loan’’ include loans other than wishing to have its mortgage brokerage
publications, workshops and ‘‘home purchase loans’’? service considered as a community
conferences; A1. Yes. ‘‘Home mortgage loan’’ development service must provide
• furnishing financial services includes ‘‘home improvement loan,’’ sufficient information to substantiate
training for staff and management; ‘‘home purchase loan,’’ and that its primary purpose is community
• contributing accounting/ ‘‘refinancing,’’ as defined in the HMDA development and to establish the extent
bookkeeping services; regulation, Regulation C, 12 CFR part of the services provided.
• assisting in fund raising, including 1003. This definition also includes § ll.12(m) Income Level
soliciting or arranging investments; and multifamily (five-or-more families)
• providing services reflecting a dwelling loans, and loans for the § ll.12(m)—1: Where do institutions
financial institution’s employees’ areas purchase of manufactured homes. See find income level data for geographies
of expertise at the institution, such as also Q&A § ll.22(a)(2)–7. and individuals?
human resources, information § ll.12(l)—2: Some financial A1. The median family income (MFI)
technology, and legal services. institutions broker home mortgage levels for geographies, i.e., census tracts,
Refer to Q&A § ll.24(a)—1 for loans. They typically take the borrower’s are calculated using income data from
information about how retail services application and perform other the U.S. Census Bureau’s American
are evaluated under the large institution settlement activities; however, they do Community Survey (ACS) and
service test. not make the credit decision. The broker geographic definitions from the Office of
institutions may also initially fund these Management and Budget (OMB), and are
§ ll.12(j) Consumer Loan mortgage loans, then immediately updated approximately every five years.
§ ll.12(j)—1: Are home equity loans assign them to another lender. Because Geographic income data, along with
considered ‘‘consumer loans’’? the broker institution does not make the detailed information about the FFIEC’s
A1. Home equity loans made for credit decision, under Regulation C calculation of geographic MFI data, are
purposes other than home purchase, (HMDA), they do not record the loans on available on the FFIEC Web site at
home improvement, or refinancing their HMDA loan application registers http://www.ffiec.gov/cra.htm.
The income levels for individuals are • Does the lending test or the investments. However, FHLB member
calculated annually by the FFIEC using community development test present a institutions may receive CRA
geographic definitions from the OMB, more accurate picture of the consideration as a community
income data from the ACS, and the institution’s CRA performance? development service for technical
Consumer Price Index from the § ll.12(n)—3: Do ‘‘niche assistance they provide on behalf of
Congressional Budget Office. Individual institutions’’ qualify as limited purpose applicants and recipients of funding
MFI data for metropolitan statistical (or wholesale) institutions? from the FHLB’s Affordable Housing
areas (MSA) and statewide A3. Generally, no. Institutions that are Program. See Q&A § ll.12(i)–3.
nonmetropolitan areas, along with in the business of lending to the public, § ll.12(t)—4: What are examples of
detailed information about the FFIEC’s but specialize in certain types of retail qualified investments?
calculation of individual MFI data, are loans (for example, home mortgage or A4. Examples of qualified
available on the FFIEC Web site at small business loans) to certain types of investments include, but are not limited
http://www.ffiec.gov/cra.htm. borrowers (for example, to high-end to, investments, grants, deposits, or
income level customers or to shares in or to:
§ ll.12(n) Limited Purpose Institution corporations or partnerships of licensed • Financial intermediaries (including
§ ll.12(n)—1: What constitutes a professional practitioners) (‘‘niche CDFIs, New Markets Tax Credit-eligible
‘‘narrow product line’’ in the definition institutions’’) generally would not Community Development Entities,
of ‘‘limited purpose institution’’? qualify as limited purpose (or CDCs, minority- and women-owned
A1. An institution offers a narrow wholesale) institutions. financial institutions, community loan
product line by limiting its lending funds, and low-income or community
§ ll.12(t) Qualified Investment
activities to a product line other than a development credit unions) that
traditional retail product line required § ll.12(t)—1: Does the CRA
primarily lend or facilitate lending in
to be evaluated under the lending test regulation provide authority for
low- and moderate-income areas or to
(i.e., home mortgage, small business, institutions to make investments?
low- and moderate-income individuals
and small farm loans). Thus, an A1. No. The CRA regulation does not
in order to promote community
institution engaged only in making provide authority for institutions to
development, such as a CDFI that
credit card or motor vehicle loans offers make investments that are not otherwise
promotes economic development on an
a narrow product line, while an allowed by Federal law.
§ ll.12(t)—2: Are mortgage-backed Indian reservation;
institution limiting its lending activities • Organizations engaged in affordable
to home mortgages is not offering a securities or municipal bonds ‘‘qualified
investments’’? housing rehabilitation and construction,
narrow product line. including multifamily rental housing;
§ ll.12(n)—2: What factors will the A2. As a general rule, mortgage-
backed securities and municipal bonds • Organizations, including, for
Agencies consider to determine whether example, SBICs, specialized SBICs, and
an institution that, if limited purpose, are not qualified investments because
they do not have as their primary Rural Business Investment Companies
makes loans outside a narrow product (RBIC) that promote economic
line, or, if wholesale, engages in retail purpose community development, as
defined in the CRA regulations. development by financing small
lending, will lose its limited purpose or businesses;
wholesale designation because of too Nonetheless, mortgage-backed securities
or municipal bonds designed primarily • Community development venture
much other lending? capital companies that promote
A2. Wholesale institutions may to finance community development
generally are qualified investments. economic development by financing
engage in some retail lending without
Municipal bonds or other securities small businesses;
losing their designation if this activity is
with a primary purpose of community • Facilities that promote community
incidental and done on an
development need not be housing- development by providing community
accommodation basis. Similarly, limited
related. For example, a bond to fund a services for low- and moderate-income
purpose institutions continue to meet
community facility or park or to provide individuals, such as youth programs,
the narrow product line requirement if
sewage services as part of a plan to homeless centers, soup kitchens, health
they provide other types of loans on an
redevelop a low-income neighborhood care facilities, battered women’s centers,
infrequent basis. In reviewing other
is a qualified investment. Certain and alcohol and drug recovery centers;
lending activities by these institutions,
municipal bonds in underserved • Projects eligible for low-income
the Agencies will consider the following
nonmetropolitan middle-income housing tax credits;
factors:
• Is the retail lending provided as an geographies may also be qualified • State and municipal obligations,
incident to the institution’s wholesale investments. See Q&A § ll such as revenue bonds, that specifically
lending? .12(g)(4)(iii)–4. Housing-related bonds support affordable housing or other
• Are the retail loans provided as an or securities must primarily address community development;
accommodation to the institution’s affordable housing (including • Not-for-profit organizations serving
wholesale customers? multifamily rental housing) needs of low- and moderate-income housing or
• Are the other types of loans made low- or moderate-income individuals in other community development needs,
only infrequently to the limited purpose order to qualify. See also Q&A § ll such as counseling for credit, home-
institution’s customers? .23(b)–2. ownership, home maintenance, and
• Does only an insignificant portion § ll.12(t)—3: Are FHLB stocks or other financial literacy programs; and
of the institution’s total assets and unpaid dividends and membership • Organizations supporting activities
income result from the other lending? reserves with the Federal Reserve Banks essential to the capacity of low- and
• How significant a role does the ‘‘qualified investments’’? moderate-income individuals or
institution play in providing that type(s) A3. No. FHLB stocks or unpaid geographies to utilize credit or to
of loan(s) in the institution’s assessment dividends, and membership reserves sustain economic development, such as,
area(s)? with the Federal Reserve Banks do not for example, day care operations and job
• Does the institution hold itself out have a sufficient connection to training programs or workforce
as offering that type(s) of loan(s)? community development to be qualified development programs that enable low-
or moderate-income individuals to responsive to area community Consumer Price Index. More

work. development needs. specifically, the dollar thresholds will
See also Q&As § ll.12(g)(4)(ii)—2; § ll.12(t)—9: How do examiners be adjusted annually based on the year-
§ ll.12(g)(4)(iii)–3; § ll.12(g)(4)(iii)– evaluate loans or investments to to-year change in the average of the
4. organizations that, in turn, invest in Consumer Price Index for Urban Wage
§ ll.12(t)—5: Will an institution instruments that do not have a Earners and Clerical Workers, not
receive consideration for charitable community development purpose, and seasonally adjusted for each 12-month
contributions as ‘‘qualified use only the income, or a portion of the period ending in November, with
investments’’? income, from those investments to rounding to the nearest million. Any
A5. Yes, provided they have as their support their community development changes in the asset size thresholds will
primary purpose community purpose? be published in the Federal Register.
development as defined in the A9. Examiners will give quantitative Historical and current asset-size
regulations. A charitable contribution, consideration for the dollar amount of threshold information may be found on
whether in cash or an in-kind funds that benefit an organization or the FFIEC’s Web site at http://
contribution of property, is included in activity that has a primary purpose of www.ffiec.gov/cra.
the term ‘‘grant.’’ A qualified investment community development. If an
institution invests in (or lends to) an § ll.12(v) Small Business Loan
is not disqualified because an
institution receives favorable treatment organization that, in turn, invests those § ll.12(v)—1: Are loans to nonprofit
for it (for example, as a tax deduction funds in instruments that do not have as organizations considered small business
their primary purpose community loans or are they considered community
or credit) under the Internal Revenue
development, such as Treasury development loans?
Code.
securities, and uses only the income, or A1. To be considered a small business
§ ll.12(t)—6: An institution makes loan, a loan must meet the definition of
or participates in a community a portion of the income, from those
investments to support the ‘‘loans to small businesses’’ in the
development loan. The institution instructions in the Call Report. In
provided the loan at below-market organization’s community development
purposes, the Agencies will consider general, a loan to a nonprofit
interest rates or ‘‘bought down’’ the organization, for business or farm
interest rate to the borrower. Is the lost only the amount of the investment
income used to benefit the organization purposes, where the loan is secured by
income resulting from the lower interest nonfarm nonresidential property and
rate or buy-down a qualified or activity that has a community
development purpose for CRA purposes. the original amount of the loan is $1
investment? million or less, if a business loan, or
A6. No. The Agencies will, however, Examiners will, however, provide
consideration for such instruments $500,000 or less, if a farm loan, would
consider the responsiveness, be reported in the Call Report as a small
innovativeness, and complexity of the when the organization invests solely as
a means of securing capital for business or small farm loan. If a loan to
community development loan within a nonprofit organization is reportable as
the bounds of safe and sound banking leveraging purposes, securing additional
financing, or in order to generate a a small business or small farm loan, it
practices. cannot also be considered as a
§ ll.12(t)—7: Will the Agencies return with minimal risk until funds can
be deployed toward the originally community development loan, except
consider as a qualified investment the by a wholesale or limited purpose
wages or other compensation of an intended community development
activity. The organization must express institution. Loans to nonprofit
employee or director who provides organizations that are not small business
assistance to a community development a bona fide intent to deploy the funds
from investments and loans in a manner or small farm loans for Call Report
organization on behalf of the purposes may be considered as
institution? that primarily serves a community
development purpose in order for the community development loans if they
A7. No. However, the Agencies will meet the regulatory definition of
consider donated labor of employees or institution to receive consideration
under the applicable test. ‘‘community development.’’
directors of a financial institution as a § ll.12(v)—2: Are loans secured by
community development service if the § ll.12(u) Small Institution commercial real estate considered small
activity meets the regulatory definition § ll.12(u)—1: How are Federal and business loans?
of ‘‘community development service.’’ state branch assets of a foreign bank A2. Yes, depending on their principal
§ ll.12(t)—8: When evaluating a calculated for purposes of the CRA? amount. Small business loans include
qualified investment, what A1. A Federal or state branch of a loans secured by ‘‘nonfarm
consideration will be given for prior- foreign bank is considered a small nonresidential properties,’’ as defined in
period investments? institution if the Federal or state branch the Call Report, in amounts of $1
A8. When evaluating an institution’s has assets less than the asset threshold million or less.
qualified investment record, examiners delineated in 12 CFR ll.12(u)(1) for § ll.12(v)—3: Are loans secured by
will consider investments that were small institutions. nonfarm residential real estate to
made prior to the current examination, finance small businesses ‘‘small
but that are still outstanding. Qualitative § ll.12(u)(2) Small Institution business loans’’?
factors will affect the weight given to Adjustment A3. Typically not. Loans secured by
both current period and outstanding § ll.12(u)(2)—1: How often will the nonfarm residential real estate that are
prior-period qualified investments. For asset size thresholds for small used to finance small businesses are not
example, a prior-period outstanding institutions and intermediate small included as ‘‘small business’’ loans for
investment with a multi-year impact institutions be changed, and how will Call Report purposes unless the security
that addresses assessment area these adjustments be communicated? interest in the nonfarm residential real
community development needs may A1. The asset size thresholds for estate is taken only as an abundance of
receive more consideration than a ‘‘small institutions’’ and ‘‘intermediate caution. (See Call Report Glossary
current period investment of a small institutions’’ will be adjusted definition of ‘‘Loan Secured by Real
comparable amount that is less annually based on changes to the Estate.’’) The Agencies recognize that
many small businesses are financed by A2. No. Examiners will consider the Examiners evaluate the
loans that would not have been made or responsiveness to credit and community responsiveness of an institution’s
would have been made on less favorable development needs, as well as the activities to credit and community
terms had they not been secured by innovativeness and complexity, if development needs in light of the
residential real estate. If these loans applicable, of an institution’s institution’s performance context. That
promote community development, as community development lending, is, examiners consider the institution’s
defined in the regulation, they may be qualified investments, and community capacity, its business strategy, the needs
considered as community development development services. These criteria of the community, and the opportunities
loans. Otherwise, at an institution’s include consideration of the degree to for lending, investments, and services in
option, the institution may collect and which they serve as a catalyst for other the community. To inform their
maintain data separately concerning community development activities. The assessment, examiners may consider
these loans and request that the data be criteria are designed to add a qualitative information about credit and
considered in its CRA evaluation as element to the evaluation of an community development needs and
‘‘Other Secured Lines/Loans for institution’s performance. opportunities from many sources,
Purposes of Small Business.’’ See also (‘‘Innovativeness’’ and ‘‘complexity’’ are including:
Q&A § ll.22(a)(2)–7. not factors in the community • demographic and other information
§ ll.12(v)—4: Are credit cards development test applicable to compiled by local, state, and Federal
issued to small businesses considered intermediate small institutions.) government entities;
‘‘small business loans’’? § ll.21(a)—3: ‘‘Responsiveness’’ to • public comments received by the
A4. Credit cards issued to a small credit and community development Agency, for example, in response to its
business or to individuals to be used, needs is either a criterion or otherwise publication of its planned examination
with the institution’s knowledge, as a consideration in all of the schedule;
business accounts are small business performance tests. How do examiners • information from community
loans if they meet the definitional evaluate whether a financial institution leaders or organizations;
requirements in the Call Report has been ‘‘responsive’’ to credit and • studies and reports from academic
instructions. community development needs? institutions and other research bodies;
A3. There are three important factors • consumer complaint information;
§ ll.12(x) Wholesale Institution and
that examiners consider when
§ ll.12(x)—1: What factors will the evaluating responsiveness: quantity, • any relevant information provided
Agencies consider in determining quality, and performance context. to examiners by the financial institution
whether an institution is in the business Examiners evaluate the volume and type that is maintained by the institution in
of extending home mortgage, small of an institution’s activities, i.e., retail its ordinary course of business.
business, small farm, or consumer loans and community development loans and Responsiveness to community
to retail customers? services and qualified investments, as a development needs and opportunities in
A1. The Agencies will consider first step in evaluating the institution’s an institution’s assessment area(s) is
whether: responsiveness to credit and community also a key consideration when an
• The institution holds itself out to development needs. In addition, an institution plans to engage in
the retail public as providing such assessment of ‘‘responsiveness’’ community development activities that
loans. encompasses the qualitative aspects of benefit areas outside of its assessment
• the institution’s revenues from performance, including the effectiveness area(s). Q&A § ll.12(h)–6 states that
extending such loans are significant of the activities. For example, some an institution will receive consideration
when compared to its overall community development activities for activities that benefit geographies or
operations, including off-balance sheet require specialized expertise or effort on individuals located somewhere within a
activities. the part of the institution or provide a broader statewide or regional area that
A wholesale institution may make benefit to the community that would not includes the institution’s assessment
some retail loans without losing its otherwise be made available. In some area(s) even if they will not benefit the
wholesale designation as described cases, a smaller loan may have more institution’s assessment area(s), as long
above in Q&A § ll.12(n)–2. benefit to a community than a larger as the institution has been responsive to
§ ll.21—Performance Tests, loan. In other words, when evaluated community development needs and
Standards, and Ratings, in General qualitatively, some activities are more opportunities in its assessment area(s).
responsive than others. Activities are When considering whether an
§ ll.21(a) Performance Tests and more responsive if they are successful in institution has been responsive to
Standards meeting identified credit and community development needs and
§ ll.21(a)—1: How will examiners community development needs. For opportunities in its assessment area(s),
apply the performance criteria? example, investing in a community examiners will consider all of the
A1. Examiners will apply the development organization that institution’s community development
performance criteria reasonably and specializes in originating home activities in its assessment area(s).
fairly, in accord with the regulations, mortgage loans to low- or moderate- Examiners will also consider as
the examination procedures, and this income individuals would be responsive to assessment area needs
guidance. In doing so, examiners will considered more responsive than an community development activities that
disregard efforts by an institution to investment of the same amount in a support an organization or activity that
manipulate business operations or single-family mortgage-backed security covers an area that is larger than, but
present information in an artificial light in which the majority of the loans are includes, the institution’s assessment
that does not accurately reflect an to low- or moderate-income borrowers. area(s). This is true if the purpose,
institution’s overall record of lending Although both of these activities may mandate, or function of the organization
performance. receive consideration as a qualified or activity includes serving geographies
§ ll.21(a)—2: Are all community investment, the former example would or individuals located within the
development activities weighted equally be considered to be more responsive institution’s assessment area(s), even
by examiners? than the latter. though the institution’s assessment
area(s) did not receive an immediate or A1. The performance context is a § ll.21(b)(4) Institutional Capacity
direct benefit from the institution’s broad range of economic, demographic, and Constraints
participation in the organization or and institution- and community-specific § ll.21(b)(4)—1: Will examiners
activity. For example, suppose an information that an examiner reviews to consider factors outside of an
institution were to invest in a statewide understand the context in which an institution’s control that prevent it from
community development fund that was institution’s record of performance engaging in certain activities?
organized with the purpose of providing should be evaluated. The Agencies will A1. Yes. Examiners will take into
community development loans provide examiners with some of this account statutory and supervisory
throughout the state in which the information. The performance context is limitations on an institution’s ability to
institution is located. Examiners would not a formal assessment of community engage in any lending, investment, and
consider this investment when credit needs. service activities. For example, a savings
evaluating the institution’s
responsiveness to community § ll.21(b)(2) Information Maintained association that has made few or no
by the Institution or Obtained From qualified investments due to its limited
development needs and opportunities in
Community Contacts investment authority may still receive a
its assessment area(s) even if the fund
low satisfactory rating under the
had not provided a loan within the § ll.21(b)(2)—1: Will examiners investment test if it has a strong lending
institution’s assessment area(s). consider performance context
§ ll.21(a)—4: What is meant by record.
information provided by institutions?
‘‘innovativeness’’? A1. Yes. An institution may provide § ll.21(b)(5) Institution’s Past
A4. ‘‘Innovativeness’’ is one of several examiners with any information it Performance and the Performance of
qualitative considerations under the deems relevant, including information Similarly Situated Lenders
lending, investment, and service tests. on the lending, investment, and service
The community development test for § ll.21(b)(5)—1: Can an
opportunities in its assessment area(s). institution’s assigned rating be
wholesale and limited purpose This information may include data on
institutions similarly considers adversely affected by poor past
the business opportunities addressed by performance?
‘‘innovative’’ loans, investments, and lenders not subject to the CRA.
services in the evaluation of A1. Yes. The Agencies will consider
Institutions are not required, however, an institution’s past performance in its
performance. Under the CRA
to prepare a formal needs assessment. If overall evaluation. For example, an
regulations, all innovative practices or
an institution provides information to institution that received a rating of
activities will be considered when an
examiners, the Agencies will not expect ‘‘needs to improve’’ in the past may
institution implements meaningful
information other than what the receive a rating of ‘‘substantial
improvements to products, services, or
institution normally would develop to noncompliance’’ if its performance has
delivery systems that respond more
prepare a business plan or to identify not improved.
effectively to customer and community
potential markets and customers, § ll.21(b)(5)—2: How will
needs, particularly those segments
including low- and moderate-income examiners consider the performance of
enumerated in the definition of
community development. persons and geographies in its similarly situated lenders?
Institutions should not innovate assessment area(s). The Agencies will A2. The performance context section
simply to meet this criterion of the not evaluate an institution’s efforts to of the regulation permits the
applicable test, particularly if, for ascertain community credit needs or performance of similarly situated
example, existing products, services, or rate an institution on the quality of any lenders to be considered, for example,
delivery systems effectively address the information it provides. as one of a number of considerations in
needs of all segments of the community. § ll.21(b)(2)—2: Will examiners evaluating the geographic distribution of
See Q&A § ll.28–1. Innovative conduct community contact interviews an institution’s loans to low-, moderate-
activities are especially meaningful as part of the examination process? , middle-, and upper-income
when they emphasize serving, for A2. Yes. Examiners will consider geographies. This analysis, as well as
example, low- or moderate-income information obtained from interviews other analyses, may be used, for
consumers or distressed or underserved with local community, civic, and example, where groups of contiguous
nonmetropolitan middle-income government leaders. These interviews geographies within an institution’s
geographies in new or more effective provide examiners with knowledge assessment area(s) exhibit abnormally
ways. Innovativeness may also include regarding the local community, its low penetration. In this regard, the
products, services, or delivery systems economic base, and community performance of similarly situated
already present in the assessment area development initiatives. To ensure that lenders may be analyzed if such an
by institutions that are not leaders in information from local leaders is analysis would provide accurate insight
innovation—due, for example, to the considered—particularly in areas where into the institution’s lack of
lack of available financial resources or the number of potential contacts may be performance in those areas. The
technological expertise—when they limited—examiners may use regulation does not require the use of a
subsequently introduce those products, information obtained through an specific type of analysis under these
services, or delivery systems to their interview with a single community circumstances. Moreover, no ratio
low- or moderate-income customers or contact for examinations of more than developed from any type of analysis is
segments of consumers or markets not one institution in a given market. In linked to any lending test rating.
previously served. Practices that cease addition, the Agencies may consider
information obtained from interviews § ll.21(f) Activities in Cooperation

to be innovative may still receive With Minority- or Women-Owned
qualitative consideration for being conducted by other Agency staff and by
the other Agencies. In order to augment Financial Institutions and Low-Income
flexible, complex, or responsive. Credit Unions
contacts previously used by the
§ ll.21(b) Performance Context Agencies and foster a wider array of § ll.21(f)—1: The CRA provides
§ ll.21(b)—1: What is the contacts, the Agencies may share that, in assessing the CRA performance
performance context? community contact information. of nonminority- and non-women-owned
(majority-owned) financial institutions, credit needs of an institution’s viewed less favorably by examiners than
examiners may consider as a factor assessment area(s) and that may one that does. However, if consumer
capital investments, loan participations, warrant favorable consideration as loans constitute a substantial majority of
and other ventures undertaken by the activities that are responsive to the the institution’s business, the Agencies
institutions in cooperation with needs of the institution’s assessment will evaluate them even if the
minority- or women-owned financial area(s)? institution does not so elect. The
institutions and low-income credit A1. Credit needs vary from Agencies interpret ‘‘substantial
unions (MWLI), provided that these community to community. However, majority’’ to be so significant a portion
activities help meet the credit needs of there are some lending activities that are of the institution’s lending activity by
local communities in which the MWLIs likely to be responsive in helping to number and dollar volume of loans that
are chartered. Must such activities also meet the credit needs of many the lending test evaluation would not
benefit the majority-owned financial communities. These activities include meaningfully reflect its lending
institution’s assessment area(s)? • providing loan programs that performance if consumer loans were
A1. No. Although the regulations include a financial education excluded.
generally provide that an institution’s component about how to avoid lending
activities that may be abusive or § ll.22(a)(2) Loan Originations and
CRA activities will be evaluated for the
otherwise unsuitable; Purchases/Other Loan Data
extent to which they benefit the
institution’s assessment area(s) or a • establishing loan programs that § ll.22(a)(2)—1: How are lending
broader statewide or regional area that provide small, unsecured consumer commitments (such as letters of credit)
includes the institution’s assessment loans in a safe and sound manner (i.e., evaluated under the regulation?
area(s), the Agencies apply a broader based on the borrower’s ability to repay) A1. The Agencies consider lending
geographic criterion when evaluating and with reasonable terms; commitments (such as letters of credit)
capital investments, loan participations, • offering lending programs, which only at the option of the institution,
and other ventures undertaken by that feature reporting to consumer reporting regardless of examination type.
institution in cooperation with MWLIs, agencies, that transition borrowers from Commitments must be legally binding
as provided by the CRA. Thus, such loans with higher interest rates and fees between an institution and a borrower
activities will be favorably considered (based on credit risk) to lower-cost in order to be considered. Information
in the CRA performance evaluation of loans, consistent with safe and sound about lending commitments will be
the institution (as loans, investments, or lending practices. Reporting to used by examiners to enhance their
services, as appropriate), even if the consumer reporting agencies allows understanding of an institution’s
MWLIs are not located in, or such borrowers accessing these programs the performance, but will be evaluated
activities do not benefit, the assessment opportunity to improve their credit separately from the loans.
area(s) of the majority-owned institution histories and thereby improve their § ll.22(a)(2)—2: Will examiners
or the broader statewide or regional area access to competitive credit products; review application data as part of the
that includes its assessment area(s). The and lending test?
activities must, however, help meet the • establishing loan programs with the A2. Application activity is not a
credit needs of the local communities in objective of providing affordable, performance criterion of the lending
which the MWLIs are chartered. The sustainable, long-term relief, for test. However, examiners may consider
impact of a majority-owned institution’s example, through loan refinancings, this information in the performance
activities in cooperation with MWLIs on restructures, or modifications, to context analysis because this
the majority-owned institution’s CRA homeowners who are facing foreclosure information may give examiners insight
rating will be determined in conjunction on their primary residences. on, for example, the demand for loans.
Examiners may consider favorably
with its overall performance in its
such lending activities, which have § ll.22(a)(2)—3: May a financial
assessment area(s). institution receive consideration under
Examples of activities undertaken by features augmenting the success and
effectiveness of the small, intermediate CRA for home mortgage loan
a majority-owned financial institution modification, extension, and
in cooperation with MWLIs that would small, or large institution’s lending
programs. consolidation agreements (MECA), in
receive CRA consideration may include which it obtains home mortgage loans
• making a deposit or capital § ll.22(a)(1) Types of Loans from other institutions without actually
investment; Considered purchasing or refinancing the home
• purchasing a participation in a loan; mortgage loans, as those terms have
§ ll.22(a)(1)—1: If a large retail
• loaning an officer or providing been interpreted under CRA and HMDA,
institution is not required to collect and
other technical expertise to assist an as implemented by 12 CFR part 1003?
report home mortgage data under the
MWLI in improving its lending policies A3. Yes. In some states, MECAs,
HMDA, will the Agencies still evaluate
and practices; which are not considered loan
• providing financial support to the institution’s home mortgage lending
performance? refinancings because the existing loan
enable an MWLI to partner with schools obligations are not satisfied and
A1. Yes. The Agencies will sample
or universities to offer financial literacy replaced, are common. Although these
the institution’s home mortgage loan
education to members of its local transactions are not considered to be
files in order to assess its performance
community; or purchases or refinancings, as those
under the lending test criteria.
• providing free or discounted data § ll.22(a)(1)—2: When will terms have been interpreted under CRA,
processing systems, or office facilities to examiners consider consumer loans as they do achieve the same results. A
aid an MWLI in serving its customers. part of an institution’s CRA evaluation? small, intermediate small, or large
§ ll.22—Lending Test A2. Consumer loans will be evaluated institution may present information
if the institution so elects and has about its MECA activities with respect
§ ll.22(a) Scope of Test collected and maintained the data; an to home mortgages to examiners for
§ ll.22(a)—1: Are there any types of institution that elects not to have its consideration under the lending test as
lending activities that help meet the consumer loans evaluated will not be ‘‘other loan data.’’
§ ll.22(a)(2)—4: In addition to Report Glossary definition of ‘‘Loan the rating. In evaluating an institution’s
MECAs, what are other examples of Secured by Real Estate.’’) If this same lending, examiners will consider
‘‘other loan data’’? loan is refinanced and the new loan is legitimate business reasons for the
A4. Other loan data include, for also secured by a one-to-four family allocation of the lending activity.
example, residence, but only through an
• loans funded for sale to the § ll.22(b)(2) & (3) Geographic
abundance of caution, this loan is
secondary markets that an institution Distribution and Borrower
reported not only as a refinancing under
has not reported under HMDA; Characteristics
HMDA, but also as a small business loan
• unfunded loan commitments and under CRA. (Note that small farm loans § ll.22(b)(2) & (3)—1: How do the
letters of credit; are similarly treated.) geographic distribution of loans and the
• commercial and consumer leases; It is not anticipated that ‘‘double- distribution of lending by borrower
• loans secured by nonfarm reported’’ loans will be so numerous as characteristics interact in the lending
residential real estate, not taken as an to affect the typical institution’s CRA test applicable to either large or small
abundance of caution, that are used to rating. In the event that an institution institutions?
finance small businesses or small farms reports a significant number or amount A1. Examiners generally will consider
and that are not reported as small of loans as both home mortgage and both the distribution of an institution’s
business/small farm loans or reported small business loans, examiners will loans among geographies of different
under HMDA; and consider that overlap in evaluating the income levels, and among borrowers of
• an increase to a small business or institution’s performance and generally different income levels and businesses
small farm line of credit if the increase will consider the ‘‘double-reported’’ and farms of different sizes. The
would cause the total line of credit to loans as small business loans for CRA importance of the borrower distribution
exceed $1 million, in the case of a small consideration. criterion, particularly in relation to the
business line; or $500,000, in the case The origination of a small business or geographic distribution criterion, will
of a small farm line. small farm loan that is secured by a one- depend on the performance context. For
§ ll.22(a)(2)—5: Do institutions to-four family residence is not example, distribution among borrowers
receive consideration for originating or reportable under HMDA, unless the with different income levels may be
purchasing loans that are fully purpose of the loan is home purchase or more important in areas without
guaranteed? home improvement. Nor is the loan
A5. Yes. For all examination types, identifiable geographies of different
reported as a small business or small income categories. On the other hand,
examiners evaluate an institution’s
farm loan if the security interest is not geographic distribution may be more
record of helping to meet the credit
taken merely as an abundance of important in areas with the full range of
needs of its assessment area(s) through
caution. Any such loan may be provided geographies of different income
the origination or purchase of specified
to examiners as ‘‘other loan data’’ categories.
types of loans. Examiners do not take
(‘‘Other Secured Lines/Loans for § ll.22(b)(2) & (3)—2: Must an
into account whether or not such loans
Purposes of Small Business’’) for institution lend to all portions of its
are guaranteed.
consideration during a CRA evaluation. assessment area?
§ ll.22(a)(2)—6: Do institutions
See Q&A § ll.12(v)—3. The A2. The term ‘‘assessment area’’
receive consideration for purchasing
refinancings of such loans would be describes the geographic area within
loan participations?
A6. Yes. Examiners will consider the reported under HMDA. which the agencies assess how well an
amount of loan participations purchased § ll.22(b) Performance Criteria institution, regardless of examination
when evaluating an institution’s record type, has met the specific performance
of helping to meet the credit needs of its § ll.22(b)(1) Lending Activity tests and standards in the rule. The
assessment area(s) through the § ll.22(b)(1)—1: How will the Agencies do not expect that simply
origination or purchase of specified Agencies apply the lending activity because a census tract is within an
types of loans, regardless of examination criterion to discourage an institution institution’s assessment area(s), the
type. As with other loan purchases, from originating loans that are viewed institution must lend to that census
examiners will evaluate whether loan favorably under CRA in the institution tract. Rather the Agencies will be
participations purchased by an itself and referring other loans, which concerned with conspicuous gaps in
institution, which have been sold and are not viewed as favorably, for loan distribution that are not explained
purchased a number of times, artificially origination by an affiliate? by the performance context. Similarly, if
inflate CRA performance. See, e.g., Q&A A1. Examiners will review closely an institution delineated the entire
§ ll.21(a)–1. institutions with (1) a small number and county in which it is located as its
§ ll.22(a)(2)—7: How are amount of home mortgage loans with an assessment area, but could have
refinancings of small business loans, unusually good distribution among low- delineated its assessment area as only a
which are secured by a one-to-four and moderate-income areas and low- portion of the county, it will not be
family residence and that have been and moderate-income borrowers and (2) penalized for lending only in that
reported under HMDA as a refinancing, a policy of referring most, but not all, of portion of the county, so long as that
evaluated under CRA? their home mortgage loans to affiliated portion does not reflect illegal
A7. A loan of $1 million or less with institutions. If an institution is making discrimination or arbitrarily exclude
a business purpose that is secured by a loans mostly to low- and moderate- low- or moderate-income geographies.
one-to-four family residence is income individuals and areas and The capacity and constraints of an
considered a small business loan for referring the rest of the loan applicants institution, its business decisions about
CRA purposes only if the security to an affiliate for the purpose of how it can best help to meet the needs
interest in the residential property was receiving a favorable CRA rating, of its assessment area(s), including those
taken as an abundance of caution and examiners may conclude that the of low- and moderate-income
where the terms have not been made institution’s lending activity is not neighborhoods, and other aspects of the
more favorable than they would have satisfactory because it has performance context, are all relevant to
been in the absence of the lien. (See Call inappropriately attempted to influence explain why the institution is serving or
not serving portions of its assessment examiners could view home mortgage account that the 65 percent project
area(s). loans to middle-income individuals in a provides more affordable housing for
§ ll.22(b)(2) & (3)—3: Will low-income geography very differently. more people per dollar expended.
examiners take into account loans made For example, if the loans are for homes Under 12 CFR ll.22(b)(4), the
by affiliates when evaluating the or multifamily housing located in an extent of CRA consideration an
proportion of an institution’s lending in area for which the local, state, tribal, or institution receives for its community
its assessment area(s)? Federal government or a community- development loans should bear a direct
A3. Examiners will not take into based development organization has relation to the benefits received by the
account loans made by affiliates when developed a revitalization or community and the innovation or
determining the proportion of an stabilization plan (such as a Federal complexity of the loans required to
institution’s lending in its assessment enterprise community or empowerment accomplish the activity, not simply to
area(s), even if the institution elects to zone) that includes attracting mixed- the dollar amount expended on a
have its affiliate lending considered in income residents to establish a particular transaction. By applying all
the remainder of the lending test stabilized, economically diverse lending test performance criteria, a
evaluation. However, examiners may neighborhood, examiners may give more community development loan of a lower
consider an institution’s business consideration to such loans, which may dollar amount could meet the credit
strategy of conducting lending through be viewed as serving the low- or needs of the institution’s community to
an affiliate in order to determine moderate-income community’s needs as a greater extent than a community
whether a low proportion of lending in well as serving those of the middle- or development loan with a higher dollar
the assessment area(s) should adversely upper-income borrowers. If, on the other amount, but with less innovation,
affect the institution’s lending test hand, no such plan exists and there is complexity, or impact on the
rating. no other evidence of governmental community.
§ ll.22(b)(2) & (3)—4: When will support for a revitalization or § ll.22(b)(4)—2: How do examiners
examiners consider loans (other than stabilization project in the area and the consider community development loans
community development loans) made loans to middle- or upper-income in the evaluation of an institution’s
outside an institution’s assessment borrowers significantly disadvantage or record of lending under the lending test
area(s)? primarily have the effect of displacing applicable to large institutions?
A4. Consideration will be given for low- or moderate-income residents, A2. An institution’s record of making
loans to low- and moderate-income examiners may view these loans simply community development loans may
persons and small business and farm as home mortgage loans to middle- or have a positive, neutral, or negative
loans outside of an institution’s upper-income borrowers who happen to impact on the lending test rating.
assessment area(s), provided the reside in a low- or moderate-income Community development lending is one
institution has adequately addressed the geography and weigh them accordingly of five performance criteria in the
needs of borrowers within its in their evaluation of the institution. lending test criteria and, as such, it is
assessment area(s). The Agencies will considered at every examination. As
apply this consideration not only to § ll.22(b)(4) Community Development with all lending test criteria, examiners
loans made by large retail institutions Lending evaluate an institution’s record of
being evaluated under the lending test, § ll.22(b)(4)—1: When evaluating making community development loans
but also to loans made by small and an institution’s record of community in the context of an institution’s
intermediate small institutions being development lending under the lending business model, the needs of its
evaluated under their respective test applicable to large institutions, may community, and the availability of
performance standards. Loans to low- an examiner distinguish among community development opportunities
and moderate-income persons and small community development loans on the in its assessment area(s) or the broader
businesses and farms outside of an basis of the actual amount of the loan statewide or regional area(s) that
institution’s assessment area(s), that advances the community includes the assessment area(s). For
however, will not compensate for poor development purpose? example, in some cases community
lending performance within the A1. Yes. When evaluating the development lending could have either
institution’s assessment area(s). institution’s record of community a neutral or negative impact when the
§ ll.22(b)(2) & (3)—5: Under the development lending under 12 CFR l volume and number of community
lending test applicable to small, l.22(b)(4), it is appropriate to give development loans are not adequate,
intermediate small, or large institutions, greater weight to the amount of the loan depending on the performance context,
how will examiners evaluate home that is targeted to the intended while in other cases, it would have a
mortgage loans to middle- or upper- community development purpose. For positive impact when the institution is
income individuals in a low- or example, consider two $10 million a leader in community development
moderate-income geography? projects (with a total of 100 units each) lending. Additionally, strong
A5. Examiners will consider these that have as their express primary performance in retail lending may
home mortgage loans under the purpose affordable housing and are compensate for weak performance in
performance criteria of the lending test, located in the same community. One of community development lending, and
i.e., by number and amount of home these projects sets aside 40 percent of its conversely, strong community
mortgage loans, whether they are inside units for low-income residents and the development lending may compensate
or outside the financial institution’s other project allocates 65 percent of its for weak retail lending performance.
assessment area(s), their geographic units for low-income residents. An
distribution, and the income levels of institution would report both loans as § ll.22(b)(5) Innovative or Flexible
the borrowers. Examiners will use $10 million community development Lending Practices
information regarding the financial loans under the 12 CFR ll.42(b)(2) § ll.22(b)(5)—1: What do examiners
institution’s performance context to aggregate reporting obligation. However, consider in evaluating the
determine how to evaluate the loans transaction complexity, innovation and innovativeness or flexibility of an
under these performance criteria. all other relevant considerations being institution’s lending under the lending
Depending on the performance context, equal, an examiner should also take into test applicable to large institutions?
A1. In evaluating the innovativeness offered in a safe and sound manner, and the five categories of consumer
or flexibility of an institution’s lending which includes evaluating an loans (motor vehicle loans, credit card
practices (and the complexity and individual’s ability to repay, an loans, home equity loans, other secured
innovativeness of its community institution may establish outreach loans, and other unsecured loans).
development lending), examiners will initiatives or financial counseling
§ ll.22(c)(2) Constraints on Affiliate
not be limited to reviewing the overall targeted to low- or moderate-income
variety and specific terms and Lending
individuals or communities. The
conditions of the credit product institution’s efforts to encourage the § ll.22(c)(2)(i) No Affiliate May Claim
themselves. Examiners also consider availability, awareness, and use of the a Loan Origination or Loan Purchase if
whether, and the extent to which, small dollar loan program to meet the Another Institution Claims the Same
innovative or flexible terms or products credit needs of low- and moderate- Loan Origination or Purchase
augment the success and effectiveness income individuals, in lieu of higher- § ll.22(c)(2)(i)—1: Regardless of
of the institution’s community cost credit, should augment the success examination type, how is this constraint
development loan programs or, more and effectiveness of the lending on affiliate lending applied?
generally, of its loan programs that program. Such loans may be considered A1. This constraint prohibits one
address the credit needs of low- or responsive under Q&A § ll.22(a)—1, affiliate from claiming a loan origination
moderate-income geographies or and the use of such outreach initiatives or purchase claimed by another affiliate.
individuals. Historically, many in conjunction with financial literacy However, an institution can count as a
institutions have used innovative and education or linked savings programs purchase a loan originated by an
flexible lending practices to customize also may be considered as an innovative affiliate that the institution
loans to their customers’ specific needs or flexible practice to the extent that subsequently purchases, or count as an
in a safe and sound manner. However, they augment the success and origination a loan later sold to an
an innovative or flexible lending effectiveness of the related loan affiliate, provided the same loans are
practice is not required in order to program. Such initiatives may receive not sold several times to inflate their
obtain a specific CRA rating. See Q&A consideration under other performance value for CRA purposes. For example,
§ ll.28—1. Examples of lending criteria as well. For example, an
practices that are considered innovative assume that two institutions are
initiative to partner with a nonprofit affiliated. Institution A originates a loan
or flexible include: organization to provide financial
• In connection with a community and claims it as a loan origination.
counseling that encourages responsible Institution B later purchases the loan.
development loan program, an use of credit may, by itself, constitute a
institution may establish a technical Institution B may count the loan as a
community development service purchased loan.
assistance program under which the eligible for consideration under the
institution, directly or through third The same institution may not count
service test. both the origination and purchase.
parties, provides affordable housing • In connection with a mortgage or
developers and other loan recipients Thus, for example, if an institution
consumer lending program targeted to claims loans made by an affiliated
with financial consulting services. Such low- or moderate-income geographies or
a technical assistance program may, by mortgage company as loan originations,
individuals, consistent with safe and the institution may not also count the
itself, constitute a community sound lending practices, an institution
development service eligible for loans as purchased loans if it later
may establish underwriting standards purchases the loans from its affiliate.
consideration under the service test of that utilize alternative credit histories,
the CRA regulations. In addition, the See also Q&As § ll.22(c)(2)(ii)—1 and
such as utility or rent payments, in an § ll.22(c)(2)(ii)—2.
technical assistance may be considered effort to evaluate low- or moderate-
as an innovative or flexible practice that income individuals who lack sufficient § ll.22(c)(2)(ii) If an Institution Elects
augments the success and effectiveness conventional credit histories and who to Have its Supervisory Agency
of the related community development would be denied credit under the Consider Loans Within a Particular
loan program. institution’s traditional underwriting Lending Category Made by One or More
• In connection with a small business of the Institution’s Affiliates in a
standards. The use of alternative credit
lending program in a low- or moderate- Particular Assessment Area, the
histories in this manner to demonstrate
income area and consistent with safe Institution Shall Elect to Have the
and sound lending practices, an that consumers have a timely and
consistent record of paying their Agency Consider all Loans Within That
institution may implement a program Lending Category in That Particular
under which, in addition to providing obligations may be considered as an
innovative or flexible practice that Assessment Area Made by all of the
financing, the institution also contracts Institution’s Affiliates
with the small business borrowers. Such augments the success and effectiveness
a contracting arrangement would not, of the lending program. § ll.22(c)(2)(ii)—1: Regardless of
itself, qualify for CRA consideration. § ll.22(c) Affiliate Lending examination type, how is this constraint
However, it may be considered as an on affiliate lending applied?
innovative or flexible practice that § ll.22(c)(1) In General A1. This constraint prohibits ‘‘cherry-
augments the loan program’s success § ll.22(c)(1)—1: If an institution, picking’’ affiliate loans within any one
and effectiveness, and improves the regardless of examination type, elects to category of loans. The constraint
program’s ability to serve community have loans by its affiliate(s) considered, requires an institution that elects to
development needs by helping to may it elect to have only certain have a particular category of affiliate
promote economic development categories of loans considered? lending in a particular assessment area
through support of small business A1. Yes. An institution may elect to considered to include all loans of that
activities and revitalization or have only a particular category of its type made by all of its affiliates in that
stabilization of low- or moderate-income affiliate’s lending considered. The basic particular assessment area. For example,
geographies. categories of loans are home mortgage assume that an institution has several
• In connection with a small dollar loans, small business loans, small farm affiliates, including a mortgage company
loan program with reasonable terms and loans, community development loans, that makes loans in the institution’s
assessment area. If the institution elects the other hand, asset-backed and debt .22(c)(2)(i), that two affiliates may not
to include the mortgage company’s securities that do not represent an both claim the same loan origination or
home mortgage loans, it must include equity-type interest in a third party will loan purchase. However, if the financial
all of its affiliates’ home mortgage loans not be considered under the lending test institution and the third party are not
made in its assessment area. In addition, unless the securities are booked by the affiliates, the third party may receive
the institution cannot elect to include purchasing institution as a loan. For consideration for the community
only those low- and moderate-income example, if an institution purchases development loans it originates, and the
home mortgage loans made by its stock in a CDC that primarily lends in financial institution that invested in the
affiliates and not home mortgage loans low- and moderate-income areas or to third party may also receive
to middle- and upper-income low- and moderate-income individuals consideration for its pro rata share of the
individuals or areas. in order to promote community same community development loans
§ ll.22(c)(2)(ii)—2: Regardless of development, the institution may claim under 12 CFR ll.22(d).
examination type, how is this constraint a pro rata share of the CDC’s loans as
applied if an institution’s affiliates are community development loans. The § ll.23—Investment Test
also insured depository institutions institution’s pro rata share is based on § ll.23(a) Scope of Test
subject to the CRA? its percentage of equity ownership in
§ ll.23(a)—1: May an institution,
A2. Strict application of this the CDC. Q&A § ll.23(b)—1 provides
constraint against ‘‘cherry-picking’’ to regardless of examination type, receive
information concerning consideration of
loans of an affiliate that is also an consideration under the CRA
an equity or equity-type investment
insured depository institution covered regulations if it invests indirectly
under the investment test and both the
by the CRA would produce the through a fund, the purpose of which is
lending and investment tests. (Note that
anomalous result that the other in connection with an intermediate community development, as that is
institution would, without its consent, small institution’s CRA performance defined in the CRA regulations?
not be able to count its own loans. A1. Yes, the direct or indirect nature
evaluation, community development
Because the Agencies did not intend to of the qualified investment does not
loans, including pro rata shares of
deprive an institution subject to the affect whether an institution will
community development loans, are
CRA of receiving consideration for its considered only in the community receive consideration under the CRA
own lending, the Agencies read this development test.) regulations because the regulations do
constraint slightly differently in cases § ll.22(d)—2: Regardless of not distinguish between ‘‘direct’’ and
involving a group of affiliated examination type, how will examiners ‘‘indirect’’ investments. Thus, an
institutions, some of which are subject evaluate loans made by consortia or institution’s investment in an equity
to the CRA and share the same third parties? fund that, in turn, invests in projects
assessment area(s). In those A2. Loans originated or purchased by that, for example, provide affordable
circumstances, an institution that elects consortia in which an institution housing to low- and moderate-income
to include all of its mortgage affiliate’s participates or by third parties in which individuals, would receive
home mortgage loans in its assessment an institution invests will be considered consideration as a qualified investment
area would not automatically be only if they qualify as community under the CRA regulations, provided the
required to include all home mortgage development loans and will be investment benefits one or more of the
loans in its assessment area of another considered only under the community institution’s assessment area(s) or a
affiliate institution subject to the CRA. development criterion. However, loans broader statewide or regional area(s)
However, all loans of a particular type originated directly on the books of an that includes one or more of the
made by any affiliate in the institution’s institution or purchased by the institution’s assessment area(s).
assessment area(s) must either be institution are considered to have been Similarly, an institution may receive
counted by the lending institution or by made or purchased directly by the consideration for a direct qualified
another affiliate institution that is institution, even if the institution investment in a nonprofit organization
subject to the CRA. This reading reflects originated or purchased the loans as a that, for example, supports affordable
the fact that a holding company may, for result of its participation in a loan housing for low- and moderate-income
business reasons, choose to transact consortium. These loans would be individuals in the institution’s
different aspects of its business in considered under the lending test or assessment area(s) or a broader
different subsidiary institutions. community development test criteria statewide or regional area(s) that
However, the method by which loans appropriate to them depending on the includes the institution’s assessment
are allocated among the institutions for type of loan and type of examination. area(s).
CRA purposes must reflect actual § ll.22(d)—3: In some § ll.23(a)—2: In order to receive
business decisions about the allocation circumstances, an institution may invest CRA consideration, what information
of banking activities among the in a third party, such as a community may an institution provide that would
institutions and should not be designed development bank, that is also an demonstrate that an investment in a
solely to enhance their CRA evaluations. insured depository institution and is nationwide fund with a primary purpose
thus subject to CRA requirements. If the of community development will directly
§ ll.22(d) Lending by a Consortium or investing institution requests its or indirectly benefit one or more of the
a Third Party supervisory Agency to consider its pro institution’s assessment area(s) or a
§ ll.22(d)—1: Will equity and rata share of community development broader statewide or regional area that
equity-type investments in a third party loans made by the third party, as includes the institution’s assessment
receive consideration under the lending allowed under 12 CFR ll.22(d), may area(s)?
test? the third party also receive A2. There may be several ways to
A1. If an institution has made an consideration for these loans? demonstrate that the institution’s
equity or equity-type investment in a A3. Yes, regardless of examination investment in a nationwide fund meets
third party, community development type, as long as the financial institution the geographic requirements, and the
loans made by the third party may be and the third party are not affiliates. The Agencies will employ appropriate
considered under the lending test. On regulations state, at 12 CFR ll flexibility in this regard in reviewing
information the institution provides that A1. Yes, in some instances the nature CFR ll.23(e), may an examiner
reasonably supports this determination. of an activity may make it eligible for distinguish among qualified investments
In making this determination, the consideration under more than one of based on how much of the investment
Agencies will consider any information the performance tests. For example, actually supports the underlying
provided by a financial institution that certain investments and related support community development purpose?
reasonably demonstrates that the provided by a large retail institution to A1. Yes. By applying all the criteria,
purpose, mandate, or function of the a CDC may be evaluated under the a qualified investment of a lower dollar
fund includes serving geographies or lending, investment, and service tests. amount may be weighed more heavily
individuals located within the Under the service test, the institution under the investment test than a
institution’s assessment area(s) or a may receive consideration for any qualified investment with a higher
broader statewide or regional area that community development services that it dollar amount that has fewer qualitative
includes the institution’s assessment provides to the CDC, such as service by enhancements. The criteria permit an
area(s). Typically, information about an executive of the institution on the examiner to qualitatively weight certain
where a fund’s investments are expected CDC’s board of directors. If the investments differently or to make other
to be made or targeted will be found in institution makes an investment in the appropriate distinctions when
the fund’s prospectus, or other CDC that the CDC uses to make evaluating an institution’s record of
documents provided by the fund prior community development loans, the making qualified investments. For
to or at the time of the institution’s institution may receive consideration instance, an examiner should take into
investment, and the institution, at its under the lending test for its pro rata account that a targeted mortgage-backed
option, may provide such share of community development loans security that qualifies as an affordable
documentation in connection with its made by the CDC. Alternatively, the housing issue that has only 60 percent
CRA evaluation. institution’s investment may be of its face value supported by loans to
Nationwide funds are important considered under the investment test, low- or moderate-income borrowers
sources of investments in low- and assuming it is a qualified investment. In would not provide as much affordable
moderate-income and underserved addition, an institution may elect to housing for low- and moderate-income
have a part of its investment considered individuals as a targeted mortgage-
communities throughout the country
under the lending test and the backed security with 100 percent of its
and can be an efficient vehicle for
remaining part considered under the face value supported by affordable
institutions in making qualified
investment test. If the investing housing loans to low- and moderate-
investments that help meet community
institution opts to have a portion of its income borrowers. The examiner should
development needs. Nationwide funds
investment evaluated under the lending describe any differential weighting (or
may be suitable investment
test by claiming its pro rata share of the other adjustment), and its basis in the
opportunities, particularly for large
CDC’s community development loans, Performance Evaluation. See also Q&A
financial institutions with a nationwide
branch footprint. Other financial
the amount of investment considered § ll.12(t)—8 for a discussion about
under the investment test will be offset the qualitative consideration of prior-
institutions, including those with a by that portion. Thus, the institution
nationwide business focus, may find period investments.
would receive consideration under the § ll.23(e)—2: How do examiners
such funds to be efficient investment investment test for only the amount of evaluate an institution’s qualified
vehicles to help meet community its investment multiplied by the investment in a fund, the primary
development needs in their assessment percentage of the CDC’s assets that meet purpose of which is community
area(s) or the broader statewide or the definition of a qualified investment. development, as defined in the CRA
regional area that includes their § ll.23(b)—2: If home mortgage regulations?
assessment area(s). Prior to investing in loans to low- and moderate-income A2. When evaluating qualified
such a fund, an institution should borrowers have been considered under investments that benefit an institution’s
consider reviewing the fund’s an institution’s lending test, may the assessment area(s) or a broader
investment record to see if it is generally institution that originated or purchased statewide or regional area that includes
consistent with the institution’s them also receive consideration under its assessment area(s), examiners will
investment goals and the geographic the investment test if it subsequently look at the following four performance
considerations in the regulations. purchases mortgage-backed securities criteria:
Examiners will consider investments in that are primarily or exclusively backed (1) The dollar amount of qualified
nationwide funds that benefit the by such loans? investments;
institution’s assessment area(s). A2. No. Because the institution (2) The innovativeness or complexity
Examiners will also consider received lending test consideration for of qualified investments;
investments in nationwide funds that the loans that underlie the securities, (3) The responsiveness of qualified
benefit the broader statewide or regional the institution may not also receive investments to credit and community
area that includes the institution’s consideration under the investment test development needs; and
assessment area(s) consistent with the for its purchase of the securities. Of (4) The degree to which the qualified
treatment detailed in Q&A § ll course, an institution may receive investments are not routinely provided
.12(h)—6. investment test consideration for by private investors.
purchases of mortgage-backed securities With respect to the first criterion,
§ ll.23(b) Exclusion
that are backed by loans to low- and examiners will determine the dollar
§ ll.23(b)—1: Even though the moderate-income individuals as long as amount of qualified investments by
regulations state that an activity that is the securities are not backed primarily relying on the figures recorded by the
considered under the lending or service or exclusively by loans that the same institution according to generally
tests cannot also be considered under institution originated or purchased. accepted accounting principles (GAAP).
the investment test, may parts of an Although institutions may exercise a
activity be considered under one test § ll.23(e) Performance Criteria range of investment strategies, including
and other parts be considered under § ll.23(e)—1: When applying the short-term investments, long-term
another test? four performance criteria of 12 investments, investments that are
immediately funded, and investments consider the extent to which the extent of financial institutions’
with a binding, up-front commitment institution provides such services and involvement in IDAs and the products
that are funded over a period of time, their innovativeness and responsiveness and services they offer in connection
institutions making the same dollar to community needs. Examples of with the accounts will vary. Thus,
amount of investments over the same community development services are subject to 12 CFR ll.23(b), examiners
number of years, all other performance listed in Q&A § ll.12(i)—3. Examiners evaluate the actual services and
criteria being equal, would receive the will consider any information provided products provided by an institution in
same level of consideration. Examiners by the institution that demonstrates connection with IDA programs as one or
will include both new and outstanding community development services more of the following: community
investments in this determination. The benefit low- or moderate-income development services, retail banking
dollar amount of qualified investments individuals or are responsive to services, qualified investments, home
also will include the dollar amount of community development needs. mortgage loans, small business loans,
legally binding commitments recorded consumer loans, or community
§ ll.24(d) Performance Criteria—
by the institution according to GAAP. development loans. See, e.g., Q&A
The extent to which qualified Retail Banking Services
§ ll.12(i)—3.
investments receive consideration, § ll.24(d)—1: How do examiners Note that all types of institutions may
however, depends on how examiners evaluate the availability and participate in IDA programs. Their IDA
evaluate the investments under the effectiveness of an institution’s systems activities are evaluated under the
remaining three performance criteria— for delivering retail banking services? performance criteria of the type of
innovativeness and complexity, A1. Convenient access to full service examination applicable to the particular
responsiveness, and degree to which the branches within a community is an institution.
investment is not routinely provided by important factor in determining the
private investors. Examiners also will availability of credit and non-credit § ll.24(d)(3) Availability and
consider factors relevant to the services. Therefore, the service test Effectiveness of Alternative Systems for
institution’s CRA performance context, performance standards place primary Delivering Retail Banking Services
such as the effect of outstanding long- emphasis on full service branches while § ll.24(d)(3)—1: How do examiners
term qualified investments, the pay-in still considering alternative systems. evaluate alternative systems for
schedule, and the amount of any cash The principal focus is on an delivering retail banking services?
call, on the capacity of the institution to institution’s current distribution of A1. There are a number of alternative
make new investments. branches and its record of opening and systems used by financial institutions to
closing branches, particularly branches deliver retail banking services to
§ ll.24—Service Test located in low- or moderate-income customers. Non-branch delivery
§ ll.24(a) Scope of Test geographies or primarily serving low- or systems, such as ATMs, online and
moderate-income individuals. However, mobile banking, and other means by
§ ll.24(a)—1: How do examiners
an institution is not required to expand which institutions provide services to
evaluate retail banking services and
its branch network or operate their customers evolve over time. No
community development services under
unprofitable branches. Under the matter the means of delivery, examiners
the large institution service test?
A1. Retail banking services and service test, alternative systems for evaluate the extent to which the
community development services are delivering retail banking services are alternative delivery systems are
the two components of the service test considered only to the extent that they available and effective in providing
and are both important in evaluating a are effective alternatives in providing financial services to low- and moderate-
large institution’s performance. In needed services to low- and moderate- income geographies and individuals.
evaluating retail banking services, income areas and individuals. For example, a system may be
§ ll.24(d)—2: How do examiners determined to be effective based on the
examiners consider the availability and
evaluate an institution’s activities in accessibility of the system to low- and
effectiveness of an institution’s systems
connection with Individual moderate-income geographies and
for delivering banking services,
particularly in low- and moderate- Development Accounts (IDA)? individuals. To determine whether a
A2. Although there is no standard
income geographies and to low- and financial institution’s alternative
IDA program, IDAs typically are deposit
moderate income individuals; the range delivery system is an available and
accounts targeted to low- and moderate-
of services provided in low-, moderate- effective means of delivering retail
income families that are designed to
, middle-, and upper-income banking services in low- and moderate-
help them accumulate savings for
geographies; and the degree to which income geographies and to low- and
education or job-training, down-
the services are tailored to meet the moderate-income individuals,
payment and closing costs on a new
needs of those geographies. Examples of examiners may consider a variety of
home, or start-up capital for a small
retail banking services that improve factors, including
business. Once participants have • the ease of access, whether physical
access to financial services, or decrease
successfully funded an IDA, their or virtual;
costs, for low- or moderate-income
personal IDA savings are matched by a • the cost to consumers, as compared
individuals include
• low-cost deposit accounts; public or private entity. Financial with the institution’s other delivery
• electronic benefit transfer accounts institution participation in IDA systems;
and point of sale terminal systems; programs comes in a variety of forms, • the range of services delivered;
• individual development accounts; including providing retail banking • the ease of use;
• free or low-cost government, services to IDA accountholders, • the rate of adoption and use; and
payroll, or other check cashing services; providing matching dollars or operating • the reliability of the system.
and funds to an IDA program, designing or Examiners will consider any
• reasonably priced international implementing IDA programs, providing information an institution maintains
remittance services. consumer financial education to IDA and provides to examiners
In evaluating community accountholders or prospective demonstrating that the institution’s
development services, examiners accountholders, or other means. The alternative delivery systems are
available to, and used by, low- or maintain regarding services offered provides community development
moderate-income individuals, such as through alternative delivery systems services as well as the innovativeness
data on customer usage or transactions. (see Q&A § ll.24(d)(3)—1) and and responsiveness of such services.
§ ll.24(d)(3)—2: Are debit cards through collaborations with Examiners consider both quantitative
considered under the service test as an government, community, educational or and qualitative aspects of community
alternative delivery system? employer organizations to offer or development services during the
A2. By themselves, no. However, if expand the range of services or access evaluation. Examiners assess
debit cards are a part of a larger to services, particularly designed to quantitative factors to determine the
combination of products, such as a meet the needs of their assessment extent to which community
comprehensive electronic banking area(s), including low- and moderate- development services are offered and
service, that allows an institution to income communities will also be used. The review is not limited to a
deliver needed services to low- and considered. Examiners will also review single quantitative factor. For example,
moderate-income areas and individuals information provided by the public quantitative factors may include the
in its community, the overall delivery through comments or community number of
system that includes the debit card contacts. • low- or moderate-income
feature would be considered an participants;
alternative delivery system. § ll.24(e) Performance Criteria— • organizations served;
Community Development Services • sessions sponsored; or
§ ll.24(d)(4) Range of Services • financial institution staff hours
§ ll.24(e)—1: Under what
Provided in Geographies of Different devoted.
conditions may an institution receive
Incomes Examiners will also consider
consideration for community
§ ll.24(d)(4)—1: How do examiners development services offered by qualitative factors by assessing the
evaluate the range of services provided affiliates or third parties? degree to which community
in low-, moderate-, middle-, and upper- A1. At an institution’s option, the development services are innovative or
income geographies and the degree to Agencies will consider services responsive to community needs. See
which those services are tailored to meet performed by an affiliate or by a third Q&As § ll.21(a)—4 and § ll.21(a)—
the needs of those geographies? party on the institution’s behalf under 3. These performance criteria recognize
A1. Examiners review both the service test if the services provided that community development services
information from the institution’s public enable the institution to help meet the sometimes require special expertise and
file and other information provided credit needs of its community. Indirect effort on the part of the institution and
related to the range of services offered services that enhance an institution’s provide benefit to the community that
and how they are tailored to meet the ability to deliver credit products or would not otherwise be possible. Such
particular needs of low- and moderate- deposit services within its community an assessment will depend on the
income geographies. Examiners always and that can be quantified may be impact of a particular activity on
review the information that institutions considered under the service test, if community needs and the benefits
must maintain in their public files: A those services have not been considered received by a community. See Q&A
list of services generally offered at their already under the lending or investment § ll.28(b)—1. For example, a financial
branches, including their hours of test. See Q&A § ll.23(b)–1. For institution employee’s unique expertise
operation; available loan and deposit example, an institution that contracts and service on the board of a
products; transaction fees, as well as with a community organization to community organization may
descriptions, where applicable, of provide home ownership counseling to demonstrate these qualitative factors
material differences in the availability low- and moderate-income home buyers when the employee’s ongoing
or cost of services at particular as part of the institution’s mortgage engagement significantly improves the
branches. See 12 CFR ll.43(a)(5). The program may receive consideration for products, services or operations of the
information provided by the financial that indirect service under the service community development organization.
institution to identify the types of test. In contrast, donations to a Examiners will consider any relevant
services offered and any differences in community organization that offers information provided by the institution
services among its branches in different financial services to low- or moderate- and from third parties that documents
geographies may indicate how its income individuals may be considered the extent, innovativeness, and
services (including, where appropriate, under the investment test, but would responsiveness of community
business hours) are tailored to the not also be eligible for consideration development services.
convenience and needs of its assessment under the service test. Services § ll.25—Community Development
area(s), particularly low- or moderate- performed by an affiliate will be treated Test for Wholesale or Limited Purpose
income geographies or low- or the same as affiliate loans and Institutions
moderate-income individuals. See 12 investments made in the institution’s
CFR ll, appendix A, section (b)(3). assessment area and may be considered § ll.25(a) Scope of Test
Examiners also review any other if the service is not claimed by any other § ll.25(a)—1: How can certain
information provided by the institution, institution. See 12 CFR ll.22(c) and credit card banks help to meet the credit
such as data regarding the costs and ll.23(c). needs of their communities without
features of loan and deposit products, § ll.24(e)—2: In evaluating losing their exemption from the
account usage and retention, geographic community development services, what definition of ‘‘bank’’ in the Bank
location of accountholders, the quantitative and qualitative factors do Holding Company Act (BHCA), as
availability of information in languages examiners review? amended by the Competitive Equality

other than English, and any other A2. The community development Banking Act of 1987 (CEBA)?
relevant information demonstrating that services criteria are important factors in A1. Although the BHCA restricts
its services are tailored to meet the the evaluation of a large institution’s institutions known as CEBA credit card
needs of its customers in the various service test performance. According to banks to credit card operations, a CEBA
geographies in its assessment area(s). the regulation, the Agencies evaluate the credit card bank can engage in
Any information that institutions may extent to which the financial institution community development activities
without losing its exemption under the loans and community development institution examination procedures. The
BHCA. A CEBA credit card bank could services, by that institution nationwide. regulation does not specify an
provide community development In determining whether an institution additional lag period between becoming
services and investments without has adequately addressed the needs of an intermediate small institution and
engaging in operations other than credit its assessment area(s), examiners will being examined as an intermediate
card operations. For example, the bank consider qualified investments that small institution, as it does for large
could provide credit card counseling, or benefit a broader statewide or regional institutions, because an intermediate
the financial expertise of its executives, area that includes the institution’s small institution is not subject to CRA
free of charge, to community assessment area(s). data collection and reporting
development organizations. In addition, requirements. Institutions should
a CEBA credit card bank could make § ll.25(f) Community Development contact their primary regulator for
qualified investments, as long as the Performance Rating information on examination schedules.
investments meet the guidelines for § ll.25(f)—1: Must a wholesale or
§ ll.26(b) Lending Test
passive and noncontrolling investments limited purpose institution engage in all
provided in the BHCA and the Board’s three categories of community § ll.26(b)—1: May examiners
Regulation Y. Finally, although a CEBA development activities (lending, consider, under one or more of the
credit card bank cannot make any loans investment, and service) to perform well performance criteria of the small
other than credit card loans, under 12 under the community development test? institution performance standards,
CFR ll.25(d)(2) (community A1. No, a wholesale or limited lending-related activities, such as
development test—indirect activities), purpose institution may perform well community development loans and
the bank could elect to have part of its under the community development test lending-related qualified investments,
qualified passive and noncontrolling by engaging in one or more of these when evaluating a small institution?
investments in a third-party lending activities. A1. Yes. Examiners can consider
consortium considered as community ‘‘lending-related activities,’’ including
development lending, provided that the § ll.26—Small Institution community development loans and
consortium’s loans otherwise meet the Performance Standards lending-related qualified investments,
requirements for community § ll.26—1: When evaluating a small when evaluating the first four
development lending. When assessing a or intermediate small institution’s performance criteria of the small
CEBA credit card bank’s CRA performance, will examiners consider, institution performance test. Although
performance under the community at the institution’s request, retail and lending-related activities are specifically
development test, examiners will take community development loans mentioned in the regulation in
into account the bank’s performance originated or purchased by affiliates, connection with only the first three
context. In particular, examiners will qualified investments made by affiliates, criteria (i.e., loan-to-deposit ratio,
consider the legal constraints imposed or community development services percentage of loans in the institution’s
by the BHCA on the bank’s activities, as provided by affiliates? assessment area(s), and lending to
part of the bank’s performance context A1. Yes. However, a small institution borrowers of different incomes and
in 12 CFR ll.21(b)(4). that elects to have examiners consider businesses of different sizes), examiners
affiliate activities must maintain can also consider these activities when
§ ll.25(d) Indirect Activities they evaluate the fourth criteria—
sufficient information that the
§ ll.25(d)—1: How are investments examiners may evaluate these activities geographic distribution of the
in third-party community development under the appropriate performance institution’s loans.
organizations considered under the criteria and ensure that the activities are Although lending-related community
community development test? not claimed by another institution. The development activities are evaluated
A1. Similar to the lending test for constraints applicable to affiliate under the community development test
retail institutions, investments in third- activities claimed by large institutions applicable to intermediate small
party community development also apply to small and intermediate institutions, these activities may also
organizations may be considered as small institutions. See Q&As addressing augment the loan-to-deposit ratio
qualified investments or as community 12 CFR ll.22(c)(2) and related analysis (12 CFR ll.26(b)(1)) and the
development loans or both (provided guidance provided to large institutions percentage of loans in the intermediate
there is no double counting), at the regarding affiliate activities. Examiners small institution’s assessment area(s)
institution’s option, as described above will not include affiliate lending in analysis (12 CFR ll.26(b)(2)), if
in the discussion regarding 12 CFR ll calculating the percentage of loans and, appropriate.
.22(d) and ll.23(b). § ll.26(b)—2: What is meant by ‘‘as
as appropriate, other lending-related
appropriate’’ when referring to the fact
§ ll.25(e) Benefit to Assessment activities located in an institution’s
that lending-related activities will be
Area(s) assessment area(s).
considered, ‘‘as appropriate,’’ under the
§ ll.25(e)—1: How do examiners § ll.26(a) Performance Criteria various small institution performance
evaluate a wholesale or limited purpose criteria?
§ ll.26(a)(2) Intermediate Small A2. ‘‘As appropriate’’ means that
institution’s qualified investment in a
Institutions lending-related activities will be
fund that invests in projects nationwide
and which has a primary purpose of § ll.26(a)(2)—1: When is an considered when it is necessary to
community development, as that is institution examined as an intermediate determine whether an institution meets
defined in the regulations? small institution? or exceeds the standards for a

A1. If examiners find that a wholesale A1. When a small institution has met satisfactory rating. Examiners will also
or limited purpose institution has the intermediate small institution asset consider other lending-related activities
adequately addressed the needs of its threshold delineated in 12 CFR ll at an institution’s request, provided they
assessment area(s), they will give .12(u)(1) for two consecutive calendar have not also been considered under the
consideration to qualified investments, year-ends, the institution may be community development test applicable
as well as community development examined under the intermediate small to intermediate small institutions.
§ ll.26(b)—3: When evaluating a A2. No specific ratio is reasonable in considered in light of the performance
small institution’s lending performance, every circumstance, and each small context. For example, a small institution
will examiners consider, at the institution’s ratio is evaluated in light of is not required to lend evenly
institution’s request, community information from the performance throughout its assessment area(s) or in
development loans originated or context, including the institution’s any particular geography. However, in
purchased by a consortium in which the capacity to lend, demographic and order to meet the standards for
institution participates or by a third economic factors present in the satisfactory performance under this
party in which the institution has assessment area(s), and the lending criterion, conspicuous gaps in a small
invested? opportunities available in the institution’s loan distribution must be
A3. Yes. However, a small institution assessment area(s). If a small adequately explained by performance
that elects to have examiners consider institution’s loan-to-deposit ratio context factors such as lending
community development loans appears unreasonable after considering opportunities in the institution’s
originated or purchased by a consortium this information, lending performance assessment area(s), the institution’s
or third party must maintain sufficient may still be satisfactory under this product offerings and business strategy,
information on its share of the criterion taking into consideration the and institutional capacity and
community development loans so that number and the dollar volume of loans constraints. In addition, it may be
the examiners may evaluate these loans sold to the secondary market or the impracticable to review the geographic
under the small institution performance number and amount and innovativeness distribution of the lending of an
criteria. or complexity of community institution with very few
§ ll.26(b)—4: Under the small development loans and lending-related demographically distinct geographies
institution lending test performance qualified investments. within an assessment area. If sufficient
standards, will examiners consider both § ll.26(b)(1)—3: If an institution information on the income levels of
loan originations and purchases? makes a large number of loans off-shore, individual borrowers or the revenues or
A4. Yes, consistent with the other will examiners segregate the domestic sizes of business borrowers is not
assessment methods in the regulation, loan-to-deposit ratio from the foreign available, examiners may use loan size
examiners will consider both loans loan-to-deposit ratio? as a proxy for estimating borrower
originated and purchased by the A3. No. Examiners will look at the characteristics, where appropriate.
institution. Likewise, examiners may institution’s net loan-to-deposit ratio for
§ ll.26(c) Intermediate Small
consider any other loan data the small the whole institution, without any Institution Community Development
institution chooses to provide, adjustments. Test
including data on loans outstanding,
§ ll.26(b)(2) Percentage of Lending § ll.26(c)—1: How will the
commitments, and letters of credit.
§ ll.26(b)—5: Under the small Within Assessment Area(s) community development test be applied
institution lending test performance § ll.26(b)(2)—1: Must a small flexibly for intermediate small
standards, how will qualified institution have a majority of its lending institutions?
investments be considered for purposes in its assessment area(s) to receive a A1. Generally, intermediate small
of determining whether a small satisfactory performance rating? institutions engage in a combination of
institution receives a satisfactory CRA A1. No. The percentage of loans and, community development loans,
rating? as appropriate, other lending-related qualified investments, and community
A5. The small institution lending test activities located in the institution’s development services. An institution
performance standards focus on lending assessment area(s) is but one of the may not simply ignore one or more of
and other lending-related activities. performance criteria upon which small these categories of community
Therefore, examiners will consider only institutions are evaluated. If the development, nor do the regulations
lending-related qualified investments percentage of loans and other lending- prescribe a required threshold for
for the purpose of determining whether related activities in an institution’s community development loans,
a small institution that is not an assessment area(s) is less than a qualified investments, and community
intermediate small institution receives a majority, then the institution does not development services. Instead, based on
satisfactory CRA rating. meet the standards for satisfactory the institution’s assessment of
performance only under this criterion. community development needs in its
§ ll.26(b)(1) Loan-to-Deposit Ratio The effect on the overall performance assessment area(s), it may engage in
§ ll.26(b)(1)—1: How is the loan-to- rating of the institution, however, is different categories of community
deposit ratio calculated? considered in light of the performance development activities that are
A1. A small institution’s loan-to- context, including information responsive to those needs and
deposit ratio is calculated in the same regarding economic conditions; loan consistent with the institution’s
manner that the Uniform Bank demand; the institution’s size, financial capacity.
Performance Report (UBPR) determines condition, business strategies, and An intermediate small institution has
the ratio. It is calculated by dividing the branching network; and other aspects of the flexibility to allocate its resources
institution’s net loans and leases by its the institution’s lending record. among community development loans,
total deposits. The ratio is found in the qualified investments, and community
Liquidity and Investment Portfolio § ll.26(b)(3) & (4) Distribution of development services in amounts that it
section of the UBPR. Examiners will use Lending Within Assessment Area(s) by reasonably determines are most
this ratio to calculate an average since Borrower Income and Geographic responsive to community development
the last examination by adding the Location needs and opportunities. Appropriate
quarterly loan-to-deposit ratios and § ll.26(b)(3) & (4)—1: How will a levels of each of these activities would
dividing the total by the number of small institution’s performance be depend on the capacity and business
quarters. assessed under these lending strategy of the institution, community
§ ll.26(b)(1)—2: How is the distribution criteria? needs, and number and types of
‘‘reasonableness’’ of a loan-to-deposit A1. Distribution of loans, like other opportunities for community
ratio evaluated? small institution performance criteria, is development.
§ ll.26(c)(3) Community Development how the institution’s activities respond assessment area(s) that display income
Services to those needs. variation. An institution with a high
An evaluation of the degree of loan-to-deposit ratio and a high
§ ll.26(c)(3)—1: What will
responsiveness considers the following percentage of loans in its assessment
examiners consider when evaluating the
factors: The volume, mix, and area(s), but with only a reasonable
provision of community development
qualitative aspects of community penetration of borrowers at all income
services by an intermediate small
development loans, qualified levels or a reasonable dispersion of
institution?
investments, and community loans throughout geographies of
A1. In addition to the examples listed
development services. Consideration of differing income levels in its assessment
in Q&A § ll.12(i)–3, examiners will
the qualitative aspects of performance area(s), generally will not be rated
consider retail banking services as recognizes that community
community development services if ‘‘outstanding’’ based only on its lending
development activities sometimes performance. However, the institution’s
they provide benefit to low- or require special expertise or effort on the
moderate-income individuals. Examples performance in making qualified
part of the institution or provide a investments and its performance in
include: benefit to the community that would not
• Low-cost deposit accounts; providing branches and other services
otherwise be made available. (However, and delivery systems that enhance
• electronic benefit transfer accounts ‘‘innovativeness’’ and ‘‘complexity’’—
and point of sale terminal systems; credit availability in its assessment
factors examiners consider when area(s) may augment the institution’s
• individual development accounts; evaluating a large institution under the
• free or low-cost government, satisfactory rating to the extent that it
lending, investment, and service tests— may be rated ‘‘outstanding.’’
payroll, or other check cashing services; are not criteria in the intermediate small
and § ll.26(d)—2: Will a small
institutions’ community development
• reasonably priced international test.) In some cases, a smaller loan may
institution’s qualified investments,
remittance services. community development loans, and
have more qualitative benefit to a community development services be
In addition, providing services to low- community than a larger loan. Activities
and moderate-income individuals considered if they do not directly benefit
are considered particularly responsive
through branches and other facilities its assessment area(s)?
to community development needs if
located in low- and moderate-income, they benefit low- and moderate-income A2. Yes. These activities are eligible
designated disaster, or distressed or individuals in low- or moderate-income for consideration if they benefit a
underserved nonmetropolitan middle- geographies, designated disaster areas, broader statewide or regional area that
income areas is considered. Generally, or distressed or underserved includes a small institution’s
the presence of branches located in low- nonmetropolitan middle-income assessment area(s), as discussed more
and moderate-income geographies will geographies. Activities are also fully in Q&As § ll.12(h)–6 and § ll
help to demonstrate the availability of considered particularly responsive to .12(h)–7.
banking services to low- and moderate- community development needs if they § ll.27—Strategic Plan
income individuals. benefit low- or moderate-income
geographies. § ll.27(c) Plans in General
§ ll.26(c)(4) Responsiveness to
Community Development Needs § ll.26(d) Performance Rating § ll.27(c)—1: To what extent will
§ ll.26(c)(4)—1: When evaluating the Agencies provide guidance to an
§ ll.26(d)—1: How can a small institution during the development of its
an intermediate small institution’s institution that is not an intermediate
community development record, what strategic plan?
small institution achieve an
will examiners consider when reviewing ‘‘outstanding’’ performance rating? A1. An institution will have an
the responsiveness of community A1. A small institution that is not an opportunity to consult with and provide
development lending, qualified intermediate small institution that information to the Agencies on a
investments, and community meets each of the standards in the proposed strategic plan. Through this
development services to the community lending test for a ‘‘satisfactory’’ rating process, an institution is provided
development needs of the area? and exceeds some or all of those guidance on procedures and on the
A1. When evaluating an intermediate standards may warrant an information necessary to ensure a
small institution’s community ‘‘outstanding’’ performance rating. In complete submission. For example, the
development record, examiners will assessing performance at the Agencies will provide guidance on
consider not only quantitative measures ‘‘outstanding’’ level, the Agencies whether the level of detail as set out in
of performance, such as the number and consider the extent to which the the proposed plan would be sufficient to
amount of community development institution exceeds each of the permit Agency evaluation of the plan.
loans, qualified investments, and performance standards and, at the However, the Agencies’ guidance during
community development services, but institution’s option, its performance in plan development and, particularly,
also qualitative aspects of performance. making qualified investments and prior to the public comment period, will
In particular, examiners will evaluate providing services that enhance credit not include commenting on the merits
the responsiveness of the institution’s availability in its assessment area(s). In of a proposed strategic plan or on the
community development activities in some cases, a small institution may adequacy of measurable goals.
light of the institution’s capacity, qualify for an ‘‘outstanding’’ § ll.27(c)—2: How will a joint
business strategy, the needs of the performance rating solely on the basis of strategic plan be reviewed if the
community, and the number and types its lending activities, but only if its affiliates have different primary Federal
of opportunities for each type of performance materially exceeds the supervisors?
community development activity (its standards for a ‘‘satisfactory’’ rating, A2. The Agencies will coordinate
performance context). Examiners also particularly with respect to the review of and action on the joint plan.
will consider the results of any penetration of borrowers at all income Each Agency will evaluate the
assessment by the institution of levels and the dispersion of loans measurable goals for those affiliates for
community development needs, and throughout the geographies in its which it is the primary regulator.
§ ll.27(f) Plan Content required for a ‘‘satisfactory’’ or regulation. The evaluation of a

‘‘outstanding’’ CRA rating? multistate institution that maintains a
§ ll.27(f)(1) Measurable Goals
A1. No. The performance criterion of domestic branch in two or more states
§ ll.27(f)(1)—1: How should annual ‘‘innovativeness’’ applies only under the in a multistate metropolitan area will
measurable goals be specified in a lending, investment, and service tests include a written evaluation (containing
strategic plan? applicable to large institutions and the the same information described above)
A1. Annual measurable goals (e.g., community development test applicable and rating of its CRA record of
number of loans, dollar amount, to wholesale and limited purpose performance in the multistate
geographic location of activity, and institutions. Moreover, even under these metropolitan area. In such cases, the
benefit to low- and moderate-income tests, the lack of innovative lending statewide evaluation and rating will be
areas or individuals) must be stated practices, innovative or complex adjusted to reflect performance in the
with sufficient specificity to permit the qualified investments, or innovative portion of the state not within the
public and the Agencies to quantify community development services alone multistate MSA.
what performance will be expected. will not result in a ‘‘needs to improve’’ § ll.28(a)—2: How are institutions
However, institutions are provided CRA rating. However, under these tests, that operate within only a single state
flexibility in specifying goals. For the use of innovative lending practices, assigned a rating?
example, an institution may provide innovative or complex qualified A2. An institution that operates
ranges of lending amounts in different investments, and innovative community within only a single state (‘‘single-state
categories of loans. Measurable goals development services may augment the institution’’) will be assigned a rating of
may also be linked to funding consideration given to an institution’s its CRA record based on its performance
requirements of certain public programs performance under the quantitative within that state. In assigning this
or indexed to other external factors as criteria of the regulations, resulting in a rating, the Agencies will separately
long as these mechanisms provide a higher performance rating. See also present a single-state institution’s
quantifiable standard. Q&A § ll.26(c)(4)–1 for a discussion performance for each metropolitan area
about responsiveness to community in which the institution maintains one
§ ll.27(g) Plan Approval development needs under the or more domestic branch offices. This
§ ll.27(g)(2) Public Participation community development test applicable separate presentation will contain
to intermediate small institutions. conclusions, supported by facts and
§ ll.27(g)(2)—1: How will the public data, on the single-state institution’s
receive notice of a proposed strategic § ll.28(a) Ratings in General
performance under the performance
plan? § ll.28(a)—1: How are institutions tests and standards in the regulation.
A1. An institution submitting a with domestic branches in more than § ll.28(a)—3: How do the Agencies
strategic plan for approval by the one state assigned a rating? weight performance under the lending,
Agencies is required to solicit public A1. The evaluation of an institution investment, and service tests for large
comment on the plan for a period of 30 that maintains domestic branches in retail institutions?
days after publishing notice of the plan more than one state (‘‘multistate A3. A rating of ‘‘outstanding,’’ ‘‘high
at least once in a newspaper of general institution’’) will include a written satisfactory,’’ ‘‘low satisfactory,’’ ‘‘needs
circulation. The notice should be evaluation and rating of its CRA record to improve,’’ or ‘‘substantial
sufficiently prominent to attract public of performance as a whole and in each noncompliance,’’ based on a judgment
attention and should make clear that state in which it has a domestic branch. supported by facts and data, will be
public comment is desired. An The written evaluation will contain a assigned under each performance test.
institution may, in addition, provide separate presentation on a multistate Points will then be assigned to each
notice to the public in any other manner institution’s performance for each MSA rating as described in the first matrix set
it chooses. and the nonmetropolitan area within forth below. A large retail institution’s
§ ll.28—Assigned Ratings each state, if it maintains one or more overall rating under the lending,
domestic branch offices in these areas. investment and service tests will then
§ ll.28—1: Are innovative lending This separate presentation will contain be calculated in accordance with the
practices, innovative or complex conclusions, supported by facts and second matrix set forth below, which
qualified investments, and innovative data, on performance under the incorporates the rating principles in the
community development services performance tests and standards in the regulation.
POINTS ASSIGNED FOR PERFORMANCE UNDER LENDING, INVESTMENT AND SERVICE TESTS
Lending Service Investment
Outstanding .................................................................................................................................. 12 6 6
High Satisfactory .......................................................................................................................... 9 4 4
Low Satisfactory .......................................................................................................................... 6 3 3
Needs to Improve ........................................................................................................................ 3 1 1
Substantial Noncompliance ......................................................................................................... 0 0 0
COMPOSITE RATING POINT prohibited basis, in violation, for supplement its record of performance
REQUIREMENTS example, of the Fair Housing Act or the and to respond to the substantive issues
[Add points from three tests]
Equal Credit Opportunity Act (as raised in the application proceeding.
implemented by Regulation B). § ll.29(a)—2: What consideration is
Rating Total points Examples of other illegal credit given to an institution’s commitments
practices inconsistent with helping to for future action in reviewing an
Outstanding ......................... 20 or over. meet community credit needs include application by those Agencies that
Satisfactory .......................... 11 through 19. violations of consider such commitments?
Needs to Improve ................ 5 through 10. • the Truth in Lending Act regarding A2. Commitments for future action
Substantial Noncompliance 0 through 4. rescission of certain mortgage are not viewed as part of the CRA record
Note: There is one exception to the Com- transactions and regarding disclosures of performance. In general, institutions
posite Rating matrix. An institution may not re- and certain loan term restrictions in cannot use commitments made in the
ceive a rating of ‘‘satisfactory’’ unless it re- connection with credit transactions that applications process to overcome a
ceives at least ‘‘low satisfactory’’ on the lend-
ing test. Therefore, the total points are capped are subject to the Home Ownership and seriously deficient record of CRA
at three times the lending test score. Equity Protection Act; performance. However, commitments
• the Real Estate Settlement for improvements in an institution’s
§ ll.28(b) Lending, Investment, and Procedures Act regarding the giving and performance may be appropriate to
Service Test Ratings accepting of referral fees, unearned fees, address specific weaknesses in an
§ ll.28(b)—1: How is performance or kickbacks in connection with certain otherwise satisfactory record or to
under the quantitative and qualitative mortgage transactions; and address CRA performance when a
performance criteria weighed when • the Federal Trade Commission Act financially troubled institution is being
examiners assign a CRA rating? regarding unfair or deceptive acts or acquired.
A1. The lending, investment, and practices. Examiners will determine the
service tests each contain a number of effect of evidence of illegal credit § ll.29(b) Interested Parties
performance criteria designed to practices as set forth in examination § ll.29(b)—1: What consideration is
measure whether an institution is procedures and § ll.28(c) of the given to comments from interested
effectively helping to meet the credit regulation. parties in reviewing an application?
needs of its entire community, Violations of other provisions of the A1. Materials relating to CRA
including low- and moderate-income consumer protection laws generally will performance received during the
neighborhoods, in a safe and sound not adversely affect an institution’s CRA application process can provide
manner. Some of these performance rating, but may warrant the inclusion of valuable information. Written
criteria are quantitative, such as number comments in an institution’s comments, which may express either
and amount, and others, such as the use performance evaluation. These support for or opposition to the
of innovative or flexible lending comments may address the institution’s application, are made a part of the
practices, the innovativeness or policies, procedures, training programs, record in accordance with the Agencies’
complexity of qualified investments, and internal assessment efforts. procedures, and are carefully
and the innovativeness and considered in making the Agencies’
responsiveness of community § ll.29—Effect of CRA Performance
decisions. Comments should be
development services, are qualitative. on Applications
supported by facts about the applicant’s
The performance criteria that deal with § ll.29(a) CRA Performance performance and should be as specific
these qualitative aspects of performance as possible in explaining the basis for
recognize that these loans, qualified § ll.29(a)—1: What weight is given
to an institution’s CRA performance supporting or opposing the application.
investments, and community These comments must be submitted
development services sometimes require examination in reviewing an
application? within the time limits provided under
special expertise and effort on the part the Agencies’ procedures.
of the institution and provide a benefit A1. In reviewing applications in
which CRA performance is a relevant § ll.29(b)—2: Is an institution
to the community that would not required to enter into agreements with
otherwise be possible. As such, the factor, information from a CRA
examination of the institution is a private parties?
Agencies consider the qualitative A2. No. Although communications
aspects of an institution’s activities particularly important consideration.
The examination is a detailed between an institution and members of
when measuring the benefits received its community may provide a valuable
by a community. An institution’s evaluation of the institution’s CRA
performance by its supervisory Agency. method for the institution to assess how
performance under these qualitative best to address the credit needs of the
criteria may augment the consideration In this light, an examination is an
important, and often controlling, factor community, the CRA does not require
given to an institution’s performance an institution to enter into agreements
under the quantitative criteria of the in the consideration of an institution’s
record. In some cases, however, the with private parties. The Agencies do
regulations, resulting in a higher level of not monitor compliance with nor
performance and rating. examination may not be recent, or a
specific issue raised in the application enforce these agreements.
§ ll.28(c) Effect of Evidence of process, such as progress in addressing § ll.41—Assessment Area
Discriminatory or Other Illegal Credit weaknesses noted by examiners, Delineation
Practices progress in implementing commitments
§ ll.28(c)—1: What is meant by previously made to the reviewing § ll.41(a) In General

‘‘discriminatory or other illegal credit Agency, or a supported allegation from § ll.41(a)—1: How do the Agencies
practices’’? a commenter, is relevant to CRA evaluate ‘‘assessment areas’’ under the
A1. An institution engages in performance under the regulation and CRA regulations?
discriminatory credit practices if it was not addressed in the examination. A1. The rule focuses on the
discourages or discriminates against In these circumstances, the applicant distribution and level of an institution’s
credit applicants or borrowers on a should present sufficient information to lending, investments, and services
rather than on how and why an A2. No. However, an institution that • income levels in the institution’s
institution delineated its assessment determines that it predominantly serves assessment area(s) and surrounding
area(s) in a particular manner. an area that is smaller than a city, town, geographies;
Therefore, the Agencies will not or other political subdivision may • locations of branches and deposit-
evaluate an institution’s delineation of delineate as its assessment area the taking ATMs;
its assessment area(s) as a separate larger political subdivision and then, in • loan distribution in the institution’s
performance criterion. Rather, the accordance with 12 CFR ll.41(d), assessment area(s) and surrounding
Agencies will only review whether the adjust the boundaries of the assessment geographies;
assessment area(s) delineated by the area to include only the portion of the • the institution’s size;
institution complies with the limitations political subdivision that it reasonably • the institution’s financial condition;
set forth in the regulations at 12 CFR l can be expected to serve. The smaller and
l.41(e). area that the institution delineates must • the business strategy, corporate
§ ll.41(a)—2: If an institution elects consist of entire geographies, may not structure, and product offerings of the
to have the Agencies consider affiliate reflect illegal discrimination, and may institution.
lending, will this decision affect the not arbitrarily exclude low- or
institution’s assessment area(s)? moderate-income geographies. § ll.41(e)(4) May Not Extend
A2. If an institution elects to have the Substantially Beyond an MSA Boundary
lending activities of its affiliates § ll.41(d) Adjustments to Geographic or Beyond a State Boundary Unless
considered in the evaluation of the Area(s) Located in a Multistate MSA
institution’s lending, the geographies in § ll.41(d)—1: When may an § ll.41(e)(4)—1: What are the
which the affiliate lends do not affect institution adjust the boundaries of an maximum limits on the size of an
the institution’s delineation of assessment area to include only a assessment area?
assessment area(s). portion of a political subdivision? A1. An institution may not delineate
§ ll.41(a)—3: Can a financial A1. Institutions must include whole an assessment area extending
institution identify a specific racial or geographies (i.e., census tracts) in their substantially across the boundaries of an
ethnic group rather than a geographic assessment areas and generally should MSA unless the MSA is in a combined
area as its assessment area? include entire political subdivisions. statistical area (CSA)). Although more
A3. No, assessment areas must be than one MSA in a CSA may be
Because census tracts are the common
based on geography. The only exception delineated as a single assessment area,
geographic areas used consistently
to the requirement to delineate an an institution’s CRA performance in
nationwide for data collection, the
assessment area based on geography is individual MSAs in those assessment
Agencies require that assessment areas
that an institution, the business of areas will be evaluated using separate
be made up of whole geographies. If
which predominantly consists of median family incomes and other
including an entire political subdivision
serving the needs of military personnel relevant information at the MSA level
would create an area that is larger than
or their dependents who are not located rather than at the CSA level.
the area the institution can reasonably
within a defined geographic area, may An assessment area also may not
be expected to serve, an institution may,
delineate its entire deposit customer extend substantially across state
but is not required to, adjust the
base as its assessment area. boundaries unless the assessment area is
boundaries of its assessment area to
§ ll.41(c) Geographic Area(s) for include only portions of the political located in a multistate MSA. An
Institutions Other Than Wholesale or subdivision. For example, this institution may not delineate a whole
Limited Purpose Institutions adjustment is appropriate if the state as its assessment area unless the
assessment area would otherwise be entire state is contained within an MSA.
§ ll.41(c)(1) Generally Consist of One These limitations apply to wholesale
extremely large, of unusual
or More MSAs or Metropolitan and limited purpose institutions as well
configuration, or divided by significant
Divisions or One or More Contiguous as other institutions.
geographic barriers (such as a river,
Political Subdivisions An institution must delineate separate
mountain, or major highway system).
§ ll.41(c)(1)—1: Besides cities, When adjusting the boundaries of their assessment areas for the areas inside
towns, and counties, what other units of assessment areas, institutions must not and outside an MSA if the area served
local government are political arbitrarily exclude low- or moderate- by the institution’s branches outside the
subdivisions for CRA purposes? income geographies or set boundaries MSA extends substantially beyond the
A1. Townships and Indian that reflect illegal discrimination. MSA boundary. Similarly, the
reservations are political subdivisions institution must delineate separate
for CRA purposes. Institutions should § ll.41(e) Limitations on Delineation assessment areas for the areas inside
be aware that the boundaries of of an Assessment Area and outside of a state if the institution’s
townships and Indian reservations may § ll.41(e)(3) May Not Arbitrarily branches extend substantially beyond
not be consistent with the boundaries of Exclude Low- or Moderate-Income the boundary of one state (unless the
the census tracts (i.e., geographies) in Geographies assessment area is located in a
the area. In these cases, institutions multistate MSA). In addition, the
must ensure that their assessment § ll.41(e)(3)—1: How will institution should also delineate
area(s) consists only of whole examiners determine whether an separate assessment areas if it has
geographies by adding any portions of institution has arbitrarily excluded low- branches in areas within the same state
the geographies that lie outside the or moderate-income geographies? that are widely separate and not at all
political subdivision to the delineated A1. Examiners will make this contiguous. For example, an institution
assessment area(s). determination on a case-by-case basis that has its main office in New York
§ ll.41(c)(1)—2: Are wards, school after considering the facts relevant to City and a branch in Buffalo, New York,
districts, voting districts, and water the institution’s assessment area and each office serves only the
districts political subdivisions for CRA delineation. Information that examiners immediate areas around it, should
purposes? will consider may include delineate two separate assessment areas.
§ ll.41(e)(4)—2: May an institution Attention: CRA Processing, 20th & a merger and subsequent data reporting
delineate one assessment area that Constitution Avenue NW., MS N402, responsibilities are described below.
consists of an MSA and two large Washington, DC 20551–0001. • Two institutions are exempt from
counties that abut the MSA but are not For questions about submitting or CRA collection and reporting
adjacent to each other? resubmitting CRA data, please contact requirements because of asset size. The
A2. As a general rule, an institution’s the FFIEC at CRAHELP@FRB.GOV. institutions merge. No data collection is
assessment area should not extend § ll.42—2: Should an institution required for the year in which the
substantially beyond the boundary of an develop its own program for data merger takes place, regardless of the
MSA. Therefore, the MSA would be a collection, or will the regulators require resulting asset size. Data collection
separate assessment area, and because a certain format? would begin after two consecutive years
the two abutting counties are not A2. An institution may use the free in which the combined institution had
adjacent to each other and, in this software that is provided by the FFIEC year-end assets at least equal to the
example, extend substantially beyond to reporting institutions for data small institution asset-size threshold
the boundary of the MSA, the collection and reporting or develop its amount described in 12 CFR
institution would delineate each county own program. Those institutions that ll.12(u)(1).
as a separate assessment area, assuming develop their own programs may create • Institution A, an institution
branches or deposit-taking ATMs are a data submission using the File required to collect and report the data,
located in each county and the MSA. Specifications and Edit Validation Rules and Institution B, an exempt institution,
So, in this example, there would be that have been set forth to assist with merge. Institution A is the surviving
three assessment areas. However, if the electronic data submissions. For institution. For the year of the merger,
MSA and the two counties were in the information about specific electronic data collection is required for Institution
same CSA, then the institution could formatting procedures, contact A’s transactions. Data collection is
delineate only one assessment area CRAHELP@FRB.GOV. optional for the transactions of the
including them all. But, the institution’s § ll.42—3: How should an previously exempt institution. For the
CRA performance in the MSAs and the institution report data on lines of credit? following year, all transactions of the
non-MSA counties in that assessment A3. Institutions must collect and surviving institution must be collected
area would be evaluated using separate report data on lines of credit in the same and reported.
median family incomes and other way that they provide data on loan • Two institutions that each are
relevant information at the MSA and originations. Lines of credit are required to collect and report the data
state, non-MSA level, rather than at the considered originated at the time the merge. Data collection is required for
CSA level. line is approved or increased; and an the entire year of the merger and for
§ ll.42—Data Collection, Reporting, increase is considered a new subsequent years so long as the
and Disclosure origination. Generally, the full amount surviving institution is not exempt. The
§ ll.42—1: When must an of the credit line is the amount that is surviving institution may file either a
institution collect and report data under considered originated. In the case of an consolidated submission or separate
the CRA regulations? increase to an existing line, the amount submissions for the year of the merger
A1. All institutions except small of the increase is the amount that is but must file a consolidated report for
institutions are subject to data collection considered originated and that amount subsequent years.
and reporting requirements. (‘‘Small should be reported. However, consistent § ll.42—6: Can small institutions
institution’’ is defined in the Agencies’ with the Call Report instructions, get a copy of the data collection
CRA regulations at 12 CFR ll.12(u).) institutions would not report an software even though they are not
Examples describing the data collection increase to a small business or small required to collect or report data?
requirements of institutions, in farm line of credit if the increase would A6. Yes. Any institution that is
particular those that have just surpassed cause the total line of credit to exceed interested in receiving a copy of the
the asset-size threshold of a small $1 million, in the case of a small software may download it from the
institution, may be found on the FFIEC business line, or $500,000, in the case FFIEC Web site at http://www.ffiec.gov/
Web site at http://www.ffiec.gov/cra. All of a small farm line. Of course, cra. For assistance, institutions may
institutions that are subject to the data institutions may provide information send an email to CRAHELP@FRB.GOV.
collection and reporting requirements about such line increases to examiners § ll.42—7: If a small institution is
must report the data for a calendar year as ‘‘other loan data.’’ designated a wholesale or limited
(CY) by March 1 of the subsequent year. § ll.42—4: Should renewals of lines purpose institution, must it collect data
For example, data for CY 2015 would be of credit be collected and/or reported? that it would not otherwise be required
reported by March 1, 2016. A4. Renewals of lines of credit for to collect because it is a small
The Board of Governors of the Federal small business, small farm, consumer, institution?
Reserve System processes the reports for or community development purposes A7. No. However, small institutions
all of the primary regulators. Data may should be collected and reported, if that are designated as wholesale or
be submitted on diskette, CD–ROM, or applicable, in the same manner as limited purpose institutions must be
via Internet email. renewals of small business or small farm prepared to identify those loans,
CRA respondents are encouraged to loans. See Q&A § ll.42(a)–5. investments, and services to be
use the free FFIEC Data Entry Software Institutions that are HMDA reporters evaluated under the community
to send their CRA data. ‘‘Submission via continue to collect and report home development test.
Web’’ is the preferred option. CRA equity lines of credit at their option in
accordance with the requirements of 12 § ll.42(a) Loan Information Required
respondents may also send a properly
CFR part 1003. To be Collected and Maintained
encrypted CRA file (using the ‘‘Export to
Federal Reserve Board via Internet § ll.42—5: When should merging § ll.42(a)—1: Must institutions
email’’ option) to CRASUB@FRB.GOV. institutions collect data? collect and report data on all
Please mail diskette or CD–ROM A5. Three scenarios of data collection commercial loans of $1 million or less
submissions to: Federal Reserve Board, responsibilities for the calendar year of at origination?
A1. No. Institutions that are not of the term of a loan. However, for Examiners would consider that portion
exempt from data collection and purposes of small business and small of the line when they evaluate the
reporting are required to collect and farm CRA data collection and reporting, institution’s home mortgage lending.
report only those commercial loans that it is not necessary to distinguish When an institution refinances a home
they capture in Call Report Schedule between the two.) When reporting small equity line of credit into another home
RC–C, Part II. Small business loans are business and small farm data, however, equity line of credit, HMDA reporting
defined as those whose original an institution may only report one continues to be optional. If the
amounts are $1 million or less and that origination (including a renewal or institution opts to report the refinanced
were reported as either ‘‘Loans secured refinancing treated as an origination) line, the entire amount of the line would
by nonfarm or nonresidential real per loan per year, unless an increase in be reported as a refinancing and
estate’’ or ‘‘Commercial and industrial the loan amount is granted. However, a examiners will consider the entire
loans’’ in Call Report Schedule RC–C, demand loan that is merely reviewed refinanced line when they evaluate the
Part I. annually is not reported as a renewal institution’s home mortgage lending.
§ ll.42(a)—2: For loans defined as because the term of the loan has not If an institution that has originated a
small business loans, what information been extended. home equity line of credit for both home
should be collected and maintained? If an institution increases the amount improvement and small business
A2. Institutions that are not exempt of a small business or small farm loan purposes (or if an institution that has
from data collection and reporting are when it extends the term of the loan, it refinanced such a line into another line)
required to collect and maintain, in a should always report the amount of the chooses not to report a home
standardized, machine-readable format, increase as a small business or small improvement loan (or a refinancing)
information on each small business loan farm loan origination. The institution under HMDA, and if the line meets the
originated or purchased for each should report only the amount of the regulatory definition of a ‘‘community
calendar year: increase if the original or remaining development loan,’’ the institution
• A unique number or alpha-numeric amount of the loan has already been should collect and report information
symbol that can be used to identify the reported one time that year. For on the entire line as a community
relevant loan file. example, a financial institution makes a development loan. If the line does not
• The loan amount at origination. term loan for $25,000; principal qualify as a community development
• The loan location. payments have resulted in a present loan, the institution has the option of
• An indicator whether the loan was outstanding balance of $15,000. In the collecting and maintaining (but not
to a business with gross annual next year, the customer requests an reporting) the entire line of credit as
revenues of $1 million or less. additional $5,000, which is approved, ‘‘Other Secured Lines/Loans for
The location of the loan must be and a new note is written for $20,000. Purposes of Small Business.’’
maintained by census tract. In addition, In this example, the institution should § ll.42(a)—8: When collecting small
supplemental information contained in report both the $5,000 increase and the business and small farm data for CRA
the file specifications includes a date renewal or refinancing of the $15,000 as purposes, may an institution collect and
associated with the origination or originations for that year. These two report information about loans to small
purchase and whether a loan was originations may be reported together as businesses and small farms located
originated or purchased by an affiliate. a single origination of $20,000. outside the United States?
The same requirements apply to small § ll.42(a)—6: Does a loan to the A8. At an institution’s option, it may
farm loans. ‘‘fishing industry’’ come under the collect data about small business and
§ ll.42(a)—3: Will farm loans need definition of a small farm loan? small farm loans located outside the
to be segregated from business loans? A6. Yes. Instructions for Call Report United States; however, it cannot report
A3. Yes. Schedule RC—C, Part I include loans this data because the CRA data
§ ll.42(a)—4: Should institutions ‘‘made for the purpose of financing collection software will not accept data
collect and report data on all fisheries and forestries, including loans concerning loan locations outside the
agricultural loans of $500,000 or less at to commercial fishermen’’ as a United States.
origination? component of the definition for ‘‘Loans § ll.42(a)—9: Is an institution that
A4. Institutions are to report those to finance agricultural production and has no small farm or small business
farm loans that they capture in Call other loans to farmers.’’ Call Report loans required to report under CRA?
Report Schedule RC–C, Part II. Small Schedule RC–C, Part II, which serves as A9. Each institution subject to data
farm loans are defined as those whose the basis of the definition for small reporting requirements must, at a
original amounts are $500,000 or less business and small farm loans in the minimum, submit a transmittal sheet,
and were reported as either ‘‘Loans to regulation, captures both ‘‘Loans to definition of its assessment area(s), and
finance agricultural production and finance agricultural production and a record of its community development
other loans to farmers’’ or ‘‘Loans other loans to farmers’’ and ‘‘Loans loans. If the institution does not have
secured by farmland’’ in Call Report secured by farmland.’’ community development loans to
Schedule RC–C, Part I. § ll.42(a)—7: How should an report, the record should be sent with
§ ll.42(a)—5: Should institutions institution report a home equity line of ‘‘0’’ in the community development
collect and report data about small credit, part of which is for home loan composite data fields. An
business and small farm loans that are improvement purposes and part of institution that has not purchased or
refinanced or renewed? which is for small business purposes? originated any small business or small
A5. An institution should collect A7. When an institution originates a farm loans during the reporting period
information about small business and home equity line of credit that is for would not submit the composite loan
small farm loans that it refinances or both home improvement and small records for small business or small farm
renews as loan originations. (A business purposes, the institution has loans.
refinancing generally occurs when the the option of reporting the portion of the § ll.42(a)—10: How should an
existing loan obligation or note is home equity line that is for home institution collect and report the
satisfied and a new note is written, improvement purposes as a home location of a loan made to a small
while a renewal refers to an extension improvement loan under HMDA. business or farm if the borrower
provides an address that consists of a § ll.42(a)(2)—2: How should an Alternatively, if the institution
post office box number or a rural route institution collect data about multiple considered the revenues of only the
and box number? loan originations to the same business? entity to which the loan is actually
A10. Prudent banking practices and A2. If an institution makes multiple extended, the institution should rely
Bank Secrecy Act regulations dictate originations to the same business, the solely upon whether gross annual
that institutions know the location of loans should be collected and reported revenues are above or below $1 million
their customers and loan collateral. as separate originations rather than for that entity. However, if the
Further, Bank Secrecy Act regulations combined and reported as they are on institution considered and relied on
specifically state that a post office box the Call Report, which reflects loans revenues or income of a cosigner or
is not an acceptable address. Therefore, outstanding, rather than originations. guarantor that is not an affiliate of the
institutions typically will know the However, if institutions make multiple borrower, such as a sole proprietor, the
actual location of their borrowers or originations to the same business solely institution should not adjust the
loan collateral beyond an address to inflate artificially the number or borrower’s revenues for reporting
consisting only of a post office box. volume of loans evaluated for CRA purposes.
Many borrowers have street addresses lending performance, the Agencies may § ll.42(a)(4)—2: If an institution
in addition to rural route and box combine these loans for purposes of that is not exempt from data collection
numbers. Institutions should ask their evaluation under the CRA. and reporting does not request or
borrowers to provide the street address § ll.42(a)(2)—3: How should an consider revenue information to make
of the main business facility or farm or institution collect data pertaining to the credit decision regarding a small
the location where the loan proceeds credit cards issued to small businesses? business or small farm loan, must the
otherwise will be applied. Moreover, in A3. If an institution agrees to issue institution collect revenue information
many cases in which the borrower’s credit cards to a business’s employees, in connection with that loan?
all of the credit card lines opened on a A2. No. In those instances, the
address consists only of a rural route
particular date for that single business institution should enter the code
number, the institution knows the
should be reported as one small indicating ‘‘revenues not known’’ on the
location (i.e., the census tract) of the
business loan origination rather than individual loan portion of the data
borrower or loan collateral. Once the
reporting each individual credit card collection software or on an internally
institution has this information
line, assuming the criteria in the ‘‘small developed system. Loans for which the
available, it should assign the census
business loan’’ definition in the institution did not collect revenue
tract to that location (geocode) and
regulation are met. The credit card information may not be included in the
report that information as required
program’s ‘‘amount at origination’’ is the loans to businesses and farms with gross
under the regulation.
sum of all of the employee/business annual revenues of $1 million or less
However, if an institution cannot when reporting this data.
determine a rural borrower’s street credit cards’ credit limits opened on a
particular date. If subsequently issued § ll.42(a)(4)—3: What gross revenue
address, and does not know the census should an institution use in determining
tract, the institution should report the credit cards increase the small business
credit line, the added amount is the gross annual revenue of a start-up
borrower’s state, county, MSA or business?
metropolitan division, if applicable, and reported as a new origination.
A3. The institution should use the
‘‘NA,’’ for ‘‘not available,’’ in lieu of a § ll.42(a)(3) The Loan Location actual gross annual revenue to date
census tract code. § ll.42(a)(3)—1: Which location (including $0 if the new business has
§ ll.42(a)(2) Loan Amount at should an institution record if a small had no revenue to date). Although a
Origination business loan’s proceeds are used in a start-up business will provide the
variety of locations? institution with pro forma projected
§ ll.42(a)(2)—1: When an A1. The institution should record the revenue figures, these figures may not
institution purchases a small business loan location by either the location of accurately reflect actual gross revenue
or small farm loan, in whole or in part, the small business borrower’s and, therefore, should not be used.
which amount should the institution headquarters or the location where the § ll.42(a)(4)—4: When indicating
collect and report—the original amount greatest portion of the proceeds are the gross annual revenue of small
of the loan or the amount at purchase? applied, as indicated by the borrower. business or small farm borrowers, do
A1. When collecting and reporting institutions rely on the gross annual
information on purchased small § ll.42(a)(4) Indicator of Gross Annual revenue or the adjusted gross annual
business and small farm loans, Revenue revenue of their borrowers?
including loan participations, an § ll.42(a)(4)—1: When indicating A4. Institutions rely on the gross
institution collects and reports the whether a small business borrower had annual revenue, rather than the adjusted
amount of the loan at origination, not at gross annual revenues of $1 million or gross annual revenue, of their small
the time of purchase. This is consistent less, upon what revenues should an business or small farm borrowers when
with the Call Report’s use of the institution rely? indicating the revenue of small business
‘‘original amount of the loan’’ to A1. Generally, an institution should or small farm borrowers. The purpose of
determine whether a loan should be rely on the revenues that it considered this data collection is to enable
reported as a ‘‘loan to a small business’’ in making its credit decision. For examiners and the public to judge
or a ‘‘loan to a small farm’’ and in which example, in the case of affiliated whether the institution is lending to
loan size category a loan should be businesses, such as a parent corporation small businesses and small farms or
reported. When assessing the volume of and its subsidiary, if the institution whether it is only making small loans to
small business and small farm loan considered the revenues of the entity’s larger businesses and farms.
purchases for purposes of evaluating parent or a subsidiary corporation of the The regulation does not require
lending test performance under CRA, parent as well, then the institution institutions to request or consider
however, examiners will evaluate an would aggregate the revenues of both revenue information when making a
institution’s activity based on the corporations to determine whether the loan; however, if institutions do gather
amounts at purchase. revenues are $1 million or less. this information from their borrowers,
the Agencies expect them to collect and loan, where should it be reported? Can § ll.22(b)(4)–1, examiners may make
rely upon the borrowers’ gross annual Federal Housing Administration, qualitative distinctions among
revenue for purposes of CRA. The CRA Veterans Affairs, and Small Business community development loans on the
regulations similarly do not require Administration loans be reported as basis of the extent to which the loan
institutions to verify revenue amounts; community development loans? advances the community development
thus, institutions may rely on the gross A2. Except for multifamily affordable purpose.
annual revenue amount provided by housing loans, which may be reported In addition, if an institution that
borrowers in the ordinary course of by retail institutions both under HMDA reports CRA data elects to request
business. If an institution does not as home mortgage loans and as consideration for loans that provide
collect gross annual revenue community development loans, in order mixed-income housing where only a
information for its small business and to avoid double counting, retail portion of the loan has community
small farm borrowers, the institution institutions must report loans that meet development as its primary purpose,
should enter the code ‘‘revenues not the definition of ‘‘home mortgage loan,’’ such as in connection with a
known.’’ See Q&A § ll.42(a)(4)–2. ‘‘small business loan,’’ or ‘‘small farm development that has a mixed-income
loan’’ only in those respective categories housing component or an affordable
§ ll.42(b) Loan Information Required even if they also meet the definition of housing set-aside required by Federal,
To Be Reported ‘‘community development loan.’’ As a state, or local government, the
§ ll.42(b)(1) Small Business and practical matter, this is not a institution must report only the pro rata
Small Farm Loan Data disadvantage for institutions evaluated dollar amount of the portion of the loan
under the lending, investment, and that provides affordable housing to low-
§ ll.42(b)(1)—1: For small business service tests because any affordable
and small farm loan information that is or moderate-income individuals. The
housing mortgage, small business, small pro rata dollar amount of the total
collected and maintained, what data farm, or consumer loan that would
should be reported? activity will be based on the percentage
otherwise meet the definition of of units that are affordable. See Q&A
A1. Each institution that is not ‘‘community development loan’’ will be
exempt from data collection and § ll.12(h)–8 for a discussion of
considered elsewhere in the lending ‘‘primary purpose’’ of community
reporting is required to report in test. Any of these types of loans that
machine-readable form annually by development describing the distinction
occur outside the institution’s between the types of loans that would
March 1 the following information, assessment area(s) can receive
aggregated for each census tract in be reported in full and those for which
consideration under the borrower only the pro rata amount would be
which the institution originated or characteristic criteria of the lending test.
purchased at least one small business or reported.
See Q&A § ll.22(b)(2) & (3)–4.
small farm loan during the prior year: § ll.42(b)(2)—4: When an
Limited purpose and wholesale
• The number and amount of loans institution purchases a participation in
institutions that meet the size threshold
originated or purchased with original for reporting purposes also must report a community development loan, which
amounts of $100,000 or less. loans that meet the definitions of home amount should the institution report—
• The number and amount of loans mortgage, small business, or small farm the entire amount of the credit
originated or purchased with original loans in those respective categories. originated by the lead lender or the
amounts of more than $100,000 but less However, these institutions must also amount of the participation purchased?
than or equal to $250,000. report any loans from those categories A4. The institution reports only the
• The number and amount of loans that meet the regulatory definition of amount of the participation purchased
originated or purchased with original ‘‘community development loan’’ as as a community development loan.
amounts of more than $250,000 but not community development loans. There is However, the institution uses the entire
more than $1 million, as to small no double counting because wholesale amount of the credit originated by the
business loans, or $500,000, as to small and limited purpose institutions are not lead lender to determine whether the
farm loans. subject to the lending test and, original credit meets the definition of a
• To the extent that information is therefore, are not evaluated on their ‘‘loan to a small business,’’ ‘‘loan to a
available, the number and amount of level and distribution of home mortgage, small farm,’’ or ‘‘community
loans to businesses and farms with gross small business, small farm, and development loan.’’ For example, if an
annual revenues of $1 million or less consumer loans. institution purchases a $400,000
(using the revenues the institution § ll.42(b)(2)—3: When the primary participation in a business credit that
considered in making its credit purpose of a loan is to finance an has a community development purpose,
decision). affordable housing project for low- or and the entire amount of the credit
moderate-income individuals, but, for originated by the lead lender is over $1
§ ll.42(b)(2) Community Development example, only 40 percent of the units in million, the institution would report
Loan Data question will actually be occupied by $400,000 as a community development
§ ll.42(b)(2)—1: What information individuals or families with low or loan.
about community development loans moderate incomes, should the entire § ll.42(b)(2)—5: Should institutions
must institutions report? loan amount be reported as a collect and report data about
A1. Institutions subject to data community development loan? community development loans that are
reporting requirements must report the A3. It depends. As long as the primary refinanced or renewed?
aggregate number and amount of purpose of the loan is a community A5. Yes. Institutions should collect
community development loans development purpose as described in information about community

originated and purchased during the Q&A § ll.12(h)–8, the full amount of development loans that they refinance
prior calendar year. the institution’s loan should be or renew as loan originations.
§ ll.42(b)(2)—2: If a loan meets the included in its reporting of aggregate Community development loan
definition of a home mortgage, small amounts of community development refinancings and renewals are subject to
business, or small farm loan AND lending. Even though the entire amount the reporting limitations that apply to
qualifies as a community development of the loan is reported, as noted in Q&A refinancings and renewals of small
business and small farm loans. See Q&A A1. No. Further, if the institution commercial and industrial purposes
§ ll.42(a)–5. routinely collects, but does not verify, a that are secured by residential real
borrower’s income when making a estate, unless the security interest in the
§ ll.42(b)(3) Home Mortgage Loans
credit decision, it need not verify the nonfarm residential real estate is taken
§ ll.42(b)(3)—1: Must institutions income for purposes of data only as an abundance of caution. (See
that are not required to collect home maintenance. Q&A § ll.12(v)–3.) Loans extended to
mortgage loan data by the HMDA collect § ll.42(c)(1)(iv)—2: May an small businesses with gross annual
home mortgage loan data for purposes institution list ‘‘0’’ in the income field revenues of $1 million or less may,
of the CRA? on consumer loans made to employees however, be secured by residential real
A1. No. If an institution is not when collecting data for CRA purposes estate. May an institution collect this
required to collect home mortgage loan as the institution would be permitted to information to supplement its small
data by the HMDA, the institution need do under HMDA? business lending data at the time of
not collect home mortgage loan data A2. Yes. examination?
under the CRA. Examiners will sample § ll.42(c)(1)(iv)—3: When collecting A1. Yes. If these loans promote
these loans to evaluate the institution’s the gross annual income of consumer community development, as defined in
home mortgage lending. If an institution borrowers, do institutions collect the the regulation, the institution should
wants to ensure that examiners consider gross annual income or the adjusted collect and report information about the
all of its home mortgage loans, the gross annual income of the borrowers? loans as community development loans.
institution may collect and maintain A3. Institutions collect the gross Otherwise, at the institution’s option, it
data on these loans. annual income, rather than the adjusted may collect and maintain data
§ ll.42(c) Optional Data Collection gross annual income, of consumer concerning loans, purchases, and lines
and Maintenance borrowers. The purpose of income data of credit extended to small businesses
collection in connection with consumer and secured by nonfarm residential real
§ ll.42(c)(1) Consumer Loans loans is to enable examiners to estate for consideration in the CRA
§ ll.42(c)(1)—1: What are the data determine the distribution, particularly evaluation of its small business lending.
requirements regarding consumer loans? in the institution’s assessment area(s), of An institution may collect this
A1. There are no data reporting the institution’s consumer loans, based information as ‘‘Other Secured Lines/
requirements for consumer loans. on borrower characteristics, including Loans for Purposes of Small Business’’
Institutions may, however, opt to collect the number and amount of consumer in the individual loan data. This
and maintain data on consumer loans. If loans to low-, moderate-, middle-, and information should be maintained at the
an institution chooses to collect upper-income borrowers, as determined institution but should not be submitted
information on consumer loans, it may on the basis of gross annual income. for central reporting purposes.
collect data for one or more of the The regulation does not require § ll.42(c)(2)—2: Must an institution
following categories of consumer loans: institutions to request or consider collect data on loan commitments and
Motor vehicle, credit card, home equity, income information when making a letters of credit?
other secured, and other unsecured. If loan; however, if institutions do gather A2. No. Institutions are not required
an institution collects data for loans in this information from their borrowers, to collect data on loan commitments
a certain category, it must collect data the Agencies expect them to collect the and letters of credit. Institutions may,
for all loans originated or purchased borrowers’ gross annual income for however, provide for examiner
within that category. The institution purposes of CRA. The CRA regulations consideration information on letters of
must maintain these data separately for similarly do not require institutions to credit and commitments.
each category for which it chooses to verify income amounts; thus, § ll.42(c)(2)—3: Are commercial
collect data. The data collected and institutions may rely on the gross and consumer leases considered loans
maintained should include for each loan annual income amount provided by for purposes of CRA data collection?
• a unique number or alpha-numeric borrowers in the ordinary course of A3. Commercial and consumer leases
symbol that can be used to identify the business. are not considered small business or
relevant loan file; § ll.42(c)(1)(iv)—4: Whose income small farm loans or consumer loans for
• the loan amount at origination or does an institution collect when a purposes of the data collection
purchase; consumer loan is made to more than requirements in 12 CFR ll.42(a) &
• the loan location; and one borrower? (c)(1). However, if an institution wishes
• the gross annual income of the A4. An institution that chooses to to collect and maintain data about
borrower that the institution considered collect and maintain information on leases, the institution may provide this
in making its credit decision. consumer loans collects the gross data to examiners as ‘‘other loan data’’
Generally, guidance given with annual income of all primary obligors under 12 CFR ll.42(c)(2) for
respect to data collection of small for consumer loans, to the extent that consideration under the lending test.
business and small farm loans, the institution considered the income of
the obligors when making the decision § ll.42(d) Data on Affiliate Lending
including, for example, guidance
regarding collecting loan location data, to extend credit. Primary obligors § ll.42(d)—1: If an institution elects
and whether to collect data in include co-applicants and co-borrowers, to have an affiliate’s home mortgage
connection with refinanced or renewed including co-signers. An institution lending considered in its CRA
loans, will also apply to consumer does not, however, collect the income of evaluation, what data must the
loans. guarantors on consumer loans, because institution make available to examiners?
guarantors are only secondarily liable A1. If the affiliate is a HMDA reporter,
§ ll.42(c)(1)(iv) Income of Borrower the institution must identify those loans
for the debt.
§ ll.42(c)(1)(iv)—1: If an institution reported by its affiliate under 12 CFR
does not consider income when making § ll.42(c)(2) Other Loan Data part 1003 (Regulation C, implementing
an underwriting decision in connection § ll.42(c)(2)—1: Call Report HMDA). At its option, the institution
with a consumer loan, must it collect Schedule RC–C, Part II does not allow may provide examiners with either the
income information? institutions to report loans for affiliate’s entire HMDA Disclosure
Statement or just those portions See 12 CFR ll.43(b)(5). The kept at a main office and at a branch.
covering the loans in its assessment institution must update the description The institution also must ensure that the
area(s) that it is electing to consider. If on a quarterly basis. information required to be maintained
the affiliate is not required by HMDA to at a main office and branch, if kept
§ ll.43(b) Additional Information
report home mortgage loans, the electronically, can be readily
Available to the Public
institution must provide sufficient data downloaded and printed for any
concerning the affiliate’s home mortgage § ll.43(b)(1) Institutions Other Than member of the public who requests a
loans for the examiners to apply the Small Institutions hard copy of the information.
performance tests. § ll.43(b)(1)—1: Must an institution § ll.44—Public Notice by Institutions
§ ll.43—Content and Availability of that elects to have affiliate lending § ll.44—1: Are there any placement
Public File considered include data on this lending or size requirements for an institution’s
in its public file?
§ ll.43(a) Information Available to the A1. Yes. The lending data to be
public notice?
Public A1. The notice must be placed in the
contained in an institution’s public file institution’s public lobby, but the size
§ ll.43(a)(1) Public Comments Related covers the lending of the institution’s and placement may vary. The notice
to an Institution’s CRA Performance affiliates, as well as of the institution should be placed in a location and be of
§ ll.43(a)(1)—1: What happens to itself, considered in the assessment of a sufficient size that customers can
comments received by the Agencies? the institution’s CRA performance. An easily see and read it.
A1. Comments received by an Agency institution that has elected to have
will be on file at the Agency for use by mortgage loans of an affiliate considered § ll.45—Publication of Planned
examiners. Those comments are also must include either the affiliate’s Examination Schedule
available to the public unless they are HMDA Disclosure Statements for the § ll.45—1: Where will the Agencies
exempt from disclosure under the two prior years or the parts of the publish the planned examination
Freedom of Information Act. Disclosure Statements that relate to the schedule for the upcoming calendar
§ ll.43(a)(1)—2: Is an institution institution’s assessment area(s), at the quarter?
required to respond to public institution’s option. A1. The Agencies may use the
comments? § ll.43(b)(1)—2: May an institution Federal Register, a press release, the
A2. No. All institutions should review retain its CRA disclosure statement in Internet, or other existing Agency
comments and complaints carefully to electronic format in its public file, rather publications for disseminating the list of
determine whether any response or than printing a hard copy of the CRA the institutions scheduled for CRA
other action is warranted. A small disclosure statement for retention in its examinations during the upcoming
institution subject to the small public file? calendar quarter. Interested parties
institution performance standards is A2. Yes, if the institution can readily should contact the appropriate Federal
specifically evaluated on its record of print out its CRA disclosure statement financial supervisory Agency for
taking action, if warranted, in response from an electronic medium (e.g., CD, information on how the Agency is
to written complaints about its DVD, or Internet Web site) when a publishing the planned examination
performance in helping to meet the consumer requests the public file. If the schedule.
credit needs in its assessment area(s). request is at a branch other than the § ll.45—2: Is inclusion on the list of
See 12 CFR ll.26(b)(5). For all main office or the one designated institutions that are scheduled to
institutions, responding to comments branch in each state that holds the undergo CRA examinations in the next
may help to foster a dialogue with complete public file, the institution calendar quarter determinative of
members of the community or to present should provide the CRA disclosure whether an institution will be examined
relevant information to an institution’s statement in a paper copy, or in another in that quarter?
supervisory Agency. If an institution format acceptable to the requestor, A2. No. The Agencies attempt to
responds in writing to a letter in the within five calendar days, as required determine as accurately as possible
public file, the response must also be by 12 CFR ll.43(c)(2)(ii). which institutions will be examined
placed in that file, unless the response during the upcoming calendar quarter.
§ ll.43(c) Location of Public
reflects adversely on any person or However, whether an institution’s name
Information
placing it in the public file violates a appears on the published list does not
law. § ll.43(c)—1: What is an conclusively determine whether the
institution’s ‘‘main office’’ ? institution will be examined during that
§ ll.43(a)(2) CRA Performance A1. An institution’s main office is the quarter. The Agencies may need to defer
Evaluation main, home, or principal office as a planned examination or conduct an
§ ll.43(a)(2)—1: May an institution designated in its charter. unforeseen examination because of
include a response to its CRA § ll.43(c)—2: May an institution scheduling difficulties or other
performance evaluation in its public maintain a copy of its public file on an circumstances.
file? intranet or the Internet?
A1. Yes. However, the format and A2. Yes, an institution may keep all Appendix A to Part ll—Ratings
content of the evaluation, as transmitted or part of its public file on an intranet Appendix A to Part ll—1: Must an
by the supervisory Agency, may not be or the Internet, provided that the institution’s performance fit each aspect of a
altered or abridged in any manner. In institution maintains all of the particular rating profile in order to receive
addition, an institution that received a information, either in paper or that rating?

less than satisfactory rating during it electronic form, that is required in 12 A1. No. Exceptionally strong performance
in some aspects of a particular rating profile
most recent examination must include CFR ll.43. An institution that opts to may compensate for weak performance in
in its public file a description of its keep part or all of its public file on an others. For example, a retail institution other
current efforts to improve its intranet or the Internet must follow the than an intermediate small institution that
performance in helping to meet the rules in 12 CFR ll.43(c)(1) and (2) as uses non-branch delivery systems to obtain
credit needs of its entire community. to what information is required to be deposits and to deliver loans may have
almost all of its loans outside the institution’s that are scheduled for CRA evaluation in a OCC-, FDIC-, and Board-supervised
assessment area(s). Assume that an examiner, particular quarter, you may insert the institutions: ‘‘Officer in Charge of
after consideration of performance context following Web site along with the postal Supervision’’ is the title of the responsible
and other applicable regulatory criteria, mailing address of the deputy comptroller: official at the appropriate Federal Reserve
concludes that the institution has weak http://www.occ.treas.gov. In addition, in Bank.
performance under the lending criteria connection with the invitation for comments
applicable to lending activity, geographic on the bank’s performance in helping to meet End of text of the Interagency Questions
distribution, and borrower characteristics community credit needs, you may insert the and Answers
within the assessment area(s). The institution following email address along with the postal
may compensate for such weak performance mailing address of the deputy comptroller: Dated: July 6, 2016.
by exceptionally strong performance in CRACOMMENTS@OCC.TREAS.GOV. Thomas J. Curry,
community development lending in its For community banks, insert in the
appropriate blank the postal mailing address Comptroller of the Currency.
assessment area(s) or a broader statewide or
regional area that includes its assessment of the deputy comptroller of the district in
which the institution is located. These By order of the Board of Governors of the
area(s). Federal Reserve System, July 7, 2016.
addresses can be found at http://
Appendix B to Part ll—CRA Notice www.occ.gov. For banks supervised under the Robert deV. Frierson,
large bank program, insert in the appropriate Secretary of the Board.
Appendix B to Part ll—1: What agency blank the following postal mailing address:
information should be added to the CRA ‘‘Large Bank Supervision, 400 7th Street SW., Dated at Washington, DC, this 6th day of
notice form? Washington, DC 20219–0001.’’ For banks July, 2016.
A1. The following information should be supervised under the midsize/credit card Federal Deposit Insurance Corporation.
added to the form: bank program, insert in the appropriate blank Valerie J. Best,
OCC-supervised institutions only: For all the following postal mailing address:
Assistant Executive Secretary.
national banks and Federal savings ‘‘Midsize and Credit Card Bank Supervision,
associations (collectively, banks), in 400 7th Street SW., Washington, DC 20219– [FR Doc. 2016–16693 Filed 7–22–16; 8:45 am]
connection with the nationwide list of banks 0001.’’ BILLING CODE 4810–33–P 6210–01–P 6714–01–P

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Department of the Treasury

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Federal Deposit Insurance Corporation

final guidance. Answers’’ refers to the ‘‘Interagency Questions and

11 The Summary of Deposits (SOD) is the annual

development service activity. guidance on how examiners evaluate evaluating an institution’s

economic development if they support

Revitalize or Stabilize Low- or

are considered to ‘‘revitalize or residents; development;

or moderate-income individuals to responsive to area community Consumer Price Index. More

information obtained from interviews § ll.21(f) Activities in Cooperation

availability of information in languages examiners review? amended by the Competitive Equality

defined in the regulations? small institution? or exceeds the standards for a

§ ll.27(f) Plan Content required for a ‘‘satisfactory’’ or regulation. The evaluation of a

§ ll.28(c)—1: What is meant by previously made to the reviewing § ll.41(a) In General

community development loans development purpose as described in information about community

addition, an institution that received a information, either in paper or that rating?

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