[Federal Register Volume 61, Number 204 (Monday, October 21, 1996)]
[Notices]
[Pages 54647-54667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26743]
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FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL
Community Reinvestment Act; Interagency Questions and Answers
Regarding Community Reinvestment
AGENCY: Federal Financial Institutions Examination Council.
ACTION: Notice and request for comment.
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SUMMARY: The Consumer Compliance Task Force of the Federal Financial
Institutions Examination Council (FFIEC) is issuing Interagency
Questions and Answers Regarding Community Reinvestment (Interagency
Questions and Answers). To help financial institutions meet their
responsibilities under the Community Reinvestment Act (CRA) and to
increase public understanding of their CRA regulations, the staffs of
the Office of the Comptroller of the Currency (OCC), the Federal
Reserve Board (Board), the Federal Deposit Insurance Corporation
(FDIC), and the Office of Thrift Supervision (OTS) (collectively, the
``agencies'') have prepared answers to the most frequently asked
questions about community reinvestment. The Interagency Questions and
Answers contain informal staff guidance for agency personnel, financial
institutions, and the public.
DATES: Public comment is invited on a continuing basis.
ADDRESSES: Questions and comments may be sent to Joe M. Cleaver,
Executive Secretary, Federal Financial Institutions Examination
Council, 2100 Pennsylvania Avenue NW., Suite 200, Washington, DC 20037,
or by facsimile transmission to (202) 634-6556.
FOR FURTHER INFORMATION CONTACT: OCC: Malloy Harris, National Bank
Examiner, Consumer and Fiduciary Compliance Division, (202) 874-4446;
or Margaret Hesse, Senior Attorney, Community and Consumer Law
Division, (202) 874-5750, Office of the Comptroller of the Currency,
250 E Street, SW., Washington, DC 20219.
Board: Glenn E. Loney, Associate Director, Division of Consumer and
Community Affairs, (202) 452-3585; or Robert deV. Frierson, Assistant
General Counsel, Legal Division, (202) 452-3711, Board of Governors of
the Federal Reserve System, 20th Street and Constitution Avenue, NW.,
Washington, DC 20551.
FDIC: Bobbie Jean Norris, Chief, Fair Lending Section, Division of
Compliance and Consumer Affairs, (202) 942-3090; or Ann Hume Loikow,
Counsel, Legal Division, (202) 898-3796, Federal Deposit Insurance
Corporation, 550 17th Street, NW., Washington, DC 20429.
OTS: Theresa A. Stark, Project Manager, Compliance Policy, (202)
906-
[[Page 54648]]
7054; or Richard R. Riese, Project Manager, Compliance Policy, (202)
906-6134, Office of Thrift Supervision, 1700 G Street, NW., Washington,
DC 20552.
SUPPLEMENTARY INFORMATION:
Background
Last year, the agencies revised their CRA regulations by issuing a
joint final rule, which was published on May 4, 1995 (60 FR 22156). See
12 CFR parts 25, 228, 345 and 563e, implementing 12 U.S.C. 2901 et seq.
The agencies published two notices of proposed rulemaking prior to
publishing the joint final rule. See 58 FR 67466 (Dec. 21, 1993); 59 FR
51232 (Oct. 7, 1994). The agencies published related clarifying
documents on December 20, 1995 (60 FR 66048) and May 10, 1996 (61 FR
21362).
Since publishing the joint final rule, the agencies have received
numerous questions from financial institutions, examiners, and others
about the new regulations. Some of the questions were answered in the
preambles to the two proposed rules and the final rules. Some other
questions were addressed in the FFIEC's Questions and Answers regarding
community reinvestment, published in the Federal Register on February
19, 1993, (58 FR 9176) in connection with the CRA regulations then in
effect. The agencies answered technical data reporting questions in an
unpublished interagency document, Questions and Answers on CRA Data
Collection and Reporting, issued in December 1995, and mailed directly
to financial institutions and other interested parties. Additionally,
the agencies have answered some questions through interagency staff
letters and other informal communications.
The purpose of these Interagency Questions and Answers is to
consolidate, to the extent possible, useful CRA information into a
comprehensive document. These Interagency Questions and Answers
supplement other documents that the agencies are not specifically
superseding, including, for example, interagency staff CRA interpretive
letters. See ``Related action'' below.
Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)
The SBREFA requires an agency, for each rule for which it prepares
a final regulatory flexibility analysis, to publish one or more
compliance guides to help small entities understand how to comply with
the rule.
Pursuant to section 605(b) of the Regulatory Flexibility Act, the
agencies certified that their proposed CRA rule would not have a
significant economic impact on a substantial number of small entities
and invited public comments on that determination. See 58 FR 67478
(Dec. 21, 1993); 59 FR 51250 (Oct. 7, 1994). In response to public
comment, the agencies voluntarily prepared a final regulatory
flexibility analysis for the joint final rule, although the analysis
was not required because it supported the agencies'' earlier
certification regarding the proposed rule. Because a regulatory
flexibility analysis was not required, section 212 of the SBREFA does
not apply to the final CRA rule. However, in their continuing efforts
to provide clear, understandable regulations and to comply with the
spirit of the SBREFA, the agencies have compiled the Interagency
Questions and Answers. The Interagency Questions and Answers serve the
same purpose as the compliance guide described in the SBREFA by
providing guidance on a variety of issues of particular concern to
small banks and thrifts.
Related Action
The Questions and Answers regarding community reinvestment
published in the Federal Register on February 19, 1993, (58 FR 9176)
continue to apply to institutions that are examined under the 12
assessment factors in the CRA regulations as they existed prior to
their amendment on May 4, 1994 (12 CFR 25.7, 228.7, 345.7, and 563e.7).
However, as institutions become subject to evaluation under the
performance tests and standards of the amended CRA regulations, these
Interagency Questions and Answers supersede, and, on July 1, 1997, the
FFIEC will withdraw in its entirety, the February 1993 Questions and
Answers regarding community reinvestment. These Interagency Questions
and Answers subsume and supersede the December 1995 Questions and
Answers on CRA Data Collection and Reporting.
Comments
The agencies invite public comment on a continuing basis. The
agencies intend to update the Interagency Questions and Answers on a
regular basis. If, after reading the Interagency Questions and Answers,
financial institutions, examiners, community groups, or other
interested parties have unanswered questions or comments about the
agencies' community reinvestment regulations, they should submit them
to the agencies. The agencies will consider including questions
received from the public in future guidance.
Interagency Questions and Answers Format
Questions and answers are grouped by the provision of the CRA
regulations that they explicate and are presented in the same order as
the regulatory provisions.
The Interagency Questions and Answers employ an abbreviated method
to cite to the regulations. Because the regulations of the four
agencies are substantively identical, corresponding sections of the
different regulations usually bear the same suffix. Therefore, the
Interagency Questions and Answers typically cite only to the suffix.
For example, the small bank performance standards for national banks
appear at 12 CFR 25.26; for Federal Reserve member banks, they appear
at 12 CFR 228.26; for nonmember banks, at 12 CFR 345.26; and for
thrifts, at 12 CFR 563e.26. Accordingly, the citation in this document
would be to Sec. ----.26. In the few instances where the suffix in one
of the regulations is different, the specific citation for that
regulation is provided.
The text of the Interagency Questions and Answers follows:
Text of the Interagency Questions and Answers
Interagency Questions and Answers Regarding Community Reinvestment
Table of Contents
The agencies are providing answers to questions pertaining to the
following provisions and topics of the CRA regulations:
Section ____.11--Authority, purposes, and scope
____.11(c) Scope
25.11(c)(3), 228.11(c)(3) & 345.11(c)(3) Certain special purpose
banks
Section ____.12--Definitions
____.12(a) Affiliate
____.12(f) & 563e.12(e) Branch
____.12(h) & 563e.12(g) Community development
____.12(h)(3) & 563e.12(g)(3) Activities that promote economic
development by financing businesses or farms that meet certain size
eligibility standards
____.12(i) & 563e.12(h) Community development loan
____.12(j) & 563e.12(i) Community development service
____.12(k) & 563e.12(j) Consumer loan
____.12(m) & 563e.12(l) Home mortgage loan
____.12(n) & 563e.12(m) Income level
____.12(o) & 563e.12(n) Limited purpose institution
____.12(s) & 563e.12(r) Qualified investment
____.12(t) Small institution
____.12(u) Small business loan
____.12(w) Wholesale institution
[[Page 54649]]
Section ____.21--Performance tests, standards, and ratings, in general
____.21(a) Performance tests and standards
____.21(b) Performance context
____.21(b)(2) Information maintained by the institution or
obtained from community contacts
____.21(b)(4) Institutional capacity and constraints
____.21(b)(5) Institution's past performance and the performance
of similarly situated lenders
Section ____.22--Lending test
____.22(a) Scope of test
____.22(a)(1) Types of loans considered
____.22(a)(2) Other loan data
____.22(b) Performance criteria
____.22(b)(1) Lending activity
____.22(b)(2) and (3) Geographic distribution and borrower
characteristics
____.22(c) Affiliate lending
____.22(c)(1) In general
____.22(c)(2) Constraints on affiliate lending
____.22(c)(2)(i) No affiliate may claim a loan origination or
loan purchase if another institution claims the same loan
origination or purchase
____.22(c)(2)(ii) If an institution elects to have its
supervisory agency consider loans within a particular lending
category made by one or more of the institution's affiliates in a
particular assessment area, the institution shall elect to have the
agency consider all loans within that lending category in that
particular assessment area made by all of the institution's
affiliates
____.22(d) Lending by a consortium or a third party
Section ____.23--Investment test
____.23(b) Exclusion
Section ____.24--Service test
____.24(d) Performance criteria--retail banking services
____.24(d)(3) Availability and effectiveness of alternative
systems for delivering retail banking services
Section ____.25 Community development test for wholesale or limited
purpose institutions
____.25(d) Indirect activities
____.25(f) Community development performance rating
Section ____.26--Small institution performance standards
____.26(a) Performance criteria
____.26(a)(1) Loan-to-deposit ratio
____.26(a)(2) Percentage of lending within assessment area(s)
____.26(a)(3) and (4) Distribution of lending within assessment
area(s) by borrower income and geographic location
____.26(b) Performance rating
Section ____.27--Strategic plan
____.27(c) Plans in general
____.27(f) Plan content
____.27(f)(1) Measurable goals
____.27(g) Plan approval
____.27(g)(2) Public participation
Section ____.28--Assigned ratings
____.28(a) Ratings in general
Section ____.29--Effect of CRA performance on applications
____.29(a) CRA performance
____.29(b) Interested parties
Section ____.41--Assessment area delineation
____.41(a) In general
____.41(c) Geographic area(s) for institutions other than wholesale
or limited purpose institutions
____.41(c)(1) Generally consist of one or more MSAs or one or
more contiguous political subdivisions
____.41(d) Adjustments to geographic area(s)
____.41(e) Limitations on delineation of an assessment area
____.41(e)(3) May not arbitrarily exclude low- or moderate-
income geographies
____.41(e)(4) May not extend substantially beyond a CMSA
boundary or beyond a state boundary unless located in a multistate
MSA
Section ____.42--Data collection, reporting, and disclosure
____.42(a) Loan information required to be collected and maintained
____.42(a)(2) Loan amount at origination
____.42(a)(3) The loan location
____.42(a)(4) Indicator of gross annual revenue
____.42(b) Loan information required to be reported
____.42(b)(1) Small business and small farm loan data
____.42(b)(2) Community development loan data
____.42(b)(3) Home mortgage loans
____.42(c) Optional data collection and maintenance
____.42(c)(1) Consumer loans
____.42(c)(1)(iv) Income of borrower
____.42(c)(2) Other loan data
____.42(d) Data on affiliate lending
Section ____.43--Content and availability of public file
____.43(a) Information available to the public
____.43(a)(1) Public comments
____.43(b) Additional information available to the public
____.43(b)(1) Institutions other than small institutions
____.43(c) Location of public information
Section ____.44--Public notice by institutions
Section ____.45--Publication of planned examination schedule
Appendix B to Part ____--CRA Notice
The body of the Interagency Questions and Answers Regarding
Community Reinvestment follows:
Section ____.11--Authority, Purposes, and Scope
____.11(c) Scope
25.11(c)(3), 228.11(c)(3) & 345.11(c)(3) Certain Special Purpose Banks
Q1. Is the list of special purpose banks exclusive?
A1. No, there may be other examples of special purpose banks. These
banks engage in specialized activities that do not involve granting
credit to the public in the ordinary course of business. Special
purpose banks typically serve as correspondent banks, trust companies,
or clearing agents or engage only in specialized services, such as cash
management controlled disbursement services. A financial institution,
however, does not become a special purpose bank merely by ceasing to
make loans and, instead, making investments and providing other retail
banking services.
Q2. To be a special purpose bank, must a bank limit its activities in
its charter?
A2. No. A special purpose bank may, but is not required to, limit
the scope of its activities in its charter, articles of association or
other corporate organizational documents. A bank that does not have
legal limitations on its activities, but has voluntarily limited its
activities, however, would no longer be exempt from CRA requirements if
it subsequently engaged in activities that involve granting credit to
the public in the ordinary course of business. A bank that believes it
is exempt from CRA as a special purpose bank should seek confirmation
of this status from its supervisory agency.
Section ____.12--Definitions
____.12(a) Affiliate
Q1. Does the definition of ``affiliate'' include subsidiaries of an
institution?
A1. Yes, ``affiliate'' includes any company that controls, is
controlled by, or is under common control with another company. An
institution's subsidiary is controlled by the institution and is,
therefore, an affiliate.
____.12(f) & 563e.12(e) Branch
Q1. Do the definitions of ``branch,'' ``automated teller machine
(ATM),'' and ``remote service facility (RSF)'' include mobile branches,
ATMs, and RSFs?
A1. Yes. Staffed mobile offices that are authorized as branches are
considered ``branches'' and mobile ATMs and RSFs are considered
``ATMs'' and ``RSFs.''
Q2. Are loan production offices (LPOs) branches for purposes of the
CRA?
A2. LPOs and other offices are not ``branches'' unless they are
authorized as branches of the institution through the regulatory
approval process of the institution's supervisory agency.
[[Page 54650]]
____.12(h) & 563e.12(g) Community development
Q1. Are community development activities limited to those that promote
economic development?
A1. No. Although the definition of ``community development''
includes activities that promote economic development by financing
small businesses or farms, the rule does not limit community
development loans and services and qualified investments to those
activities. Community development also includes community- or tribal-
based child care, educational, health, or social services targeted to
low- or moderate-income persons, affordable housing for low- or
moderate-income individuals, and activities that revitalize or
stabilize low- or moderate-income areas.
Q2. Must a community development activity occur inside a low- or
moderate-income area in order for an institution to receive CRA
consideration for the activity?
A2. No. Community development includes activities outside of low-
and moderate-income areas that provide affordable housing for, or
community services targeted to, low- or moderate-income individuals and
activities that promote economic development by financing small
businesses and farms. Activities that stabilize or revitalize
particular low- or moderate-income areas (including by creating,
retaining, or improving jobs for low- or moderate-income persons) also
qualify as community development, even if the activities are not
located in these low- or moderate-income areas. One example is
financing a supermarket that serves as an anchor store in a small strip
mall located at the edge of a middle-income area, if the mall
stabilizes the adjacent low-income community by providing needed
shopping services that are not otherwise available in the low-income
community.
Q3. Does the regulation provide flexibility in considering performance
in high-cost areas?
A3. Yes, the flexibility of the performance standards allows
examiners to account in their evaluations for conditions in high-cost
areas. Examiners consider lending and services to individuals and
geographies of all income levels and businesses of all sizes and
revenues. In addition, the flexibility in the requirement that
community development loans, community development services, and
qualified investments have as their ``primary'' purpose community
development allows examiners to account for conditions in high-cost
areas. For example, examiners could take into account the fact that
activities address a credit shortage among middle-income people or
areas caused by the disproportionately high cost of building,
maintaining or acquiring a house when determining whether an
institution's loan to or investment in an organization that funds
affordable housing for middle-income people or areas, as well as low-
and moderate-income people or areas, has as its primary purpose
community development.
____.12(h)(3) & 563e.12(g)(3) Activities that promote economic
development by financing businesses or farms that meet certain size
eligibility standards
Q1. ``Community development'' includes activities that promote economic
development by financing businesses or farms that meet certain size
eligibility standards. Do all activities that finance these businesses
and farms promote economic development?
A1. No, not necessarily. The agencies will presume that all
financing for small businesses or farms made through Small Business
Administration programs, such as an investment in a Small Business
Investment Company, has an economic development purpose. Other
activities that finance small businesses or farms that meet the size
eligibility standards must support permanent job creation, retention,
and/or improvement for persons who are currently low- or moderate-
income or finance businesses and farms located in low- or moderate-
income geographies or in geographies targeted for redevelopment by
federal, state, local or tribal governments in order to be considered
as promoting economic development.
____.12(i) & 563e.12(h) Community development loan
Q1. What are examples of community development loans?
A1. Examples of community development loans include, but are not
limited to, loans to:
Borrowers for affordable housing rehabilitation and
construction, including construction and permanent financing of
multifamily rental property serving low- and moderate-income persons;
Not-for-profit organizations serving primarily low- and
moderate-income housing or other community development needs;
Borrowers to construct or rehabilitate community
facilities that are located in low- and moderate-income areas or that
serve primarily low- and moderate-income individuals;
Financial intermediaries including Community Development
Financial Institutions (CDFIs), Community Development Corporations
(CDCs), minority- and women-owned financial institutions, community
loan funds or pools, and low-income or community development credit
unions that primarily lend or facilitate lending to promote community
development.
Local, state, and tribal governments for community
development activities; and
Borrowers to finance environmental clean-up or
redevelopment of an industrial site as part of an effort to revitalize
the low- or moderate-income community in which the property is located.
Q2. If a retail institution that is not required to report under the
Home Mortgage Disclosure Act (HMDA) makes affordable home mortgage
loans that would be HMDA-reportable home mortgage loans if it were a
reporting institution, or if a small institution that is not required
to collect and report loan data under CRA makes small business and
small farm loans and consumer loans that would be collected and/or
reported if the institution were a large institution, may the
institution have these loans considered as community development loans?
A2. No. Although small institutions are not required to report or
collect information on small business and small farm loans and consumer
loans, and some institutions are not required to report information
about their home mortgage loans under HMDA, if these institutions are
retail institutions, the agencies will consider in their CRA
evaluations the institutions' originations and purchases of loans that
would have been collected or reported as small business, small farm,
consumer or home mortgage loans, had the institution been a collecting
and reporting institution under the CRA or the HMDA. Therefore, these
loans will not be considered as community development loans.
Multifamily dwelling loans, however, may be considered as community
development loans as well as home mortgage loans. See also Q&A2
addressing Sec. ____.42(b)(2).
Q3. Do secured credit cards or other credit card programs targeted to
low- or moderate-income individuals qualify as community development
loans?
A3. No. Credit cards issued to low- or moderate-income individuals
for household, family, or other personal expenditures, whether as part
of a
[[Page 54651]]
program targeted to such individuals or otherwise, do not qualify as
community development loans because they do not have as their primary
purpose any of the activities included in the definition of ``community
development.''
Q4. The regulation indicates that community development includes
``activities that revitalize or stabilize low- or moderate-income
geographies.'' Do all loans in a low- to moderate-income geography have
a stabilizing effect?
A4. No. Some loans may provide only indirect or short-term benefits
to low- or moderate-income individuals in a low- or moderate-income
geography. These loans are not considered to have a community
development purpose. For example, a loan for upper-income housing in a
distressed area is not considered to have a community development
purpose simply because of the indirect benefit to low- or moderate-
income persons from construction jobs or the increase in the local tax
base that supports enhanced services to low- and moderate-income area
residents. On the other hand, a loan for an anchor business in a
distressed area (or a nearby area), that employs or serves residents of
the area, and thus stabilizes the area, may be considered to have a
community development purpose. For example, in an underserved,
distressed area, a loan for a pharmacy that employs, and provides
supplies to, residents of the area promotes community development.
Q5. Must there be some immediate or direct benefit to the institution's
assessment area(s) to satisfy the regulations' requirement that
qualified investments and community development loans or services
benefit an institution's assessment area(s) or a broader statewide or
regional area that includes the institution's assessment area(s)?
A5. No, the regulations, for example, recognize that community
development organizations and programs are frequently efficient and
effective ways for institutions to promote community development. These
organizations and programs often operate on a statewide or even multi-
state basis. Therefore, an institution's activity is considered a
community development loan or service or a qualified investment if it
supports an organization or activity that covers an area that is larger
than, but includes, the institution's assessment area(s). The
institution's assessment area need not receive an immediate or direct
benefit from the institution's specific participation in the broader
organization or activity, provided the purpose, mandate, or function of
the organization or activity includes serving geographies or
individuals located within the institution's assessment area.
Furthermore, the regulations permit a wholesale or limited purpose
institution to consider community development loans, community
development services, and qualified investments wherever they are
located, as long as the institution has otherwise adequately addressed
the credit needs within its assessment area(s).
Q6. What is meant by a ``regional area'' in the requirement that a
community development loan must benefit the institution's assessment
area(s) or a broader statewide or regional area that includes the
institution's assessment area(s)?
A6. A ``regional area'' may be as small as a city or county or as
large as a multistate area. For example, the ``mid-Atlantic states''
may comprise a regional area. When examiners evaluate community
development loans that benefit a regional area that includes the
institution's assessment area, however, the examiners will consider the
size of the regional area and the actual or potential benefit to the
institution's assessment area(s). In most cases, the larger the
regional area, the more diffuse the benefit will be to the
institution's assessment area(s). Examiners may view loans with more
direct benefits to an institution's assessment area(s) as more
responsive to the credit needs of the area(s) than loans for which the
actual benefit to the assessment area(s) is uncertain or for which the
benefit is diffused throughout a larger area that includes the
assessment area(s).
____.12(j) & 563e.12(i) Community development service
Q1. In addition to meeting the definition of ``community development''
in the regulation, community development services must also be related
to the provision of financial services. What is meant by ``provision of
financial services'?
A1. Providing financial services means providing services of the
type generally provided by the financial services industry. Providing
financial services often involves informing community members about how
to get or use credit or otherwise providing credit services or
information to the community. For example, service on the board of
directors of an organization that promotes credit availability or
finances affordable housing is related to the provision of financial
services. Providing technical assistance about financial services to
community-based groups, local or tribal government agencies, or
intermediaries that help to meet the credit needs of low- and moderate-
income individuals or small businesses and farms is also providing
financial services. By contrast, activities that do not take advantage
of the employees' financial expertise, such as neighborhood cleanups,
do not involve the provision of financial services.
Q2. Are personal charitable activities provided by an institution's
employees or directors outside the ordinary course of their employment
considered community development services?
A2. No. Services must be provided as a representative of the
institution. For example, if a financial institution's director, on her
own time and not as a representative of the institution, volunteers one
evening a week at a local community development corporation's financial
counseling program, the institution may not consider this activity a
community development service.
Q3. What are examples of community development services?
A3. Examples of community development services include, but are not
limited to, the following:
Providing technical assistance on financial matters to
nonprofit, tribal or government organizations serving low- and
moderate-income housing or economic revitalization and development
needs;
Providing technical assistance on financial matters to
small businesses or community development organizations;
Lending employees to provide financial services for
organizations facilitating affordable housing construction and
rehabilitation or development of affordable housing;
Providing credit counseling, home buyers and home
maintenance counseling, financial planning or other financial services
education to promote community development and affordable housing;
Establishing school savings programs for low- or moderate-
income individuals;
Providing electronic benefits transfer and point of sale
terminal systems to improve access to financial services, such as by
decreasing costs, for low- or moderate-income individuals; and
Providing other financial services with the primary
purpose of community development, such as low-cost bank accounts or
free government check cashing that increases access to
[[Page 54652]]
financial services for low- or moderate-income individuals.
Examples of technical assistance activities that might be provided
to community development organizations include:
Serving on a loan review committee;
Developing loan application and underwriting standards;
Developing loan processing systems;
Developing secondary market vehicles or programs;
Assisting in marketing financial services, including
development of advertising and promotions, publications, workshops and
conferences;
Furnishing financial services training for staff and
management;
Contributing accounting/bookkeeping services; and
Assisting in fund raising, including soliciting or
arranging investments.
____.12(k) & 563e.12(j) Consumer loan
Q1. Are home equity loans considered ``consumer loans''?
A1. Home equity loans made for purposes other than home purchase,
home improvement or refinancing home purchase or home improvement loans
are consumer loans if they are extended to one or more individuals for
household, family, or other personal expenditures.
Q2. May a home equity line of credit be considered a ``consumer loan''
even if part of the line is for home improvement purposes?
A2. If the predominant purpose of the line is home improvement, the
line may only be reported under HMDA and may not be considered a
consumer loan. However, the full amount of the line may be considered a
``consumer loan'' if its predominant purpose is for household, family,
or other personal expenditures, and to a lesser extent home
improvement, and the full amount of the line has not been reported
under HMDA. This is the case even though there may be ``double
counting'' because part of the line may also have been reported under
HMDA.
Q3. How should an institution collect or report information on loans
the proceeds of which will be used for multiple purposes?
A3. If an institution makes a single loan or provides a line of
credit to a customer to be used for both consumer and small business
purposes, consistent with the Call Report and TFR instructions, the
institution should determine the major (predominant) component of the
loan or the credit line and collect or report the entire loan or credit
line in accordance with the regulation's specifications for that loan
type.
____.12(m) & 563e.12(l) Home mortgage loan
Q1. Does the term ``home mortgage loan'' include loans other than
``home purchase loans''?
A1. Yes. ``Home mortgage loan'' includes a ``home improvement
loan'' as well as a ``home purchase loan,'' as both terms are defined
in the HMDA regulation, Regulation C, 12 CFR part 203. This definition
also includes multifamily (five-or-more families) dwelling loans, loans
for the purchase of manufactured homes, and refinancings of home
improvement and home purchase loans.
Q2. Some financial institutions broker home mortgage loans. They
typically take the borrower's application and perform other settlement
activities; however, they do not make the credit decision. The broker
institutions may also initially fund these mortgage loans, then
immediately assign them to another lender. Because the broker
institution does not make the credit decision, under Regulation C
(HMDA), they do not record the loans on their HMDA-LARs, even if they
fund the loans. May an institution receive any consideration under CRA
for its home mortgage loan brokerage activities?
A2. Yes. A financial institution that funds home mortgage loans but
immediately assigns the loans to the lender that made the credit
decisions may present information about these loans to examiners for
consideration under the lending test as ``other loan data.'' Under
Regulation C, the broker institution does not record the loans on its
HMDA-LAR because it does not make the credit decisions, even if it
funds the loans. An institution electing to have these home mortgage
loans considered must maintain information about all of the home
mortgage loans that it has funded in this way. Examiners will consider
this other loan data using the same criteria by which home mortgage
loans originated or purchased by an institution are evaluated.
Institutions that do not provide funding but merely take
applications and provide settlement services for another lender that
makes the credit decisions will receive consideration for this service
as a retail banking service. Examiners will consider an institution's
mortgage brokerage services when evaluating the range of services
provided to low-, moderate-, middle- and upper-income geographies and
the degree to which the services are tailored to meet the needs of
those geographies. Alternatively, an institution's mortgage brokerage
service may be considered a community development service if the
primary purpose of the service is community development. An institution
wishing to have its mortgage brokerage service considered as a
community development service must provide sufficient information to
substantiate that its primary purpose is community development and to
establish the extent of the services provided.
____.12(n) & 563e.12(m) Income level
Q1. Where do institutions find income level data for geographies and
individuals?
A1. The income levels for geographies, i.e., census tracts and
block numbering areas, are derived from Census Bureau information and
are updated every ten years. Institutions may contact their regional
Census Bureau office or the Census Bureau's Income Statistics Office at
(301) 763-8576 to obtain income levels for geographies. See Appendix A
for a list of the regional Census Bureau offices. The income levels for
individuals are derived from information calculated by the Department
of Housing and Urban Development (HUD) and updated annually.
Institutions may contact HUD at (800) 245-2691 to request a copy of
``FY [year number, e.g., 1996] Median Family Incomes for States and
their Metropolitan and Nonmetropolitan Portions.''
Alternatively, institutions may obtain a list of the 1990 Census
Bureau-calculated and the annually updated HUD median family incomes
for MSAs and statewide nonmetropolitan areas by calling the Federal
Financial Institution Examination Council's (FFIEC's) HMDA Help Line at
(202) 452-2016. A free copy will be faxed to the caller through the
``fax-back'' system. Institutions may also call this number to have
``faxed-back'' an order form, from which they may order a list
providing the median family income level, as a percentage of the
appropriate MSA or nonmetropolitan median family income, of every
census tract and BNA. This list costs $50. Institutions may also obtain
the list of MSA and statewide nonmetropolitan area median family
incomes or an order form through the FFIEC's CRA home page on the
Internet at `http://www.ffiec.bog.frb.fed.us/cra/'.
[[Page 54653]]
____.12(o) & 563e.12(n) Limited purpose institution
Q1. What constitutes a ``narrow product line'' in the definition of
``limited purpose institution''
A1. An institution offers a narrow product line by limiting its
lending activities to a product line other than a traditional retail
product line required to be evaluated under the lending test (i.e.,
home mortgage, small business, and small farm loans). Thus, an
institution engaged only in making credit card or motor vehicle loans
offers a narrow product line, while an institution limiting its lending
activities to home mortgages is not offering a narrow product line.
Q2. What factors will the agencies consider to determine whether an
institution that, if limited purpose, makes loans outside a narrow
product line, or, if wholesale, engages in retail lending, will lose
its limited purpose or wholesale designation because of too much other
lending?
A2. Wholesale institutions may engage in some retail lending
without losing their designation if this activity is incidental and
done on an accommodation basis. Similarly, limited purpose institutions
continue to meet the narrow product line requirement if they provide
other types of loans on an infrequent basis. In reviewing other lending
activities by these institutions, the agencies will consider the
following factors:
Is the other lending provided as an incident to the
institution's wholesale lending?
Are the loans provided as an accommodation to the
institution's wholesale customers?
Are the loans made only infrequently to the limited
purpose institution's customers?
Does only an insignificant portion of the institution's
total assets and income result from the other lending?
How significant a role does the institution play in
providing that type(s) of loan in the institution's assessment area(s)?
Does the institution hold itself out as offering that
type(s) of loan?
Does the lending test or the community development test
present a more accurate picture of the institution's CRA performance?
Q3. Do ``niche institutions'' qualify as limited purpose (or wholesale)
institutions?
A3. Generally, no. Institutions that are in the business of lending
to the public, but specialize in certain types of retail loans (for
example, home mortgage or small business loans) to certain types of
borrowers (for example, to high-end income level customers or to
corporations or partnerships of licensed professional practitioners)
(``niche institutions'') generally would not qualify as limited purpose
(or wholesale) institutions.
____.12(s) & 563e.12(r) Qualified investment
Q1. Does the CRA regulation provide authority for institutions to make
investments?
A1. No. The CRA regulation does not provide authority for
institutions to make investments that are not otherwise allowed by
Federal law.
Q2. Are mortgage-backed securities or municipal bonds ``qualified
investments''?
A2. As a general rule, mortgage-backed securities and municipal
bonds are not qualified investments because they do not have as their
primary purpose community development, as defined in the CRA
regulations. Nonetheless, mortgage-backed securities or municipal bonds
designed primarily to finance community development generally are
qualified investments. Municipal bonds or other securities with a
primary purpose of community development need not be housing-related.
For example, a bond to fund a community facility or park or to provide
sewage services as part of a plan to redevelop a low-income
neighborhood is a qualified investment. Housing-related bonds or
securities must primarily address affordable housing (including
multifamily rental housing) needs in order to qualify.
Q3. Are Federal Home Loan Bank stocks and membership reserves with the
Federal Reserve Banks ``qualified investments''?
A3. No. Federal Home Loan Bank stock and membership reserves with
the Federal Reserve Banks do not have a sufficient connection to
community development to be qualified investments.
Q4. What are examples of qualified investments?
A4. Examples of qualified investments include, but are not limited
to, investments, grants, deposits or shares in or to:
Financial intermediaries (including, Community Development
Financial Institutions (CDFIs), Community Development Corporations
(CDCs), minority- and women-owned financial institutions, community
loan funds, and low-income or community development credit unions) that
primarily lend or facilitate lending in low- and moderate-income areas
or to low- and moderate-income individuals in order to promote
community development, such as a CDFI that promotes economic
development on an Indian reservation;
Organizations engaged in affordable housing rehabilitation
and construction, including multifamily rental housing;
Organizations, including, for example, Small Business
Investment Companies (SBICs) and specialized SBICs, that promote
economic development by financing small businesses;
Facilities that promote community development in low- and
moderate-income areas for low- and moderate-income individuals, such as
youth programs, homeless centers, soup kitchens, health care
facilities, battered women's centers, and alcohol and drug recovery
centers;
Projects eligible for low-income housing tax credits;
State and municipal obligations, such as revenue bonds,
that specifically support affordable housing or other community
development;
Not-for-profit organizations serving low- and moderate-
income housing or other community development needs, such as counseling
for credit, home-ownership, home maintenance, and other financial
services education; and
Organizations supporting activities essential to the
capacity of low- and moderate-income individuals or geographies to
utilize credit or to sustain economic development, such as, for
example, day care operations and job training programs that enable
people to work.
Q5. Will an institution receive consideration for charitable
contributions as ``qualified investments''?
A5. Yes, provided they have as their primary purpose community
development as defined in the regulations. A charitable contribution,
whether in cash or an in-kind contribution of property, is included in
the term ``grant.'' A qualified investment is not disqualified because
an institution receives favorable treatment for it (for example, as a
tax deduction or credit) under the Internal Revenue Code.
[[Page 54654]]
Q6. An institution makes or participates in a community development
loan. The institution provided the loan at below-market interest rates
or ``bought down'' the interest rate to the borrower. Is the lost
income resulting from the lower interest rate or buy-down a qualified
investment?
A6. No. The agencies will, however, consider the innovativeness and
complexity of the community development loan within the bounds of safe
and sound banking practices.
Q7. Will the agencies consider as a qualified investment the wages or
other compensation of an employee or director who provides assistance
to a community development organization on behalf of the institution?
A7. No. However, the agencies will consider donated labor of
employees or directors of a financial institution in the service test
if the activity is a community development service.
____.12(t) Small institution
Q1. How are the ``total bank and thrift assets'' of a holding company
determined?
A1. ``Total banking and thrift assets'' of a holding company are
determined by combining the total assets of all banks and/or thrifts
that are majority-owned by the holding company. An institution is
majority-owned if the holding company directly or indirectly owns more
than 50 percent of its outstanding voting stock.
Q2. How are Federal and State branch assets of a foreign bank
calculated for purposes of the CRA?
A2. A Federal or State branch of a foreign bank is considered a
small institution if the Federal or State branch has less than $250
million in assets and the total assets of the foreign bank's or its
holding company's U.S. bank and thrift subsidiaries that are subject to
the CRA are less than $1 billion. This calculation includes not only
FDIC-insured bank and thrift subsidiaries, but also the assets of any
FDIC-insured branch of the foreign bank and the assets of any uninsured
Federal or State branch (other than a limited branch or a Federal
agency) of the foreign bank that results from an acquisition described
in section 5(a)(8) of the International Banking Act of 1978 (12 U.S.C.
Sec. 3103(a)(8)).
____.12(u) Small business loan
Q1. Are loans to nonprofit organizations considered small business
loans or are they considered community development loans?
A1. To be considered a small business loan, a loan must meet the
definition of ``loan to small business'' in the instructions in the
``Consolidated Reports of Conditions and Income'' (Call Report) and
``Thrift Financial Reports'' (TFR). In general, a loan to a nonprofit
organization, for business or farm purposes, where the loan is secured
by nonfarm nonresidential property and the original amount of the loan
is $1 million or less, if a business loan, or $500,000 or less, if a
farm loan, would be reported in the Call Report and TFR as a small
business or small farm loan. If a loan to a nonprofit organization is
reportable as a small business or small farm loan, it cannot also be
considered as a community development loan, except by a wholesale or
limited purpose institution. Loans to nonprofit organizations that are
not small business or small farm loans for Call Report and TFR purposes
may be considered as community development loans if they meet the
regulatory definition.
Q2. Are loans secured by commercial real estate considered small
business loans?
A2. Yes, depending on their principal amount. Small business loans
include loans secured by ``nonfarm nonresidential properties,'' as
defined in the Call Report and TFR, in amounts less than $1 million.
Q3. Are loans secured by nonfarm residential real estate to finance
small businesses ``small business loans'?
A3. No. Loans secured by nonfarm residential real estate that are
used to finance small businesses are not included as ``small business''
loans for Call Report and TFR purposes. The agencies recognize that
many small businesses are financed by loans secured by residential real
estate. If these loans promote community development, as defined in the
regulation, they may be considered as community development loans.
Otherwise, at an institution's option, the institution may collect and
maintain data separately concerning these loans and request that the
data be considered in its CRA evaluation as ``Other Secured Lines/Loans
for Purposes of Small Business.''
Q4. Are credit cards issued to small businesses considered ``small
business loans''
A4. Credit cards issued to a small business or to individuals to be
used, with the institution's knowledge, as business accounts are small
business loans if they meet the definitional requirements in the Call
Report or TFR instructions.
____.12(w) Wholesale institution
Q1. What factors will the agencies consider in determining whether an
institution is in the business of extending home mortgage, small
business, small farm, or consumer loans to retail customers?
A1. The agencies will consider whether:
The institution holds itself out to the retail public as
providing such loans; and
The institution's revenues from extending such loans are
significant when compared to its overall operations.
A wholesale institution may make some retail loans without losing
its wholesale designation as described above in Q&A2 addressing
sections ____.12(o) and 563e.12(n).
Section ____.21--Performance tests, standards, and ratings, in
general
____.21(a) Performance tests and standards
Q1. Are all community development activities weighted equally by
examiners?
A1. No, examiners will consider the responsiveness to credit and
community development needs, as well as the innovativeness and
complexity of an institution's community development lending, qualified
investments, and community development services. These criteria include
consideration of the degree to which they serve as a catalyst for other
community development activities. The criteria are designed to add a
qualitative element to the evaluation of an institution's performance.
____.21(b) Performance context
Q1. Is the performance context essentially the same as the former
regulation's needs assessment?
A1. No. The performance context is a broad range of economic,
demographic, and institution- and community-specific information that
an examiner reviews to understand the context in which an institution's
record of performance should be evaluated. The agencies will provide
examiners with much of this
[[Page 54655]]
information prior to the examination. The performance context is not a
formal or written assessment of community credit needs.
____.21(b)(2) Information maintained by the institution or obtained
from community contacts
Q1. Will examiners consider performance context information provided by
institutions?
A1. Yes. An institution may provide examiners with any information
it deems relevant, including information on the lending, investment,
and service opportunities in its assessment area(s). This information
may include data on the business opportunities addressed by lenders not
subject to the CRA. Institutions are not required, however, to prepare
a needs assessment. If an institution provides information to
examiners, the agencies will not expect information other than what the
institution normally would develop to prepare a business plan or to
identify potential markets and customers, including low- and moderate-
income persons and geographies in its assessment area(s). The agencies
will not evaluate an institution's efforts to ascertain community
credit needs or rate an institution on the quality of any information
it provides.
Q2. Will examiners conduct community contact interviews as part of the
examination process?
A2. Yes. Examiners will consider information obtained from
interviews with local community, civic, and government leaders. These
interviews provide examiners with knowledge regarding the local
community, its economic base, and community development initiatives. To
ensure that information from local leaders is considered--particularly
in areas where the number of potential contacts may be limited--
examiners may use information obtained through an interview with a
single community contact for examinations of more than one institution
in a given market. In addition, the agencies will consider information
obtained from interviews conducted by other agency staff and by the
other agencies. In order to augment contacts previously used by the
agencies and foster a wider array of contacts, the agencies will share
community contact information.
____.21(b)(4) Institutional capacity and constraints
Q1. Will examiners consider factors outside of an institution's control
that prevent it from engaging in certain activities?
A1. Yes. Examiners will take into account statutory and supervisory
limitations on an institution's ability to engage in any lending,
investment, and service activities. For example, a savings association
that has made few or no qualified investments due to its limited
investment authority may still receive a low satisfactory rating under
the investment test if it has a strong lending record.
____.21(b)(5) Institution's past performance and the performance of
similarly situated lenders
Q1. Can an institution's assigned rating be adversely affected by poor
past performance?
A1. Yes. The agencies will consider an institution's past
performance in its overall evaluation. For example, an institution's
past performance may support a rating of ``substantial noncompliance''
if the institution has not improved performance rated as ``needs to
improve.''
Q2. How will examiners consider the performance of similarly situated
lenders?
A2. The performance context section of the regulation permits the
performance of similarly situated lenders to be considered, for
example, as one of a number of considerations in evaluating the
geographic distribution of an institution's loans to low-,
moderate-, middle-, and upper-income geographies. This analysis, as
well as other analyses, may be used, for example, where groups of
contiguous geographies within an institution's assessment area(s)
exhibit abnormally low penetration. In this regard, the performance of
similarly situated lenders may be analyzed if such an analysis would
provide accurate insight into the institution's lack of performance in
those areas. The regulation does not require the use of a specific type
of analysis under these circumstances. Moreover, no ratio developed
from any type of analysis is linked to any lending test rating.
Section ____.22--Lending test
____.22(a) Scope of test
____.22(a)(1) Types of loans considered
Q1. If a large retail institution is not required to collect and report
home mortgage data under the HMDA, will the agencies still evaluate the
institution's home mortgage lending performance?
A1. Yes. The agencies will sample the institution's home mortgage
loan files in order to assess its performance under the lending test
criteria.
Q2. When will examiners consider consumer loans as part of an
institution's CRA evaluation?
A2. Consumer loans will be evaluated if the institution so elects;
and an institution that elects not to have its consumer loans evaluated
will not be viewed less favorably by examiners than one that does.
However, if consumer loans constitute a substantial majority of the
institution's business, the agencies will evaluate them even if the
institution does not so elect. The agencies interpret ``substantial
majority'' to be so significant a portion of the institution's lending
activity by number or dollar volume of loans that the lending test
evaluation would not meaningfully reflect its lending performance if
consumer loans were excluded.
____.22(a)(2) Other loan data
Q1. How are lending commitments (such as letters of credit) evaluated
under the regulation?
A1. The agencies consider lending commitments (such as letters of
credit) only at the option of the institution. Commitments must be
legally binding between an institution and a borrower in order to be
considered. Information about lending commitments will be used by
examiners to enhance their understanding of an institution's
performance.
Q2. Will examiners review application data as part of the lending test?
A2. Application activity is not a performance criterion of the
lending test. However, examiners may consider this information in the
performance context analysis because this information may give
examiners insight on, for example, the demand for loans.
[[Page 54656]]
Q3: May a financial institution receive consideration under CRA for
modification, extension, and consolidation agreements (MECAs), in which
it obtains loans from other institutions without actually purchasing or
refinancing the loans, as those terms have been interpreted under CRA?
A3: Yes. In some states, MECAs, which are not considered loan
refinancings because the existing loan obligations are not satisfied
and replaced, are common. Although these transactions are not
considered to be purchases or refinancings, as those terms have been
interpreted under CRA, they do achieve the same results. An institution
may present information about its MECA activities to examiners for
consideration under the lending test as ``other loan data.''
____.22(b) Performance criteria
Q1. How will examiners apply the performance criteria in the lending
test?
A1: Examiners will apply the performance criteria reasonably and
fairly, in accord with the regulations, the examination procedures, and
this Guidance. In doing so, examiners will disregard efforts by an
institution to manipulate business operations or present information in
an artificial light that does not accurately reflect an institution's
overall record of lending performance.
____.22(b)(1) Lending activity
Q1. How will the agencies apply the lending activity criterion to
discourage an institution from originating loans that are viewed
favorably under CRA in the institution itself and referring other
loans, which are not viewed as favorably, for origination by an
affiliate?
A1. Examiners will review closely institutions with (1) a small
number and amount of home mortgage loans with an unusually good
distribution among low- and moderate-income areas and low- and
moderate-income borrowers and (2) a policy of referring most, but not
all, of their home mortgage loans to affiliated institutions. If an
institution is making loans mostly to low- and moderate-income
individuals and areas and referring the rest of the loan applicants to
an affiliate for the purpose of receiving a favorable CRA rating,
examiners may conclude that the institution's lending activity is not
satisfactory because it has inappropriately attempted to influence the
rating. In evaluating an institution's lending, examiners will consider
legitimate business reasons for the allocation of the lending activity.
____.22(b)(2) and (3) Geographic distribution and borrower
characteristics
Q1. How do the geographic distribution of loans and the distribution of
lending by borrower characteristics interact in the lending test?
A1. Examiners generally will consider both the distribution of an
institution's loans among geographies of different income levels and
among borrowers of different income levels and businesses of different
sizes. The importance of the borrower distribution criterion,
particularly in relation to the geographic distribution criterion, will
depend on the performance context. For example, distribution among
borrowers with different income levels may be more important in areas
without identifiable geographies of different income categories. On the
other hand, geographic distribution may be more important in areas with
the full range of geographies of different income categories.
Q2. Must an institution lend to all portions of its assessment area?
A2. The term ``assessment area'' describes the geographic area
within which the agencies assess how well an institution has met the
specific performance tests and standards in the rule. The agencies do
not expect that simply because a census tract or block numbering area
is within an institution's assessment area(s) the institution must lend
to that census tract or block numbering area. Rather the agencies will
be concerned with conspicuous gaps in loan distribution that are not
explained by the performance context. Similarly, if an institution
delineated the entire county in which it is located as its assessment
area, but could have delineated its assessment area as only a portion
of the county, it will not be penalized for lending only in that
portion of the county, so long as that portion does not reflect illegal
discrimination or arbitrarily exclude low- or moderate-income
geographies. The capacity and constraints of an institution, its
business decisions about how it can best help to meet the needs of its
assessment area(s), including those of low- and moderate-income
neighborhoods, and other aspects of the performance context, are all
relevant to explain why the institution is serving or not serving
portions of its assessment area(s).
Q3. Will examiners take into account loans made by affiliates when
evaluating the proportion of an institution's lending in its assessment
area(s)?
A3. Examiners will not take into account loans made by affiliates
when determining the proportion of an institution's lending in its
assessment area(s), even if the institution elects to have its
affiliate lending considered in the remainder of the lending test
evaluation. However, examiners may consider an institution's business
strategy of conducting lending through an affiliate in order to
determine whether a low proportion of lending in the assessment area(s)
should adversely affect the institution's lending test rating.
Q4. When will examiners consider loans (other than community
development loans) made outside an institution's assessment area(s)?
A4. Favorable consideration will be given for loans to low- and
moderate-income persons and small business and farm loans outside of an
institution's assessment area(s), provided the institution has
adequately addressed the needs of borrowers within its assessment
area(s). The agencies will apply this consideration not only to loans
made by large retail institutions being evaluated under the lending
test, but also to loans made by small institutions being evaluated
under the small institution performance standards. Loans to low- and
moderate-income persons and small businesses and farms outside of an
institution's assessment area(s), however, will not compensate for poor
lending performance within the institution's assessment area(s).
____.22(c) Affiliate lending
____.22(c)(1) In general
Q1. If an institution elects to have loans by its affiliate(s)
considered, may it elect to have only certain categories of loans
considered?
A1. Yes. An institution may elect to have only a particular
category of its affiliate's lending considered. The basic categories of
loans are home mortgage loans, small business loans, small farm loans,
community development loans, and the five categories of consumer loans
(motor vehicle loans, credit card loans, home equity loans, other
secured loans, and other unsecured loans).
[[Page 54657]]
____.22(c)(2) Constraints on affiliate lending
____.22(c)(2)(i) No affiliate may claim a loan origination or loan
purchase if another institution claims the same loan origination or
purchase
Q1. How is this constraint on affiliate lending applied?
A1. This constraint prohibits one affiliate from claiming a loan
origination or purchase claimed by another affiliate. However, an
institution can count as a purchase a loan originated by an affiliate
that the institution subsequently purchases, or count as an origination
a loan later sold to an affiliate, provided the same loans are not sold
several times to inflate their value for CRA purposes.
____.22(c)(2)(ii) If an institution elects to have its supervisory
agency consider loans within a particular lending category made by
one or more of the institution's affiliates in a particular
assessment area, the institution shall elect to have the agency
consider all loans within that lending category in that particular
assessment area made by all of the institution's affiliates
Q1. How is this constraint on affiliate lending applied?
A1. This constraint prohibits ``cherry-picking'' affiliate loans
within any one category of loans. The constraint requires an
institution that elects to have a particular category of affiliate
lending in a particular assessment area considered to include all loans
of that type made by all of its affiliates in that particular
assessment area. For example, assume that an institution has one or
more affiliates, such as a mortgage bank that makes loans in the
institution's assessment area. If the institution elects to include the
mortgage bank's home mortgage loans, it must include all of mortgage
bank's home mortgage loans made in its assessment area. The institution
cannot elect to include only those low- and moderate-income home
mortgage loans made by the mortgage bank affiliate and not home
mortgage loans to middle- and upper-income individuals or areas.
Q2. How is this constraint applied if an institution's affiliates are
also insured depository institutions subject to the CRA?
A2. Strict application of this constraint against ``cherry-
picking'' to loans of an affiliate that is also an insured depository
institution covered by the CRA would produce the anomalous result that
the other institution would, without its consent, not be able to count
its own loans. Because the agencies did not intend to deprive an
institution subject to the CRA of receiving consideration for its own
lending, the agencies read this constraint slightly differently in
cases involving a group of affiliated institutions, some of which are
subject to the CRA and share the same assessment area(s). In those
circumstances, an institution that elects to include all of its
mortgage affiliate's home mortgage loans in its assessment area would
not automatically be required to include all home mortgage loans in its
assessment area of another affiliate institution subject to the CRA.
However, all loans of a particular type made by any affiliate in the
institution's assessment area(s) must either be counted by the lending
institution or by another affiliate institution that is subject to the
CRA. This reading reflects the fact that a holding company may, for
business reasons, choose to transact different aspects of its business
in different subsidiary institutions. However, the method by which
loans are allocated among the institutions for CRA purposes must
reflect actual business decisions about the allocation of banking
activities among the institutions and should not be designed solely to
enhance their CRA evaluations.
____.22(d) Lending by a consortium or a third party
Q1. Will equity and equity-type investments in a third party receive
positive consideration under the lending test?
A1. If an institution has made an equity or equity-type investment
in a third party, loans made by the third party may be considered under
the lending test. On the other hand, asset-backed and debt securities
that do not represent an equity-type interest in a third party will not
be considered under the lending test unless the securities are booked
by the purchasing institution as a loan. For example, if an institution
purchases stock in a community development corporation (``CDC'') that
primarily lends in low- and moderate-income areas or to low- and
moderate-income individuals in order to promote community development,
the institution may claim a pro rata share of the CDC's loans as
community development loans. The institution's pro rata share is based
on its percentage of equity ownership in the CDC. Q&A1 addressing
section ____.23(b) provides information concerning consideration of an
equity or equity-type investment under the investment test and both the
lending and investment tests.
Q2. How will examiners evaluate loans made by consortia or third
parties under the lending test?
A2. Loans originated or purchased by consortia in which an
institution participates or by third parties in which an institution
invests will only be considered if they qualify as community
development loans and will only be considered under the community
development criterion of the lending test. However, loans originated
directly on the books of an institution or purchased by the institution
are considered to have been made or purchased directly by the
institution, even if the institution originated or purchased the loans
as a result of its participation in a loan consortium. These loans
would be considered under all the lending test criteria appropriate to
them depending on the type of loan.
Q3. In some circumstances, an institution may invest in a third party,
such as a community development bank, that is also an insured
depository institution and is thus subject to CRA requirements. If the
investing institution requests its supervisory agency to consider its
pro rata share of community development loans made by the third party,
as allowed under 12 CFR Sec. ____.22(d), may the third party also
receive consideration for these loans?
A3. Yes, as long as the financial institution and the third party
are not affiliates. The regulations state, at 12 CFR
Sec. ____.22(c)(2)(i), that two affiliates may not both claim the same
loan origination or loan purchase. However, if the financial
institution and the third party are not affiliates, the third party may
receive consideration for the community development loans it
originates, and the financial institution that invested in the third
party may also receive consideration for its pro rata share of the same
community development loans under 12 CFR Sec. ____.22(d).
Section ____.23--Investment test
____.23(b) Exclusion
Q1. Even though the regulations state that an activity that is
considered under the lending or service tests cannot also be considered
under the investment test, may parts of an activity be considered under
one test and other parts be considered under another test?
A1. Yes, in some instances the nature of an activity may make it
eligible for consideration under more than one of the performance
tests. For example, certain investments and related support provided by
a large retail institution to a CDC may be evaluated under the
[[Page 54658]]
lending, investment, and service tests. Under the service test, the
institution may receive consideration for any community development
services that it provides to the CDC, such as service by an executive
of the institution on the CDC's board of directors. If the institution
makes an investment in the CDC that the CDC uses to make community
development loans, the institution may receive consideration under the
lending test for its pro-rata share of community development loans made
by the CDC. Alternatively, the institution's investment may be
considered under the investment test, assuming it is a qualified
investment. In addition, an institution may elect to have a part of its
investment considered under the lending test and the remaining part
considered under the investment test. If the investing institution opts
to have a portion of its investment evaluated under the lending test by
claiming a share of the CDC's community development loans, the amount
of investment considered under the investment test will be offset by
that portion. Thus, the institution would only receive consideration
under the investment test for the amount of its investment multiplied
by the percentage of the CDC's assets that meet the definition of a
qualified investment.
Section ____.24--Service test
____.24(d) Performance criteria--retail banking services
Q1. How do examiners evaluate the availability and effectiveness of an
institution's systems for delivering retail banking services?
A1. Convenient access to full service branches within a community
is an important factor in determining the availability of credit and
non-credit services. Therefore, the service test performance standards
place primary emphasis on full service branches while still considering
alternative systems, such as automated teller machines (``ATMs'). The
principal focus is on an institution's current distribution of
branches; therefore, an institution is not required to expand its
branch network or operate unprofitable branches. Under the service
test, alternative systems for delivering retail banking services, such
as ATMs, are considered only to the extent that they are effective
alternatives in providing needed services to low- and moderate-income
areas and individuals.
____.24(d)(3) Availability and effectiveness of alternative systems for
delivering retail banking services
Q1. How will examiners evaluate alternative systems for delivering
retail banking services?
A1. The regulation recognizes the multitude of ways in which an
institution can provide services, for example, ATMs, banking by
telephone or computer, and bank-by-mail programs. Delivery systems
other than branches will be considered positively under the regulation
to the extent that they are effective alternatives to branches in
providing needed services to low- and moderate-income areas and
individuals. The list of systems in the regulation is not intended to
be inclusive.
Q2. Are debit cards considered under the service test as an alternative
delivery system?
A2. By themselves, no. However, if debit cards are a part of a
larger combination of products, such as a comprehensive electronic
banking service, that allows an institution to deliver needed services
to low- and moderate-income areas and individuals in its community, the
overall delivery system that includes the debit card feature would be
considered an alternative delivery system.
Section ____.25--Community development test for wholesale or limited
purpose institutions
____.25(d) Indirect activities
Q1. How are investments in third party community development
organizations considered under the community development test?
A1. Similar to the lending test for retail institutions,
investments in third party community development organizations may be
considered as qualified investments or as community development loans
or both (provided there is no double counting), at the institution's
option, as described above in the discussion regarding sections
____.22(d) and ____.23(b).
____.25(f) Community development performance rating
Q1. Must a wholesale or limited purpose institution engage in all three
categories of community development activities (lending, investment and
service) to perform well under the community development test?
A1. No, a wholesale or limited purpose institution may perform well
under the community development test by engaging in one or more of
these activities.
Section ____.26--Small institution performance standards
____.26(a) Performance criteria
Q1. May examiners consider, under one or more of the performance
criteria of the small institution performance standards, lending-
related activities, such as community development loans and lending-
related qualified investments, when evaluating a small institution?
A1. Yes. Examiners can consider ``lending-related activities,''
including community development loans and lending-related qualified
investments, when evaluating the first four performance criteria of the
small institution performance test. Although lending-related activities
are specifically mentioned in the regulation in connection with only
the first three criteria (i.e., loan-to-deposit ratio, percentage of
loans in the institution's assessment area, and lending to borrowers of
different incomes and businesses of different sizes), examiners can
also consider these activities when they evaluate the fourth criteria--
geographic distribution of the institution's loans.
Q2. What is meant by ``as appropriate'' when referring to the fact that
lending-related activities will be considered, ``as appropriate,''
under the various small institution performance criteria?
A2. ``As appropriate'' means that lending-related activities will
be considered when it is necessary to determine whether an institution
meets or exceeds the standards for a satisfactory rating. Examiners
will also consider other lending-related activities at an institution's
request.
Q3. When evaluating a small institution's lending performance, will
examiners consider, at the institution's request, community development
loans originated or purchased by a consortium in which the institution
participates or by a third party in which the institution has invested?
A3. Yes. However, a small institution that elects to have examiners
consider community development loans originated or purchased by a
consortium or third party must maintain sufficient information on its
share of the community development loans so that the examiners may
evaluate these loans under the small institution performance criteria.
[[Page 54659]]
Q4. Under the small institution performance standards, will examiners
consider both loan originations and purchases?
A4. Yes, consistent with the other assessment methods in the
regulation, examiners will consider both loans originated and purchased
by the institution. Likewise, examiners may consider any other loan
data the small institution chooses to provide, including data on loans
outstanding, commitments and letters of credit.
Q5. Under the small institution performance standards, how will
qualified investments be considered for purposes of determining whether
a small institution receives a satisfactory CRA rating?
A5. The small institution performance standards focus on lending
and other lending-related activities. Therefore, examiners will
consider only lending-related qualified investments for the purposes of
determining whether the small institution receives a satisfactory CRA
rating.
____.26(a)(1) Loan-to-deposit ratio
Q1. How is the loan-to-deposit ratio calculated?
A1. A small institution's loan-to-deposit ratio is calculated in
the same manner that the Uniform Bank Performance Report/Uniform Thrift
Performance Report (UBPR/UTPR) determines the ratio. It is calculated
by dividing the institution's net loans and leases by its total
deposits. The ratio is found in the Liquidity and Investment Portfolio
section of the UBPR and UTPR. Examiners will use this ratio to
calculate an average since the last examination by adding the quarterly
loan-to-deposit ratios and dividing the total by the number of
quarters.
Q2. How is the ``reasonableness'' of a loan-to-deposit ratio evaluated?
A2. No specific ratio is reasonable in every circumstance, and each
small institution's ratio is evaluated in light of information from the
performance context, including the institution's capacity to lend,
demographic and economic factors present in the assessment area, and
the lending opportunities available in the assessment area(s). If a
small institution's loan-to-deposit ratio appears unreasonable after
considering this information, lending performance may still be
satisfactory under this criterion taking into consideration the number
and the dollar volume of loans sold to the secondary market or the
number and amount and innovativeness or complexity of community
development loans and lending-related qualified investments.
Q3. If an institution makes a large number of loans off-shore, will
examiners segregate the domestic loan-to-deposit ratio from the foreign
loan-to-deposit ratio?
A3. No. Examiners will look at the institution's net loan-to-
deposit ratio for the whole institution, without any adjustments.
____.26(a)(2) Percentage of lending within assessment area(s)
Q1. Must a small institution have a majority of its lending in its
assessment area(s) to receive a satisfactory performance rating?
A1. No. The percentage of loans and, as appropriate, other lending-
related activities located in the bank's assessment area(s) is but one
of the performance criteria upon which small institutions are
evaluated. If the percentage of loans and other lending related
activities in an institution's assessment area(s) is less than a
majority, then the institution does not meet the standards for
satisfactory performance only under this criterion. The effect on the
overall performance rating of the institution, however, is considered
in light of the performance context, including information regarding
economic conditions, loan demand, the institution's size, financial
condition and business strategies, and branching network and other
aspects of the institution's lending record.
____.26(a) (3) and (4) Distribution of lending within assessment
area(s) by borrower income and geographic location
Q1. How will a small institution's performance be assessed under these
lending distribution criteria?
A1. Distribution of loans, like other small institution performance
criteria, is considered in light of the performance context. For
example, a small institution is not required to lend evenly throughout
its assessment area(s) or in any particular geography. However, in
order to meet the standards for satisfactory performance under this
criterion, conspicuous gaps in a small institution's loan distribution
must be adequately explained by performance context factors such as
lending opportunities in the institution's assessment area(s), the
institution's product offerings and business strategy, and
institutional capacity and constraints. In addition, it may be
impracticable to review the geographic distribution of the lending of
an institution with few demographically distinct geographies within an
assessment area. If sufficient information on the income levels of
individual borrowers or the revenues or sizes of business borrowers is
not available, examiners may use proxies such as loan size for
estimating borrower characteristics, where appropriate.
____.26(b) Performance rating
Q1. How can a small institution achieve an ``outstanding'' performance
rating?
A1. A small institution that meets each of the standards for a
``satisfactory'' rating and exceeds some or all of those standards may
warrant an ``outstanding'' performance rating. In assessing performance
at the ``outstanding'' level, the agencies consider the extent to which
the institution exceeds each of the performance standards and, at the
institution's option, its performance in making qualified investments
and providing services that enhance credit availability in its
assessment area(s). In some cases, a small institution may qualify for
an ``outstanding'' performance rating solely on the basis of its
lending activities, but only if its performance materially exceeds the
standards for a ``satisfactory'' rating, particularly with respect to
the penetration of borrowers at all income levels and the dispersion of
loans throughout the geographies in its assessment area(s) that display
income variation. An institution with a high loan-to-deposit ratio and
a high percentage of loans in its assessment area(s), but with only a
reasonable penetration of borrowers at all income levels or a
reasonable dispersion of loans throughout geographies of differing
income levels in its assessment area(s), generally will not be rated
``outstanding'' based only on its lending performance. However, the
institution's performance in making qualified investments and its
performance in providing branches and other services and delivery
systems that enhance credit availability in its assessment area(s) may
augment the institution's satisfactory rating to the extent that it may
be rated ``outstanding.''
Q2. Will a small institution's qualified investments, community
development loans, and community development services be considered if
they do not directly benefit its assessment area(s)?
A2. Yes, these activities are eligible for consideration if they
benefit a broader statewide or regional area that
[[Page 54660]]
includes a small institution's assessment area(s), as discussed more
fully in Q&A6 addressing sections ____.12(i) and 563e.12(h).
Section ____.27--Strategic plan
____.27(c) Plans in general
Q1. To what extent will the agencies provide guidance to an institution
during the development of its strategic plan?
A1. An institution will have an opportunity to consult with and
provide information to the agencies on a proposed strategic plan.
Through this process, an institution is provided guidance on procedures
and on the information necessary to ensure a complete submission. For
example, the agencies will provide guidance on whether the level of
detail as set out in the proposed plan would be sufficient to permit
agency evaluation of the plan. However, the agencies' guidance during
plan development and, particularly, prior to the public comment period,
will not include commenting on the merits of a proposed strategic plan
or on the adequacy of measurable goals.
Q2. How will a joint strategic plan be reviewed if the affiliates have
different primary federal supervisors?
A2. The agencies will coordinate review of and action on the joint
plan. Each agency will evaluate the measurable goals for those
affiliates for which it is the primary regulator.
____.27(f) Plan content
____.27(f)(1) Measurable goals
Q1. How should ``measurable goals'' be specified in a strategic plan?
A1. Measurable goals (e.g., number of loans, dollar amount,
geographic location of activity, and benefit to low- and moderate-
income areas or individuals) must be stated with sufficient specificity
to permit the public and the agencies to quantify what performance will
be expected. However, institutions are provided flexibility in
specifying goals. For example, an institution may provide ranges of
lending amounts in different categories of loans. Measurable goals may
also be linked to funding requirements of certain public programs or
indexed to other external factors as long as these mechanisms provide a
quantifiable standard.
____.27(g) Plan approval
____.27(g)(2) Public participation
Q1. How will the public receive notice of a proposed strategic plan?
A1. An institution submitting a strategic plan for approval by the
agencies is required to solicit public comment on the plan for a period
of thirty (30) days after publishing notice of the plan at least once
in a newspaper of general circulation. The notice should be
sufficiently prominent to attract public attention and should make
clear that public comment is desired. An institution may, in addition,
provide notice to the public in any other manner it chooses.
Section ____.28--Assigned ratings
____.28(a) Ratings in general
Q1. How are institutions with domestic branches in more than one state
assigned a rating?
A1. The evaluation of an institution that maintains domestic
branches in more than one state (``multistate institution'') will
include a written evaluation and rating of its CRA record of
performance as a whole and in each state in which it has a domestic
branch. The written evaluation will contain a separate presentation on
a multistate institution's performance for each metropolitan
statistical area and the nonmetropolitan area within each state, if it
maintains one or more domestic branch offices in these areas. This
separate presentation will contain conclusions, supported by facts and
data, on performance under the performance tests and standards in the
regulation. The evaluation of a multistate institution that maintains a
domestic branch in two or more states in a multistate metropolitan area
will include a written evaluation (containing the same information
described above) and rating of its CRA record of performance in the
multistate metropolitan area. In such cases, the statewide evaluation
and rating will be adjusted to reflect performance in the portion of
the state not within the multistate metropolitan statistical area.
Q2. How are institutions that operate within only a single state
assigned a rating?
A2. An institution that operates within only a single state
(``single-state institution'') will be assigned a rating of its CRA
record based on its performance within that state. In assigning this
rating, the agencies will separately present a single-state
institution's performance for each metropolitan area in which the
institution maintains one or more domestic branch offices. This
separate presentation will contain conclusions, supported by facts and
data, on the single-state institution's performance under the
performance tests and standards in the regulation.
Q3. How do the agencies weight performance under the lending,
investment and service test for large retail institutions?
A3. A rating of ``outstanding,'' ``high satisfactory,'' ``low
satisfactory,'' ``needs to improve,'' or ``substantial noncompliance,''
based on a judgment supported by facts and data, will be assigned under
each performance test. Points will then be assigned to each rating as
described in the first matrix set forth below. A large retail
institution's overall rating under the lending, investment and service
tests will then be calculated in accordance with the second matrix set
forth below, which incorporates the rating principles 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 Requirements
[Add points from three tests]
------------------------------------------------------------------------
Rating Total points
------------------------------------------------------------------------
Outstanding............................... 20 or over.
Satisfactory.............................. 11 through 19.
Needs to improve.......................... 5 through 10.
Substantial noncompliance................. 0 through 4.
------------------------------------------------------------------------
Note: There is one exception to the Composite Rating matrix. An
institution may not receive a rating of ``satisfactory'' unless it
receives at least ``low satisfactory'' on the lending test. Therefore,
the total points are capped at three times the lending test score.
[[Page 54661]]
Section ____.29--Effect of CRA performance on applications
____.29(a) CRA performance
Q1. What weight is given to an institution's CRA performance
examination in reviewing an application?
A1. In cases in which CRA performance is a relevant factor,
information from a CRA performance examination of the institution is a
particularly important consideration in the applications process
because it represents a detailed evaluation of the institution's CRA
performance by its federal supervisory agency. In this light, an
examination is an important, and often controlling, factor in the
consideration of an institution's record. In some cases, however, the
examination may not be recent or a specific issue raised in the
application process, such as progress in addressing weaknesses noted by
examiners, progress in implementing commitments previously made to the
reviewing agency, or a supported allegation from a commenter, is
relevant to CRA performance under the regulation and was not addressed
in the examination. In these circumstances, the applicant should
present sufficient information to supplement its record of performance
and to respond to the substantive issues raised in the application
proceeding.
Q2. What consideration is given to an institution's commitments for
future action in reviewing an application by those agencies that
consider such commitments?
A2. Commitments for future action are not viewed as part of the CRA
record of performance. In general, institutions cannot use commitments
made in the applications process to overcome a seriously deficient
record of CRA performance. However, commitments for improvements in an
institution's performance may be appropriate to address specific
weaknesses in an otherwise satisfactory record or to address CRA
performance when a financially troubled institution is being acquired.
____.29(b) Interested parties
Q1. What consideration is given to comments from interested parties in
reviewing an application?
A1. Materials relating to CRA performance received during the
applications process can provide valuable information. Written
comments, which may express either support for or opposition to the
application, are made a part of the record in accordance with the
agencies' procedures, and are carefully considered in making the
agencies' decision. Comments should be supported by facts about the
applicant's performance and should be as specific as possible in
explaining the basis for supporting or opposing the application. These
comments must be submitted within the time limits provided under the
agencies' procedures.
Q2. Is an institution required to enter into agreements with private
parties?
A2. No. Although communications between an institution and members
of its community may provide a valuable method for the institution to
assess how best to address the credit needs of the community, the CRA
does not require an institution to enter into agreements with private
parties. These agreements are not monitored or enforced by the
agencies.
Section ____.41--Assessment area delineation
____.41(a) In general
Q1. How do the agencies evaluate ``assessment areas'' under the revised
CRA regulations compared to how they evaluated ``local communities''
that institutions delineated under the original CRA regulations?
A1. The revised rule focuses on the distribution and level of an
institution's lending, investments, and services rather than on how and
why an institution delineated its ``local community'' or assessment
area(s) in a particular manner. Therefore, the agencies will not
evaluate an institution's delineation of its assessment area(s) as a
separate performance criterion as they did under the original
regulation. Rather, the agencies will only review whether the
assessment area delineated by the institution complies with the
limitations set forth in the regulations at section ____.41(e).
Q2. If an institution elects to have the agencies consider affiliate
lending, will this decision affect the institution's assessment
area(s)?
A2. If an institution elects to have the lending activities of its
affiliates considered in the evaluation of the institution's lending,
the geographies in which the affiliate lends do not affect the
institution's delineation of assessment area(s).
Q3. Can a financial institution identify a specific ethnic group rather
than a geographic area as its assessment area?
A3. No, assessment areas must be based on geography.
____.41(c) Geographic area(s) for institutions other than wholesale or
limited purpose institutions ____.41(c)(1) Generally consist of one or
more MSAs or one or more contiguous political subdivisions
Q1. Besides cities, towns, and counties, what other units of local
government are political subdivisions for CRA purposes?
A1. Townships and Indian reservations are political subdivisions
for CRA purposes. Institutions should be aware that the boundaries of
townships and Indian reservations may not be consistent with the
boundaries of the census tracts or block numbering areas
(``geographies'') in the area. In these cases, institutions must ensure
that their assessment area(s) consists only of whole geographies by
adding any portions of the geographies that lie outside the political
subdivision to the delineated assessment area(s).
Q2. Are wards, school districts, voting districts, and water districts
political subdivisions for CRA purposes?
A2. No. However, an institution that determines that it
predominantly serves an area that is smaller than a city, town or other
political subdivision may delineate as its assessment area the larger
political subdivision and then, in accordance with section ____.41(d),
adjust the boundaries of the assessment area to include only the
portion of the political subdivision that it reasonably can be expected
to serve. The smaller area that the institution delineates must consist
of entire geographies, may not reflect illegal discrimination, and may
not arbitrarily exclude low- or moderate-income geographies.
____.41(d) Adjustments to geographic area(s)
Q1. When may an institution adjust the boundaries of an assessment area
to include only a portion of a political subdivision?
A1. Institutions must include whole geographies (i.e., census
tracts or block numbering areas) in their assessment areas and
generally should include entire political subdivisions. Because census
tracts and block numbering areas are the common geographic areas used
consistently nationwide for data collection, the agencies require that
assessment areas be made up of whole geographies. If including an
entire political subdivision would create an
[[Page 54662]]
area that is larger than the area the institution can reasonably be
expected to serve, an institution may, but is not required to, adjust
the boundaries of its assessment area to include only portions of the
political subdivision. For example, this adjustment is appropriate if
the assessment area would otherwise be extremely large, of unusual
configuration, or divided by significant geographic barriers (such as a
river, mountain, or major highway system). When adjusting the
boundaries of their assessment areas, institutions must not arbitrarily
exclude low- or moderate-income geographies or set boundaries that
reflect illegal discrimination.
____.41(e) Limitations on delineation of an assessment area
____.41(e)(3) May not arbitrarily exclude low- or moderate-income
geographies
Q1. How will examiners determine whether an institution has arbitrarily
excluded low- or moderate-income geographies?
A1. Examiners will make this determination on a case-by-case basis
after considering the facts relevant to the institution's assessment
area delineation. Information that examiners will consider may include:
Income levels in the institution's assessment area(s) and
surrounding geographies;
Locations of branches and deposit-taking ATMs;
Loan distribution in the institution's assessment area(s)
and surrounding geographies;
The institution's size;
The institution's financial condition; and
The business strategy, corporate structure and product
offerings of the institution.
____.41(e)(4) May not extend substantially beyond a CMSA boundary or
beyond a state boundary unless located in a multistate MSA
Q1. What are the maximum limits on the size of an assessment area?
A1. An institution shall not delineate an assessment area extending
substantially across the boundaries of a consolidated metropolitan
statistical area (CMSA) or the boundaries of an MSA, if the MSA is not
located in a CMSA. Similarly, an assessment area may not extend
substantially across state boundaries unless the assessment area is
located in a multistate MSA. An institution may not delineate a whole
state as its assessment area unless the entire state is contained
within a CMSA. These limitations apply to wholesale and limited purpose
institutions as well as other institutions.
An institution shall delineate separate assessment areas for the
areas inside and outside a CMSA (or MSA if the MSA is not located in a
CMSA) if the area served by the institution's branches outside the CMSA
(or MSA) extends substantially beyond the CMSA (or MSA) boundary.
Similarly, the institution shall delineate separate assessment areas
for the areas inside and outside of a state if the institution's
branches extend substantially beyond the boundary of one state (unless
the assessment area is located in a multistate MSA). In addition, the
institution should also delineate separate assessment areas if it has
branches in areas within the same state that are widely separate and
not at all contiguous. For example, an institution that has its main
office in New York City and a branch in Buffalo, New York, and each
office serves only the immediate areas around it, should delineate two
separate assessment areas.
Q2. Can an institution delineate one assessment area that consists of
an MSA and two large counties that abut the MSA but are not adjacent to
each other?
A2. As a general rule, an institution's assessment area should not
extend substantially beyond the boundary of an MSA if the MSA is not
located in a CMSA. Therefore, the MSA would be a separate assessment
area, and because the two abutting counties are not adjacent to each
other and, in this example, extend substantially beyond the boundary of
the MSA, the institution would delineate each county as a separate
assessment area (so, in this example, there would be three assessment
areas). However, if the MSA and the two counties were in the same CMSA,
then the institution could delineate only one assessment area including
them all.
Section ____.42--Data collection, reporting, and disclosure
Q1. When must an institution collect and report data under the CRA
regulations?
A1. All institutions except small institutions are subject to data
collection and reporting requirements. A small institution is a bank or
thrift that, as of December 31 of either of the prior two calendar
years, had total assets of less than $250 million and was independent
or an affiliate of a holding company that, as of December 31 of either
of the prior two calendar years, had total banking and thrift assets of
less than $1 billion.
For example:
------------------------------------------------------------------------
Institution's
asset size in Data collection required for
Date millions of following calendar year?
dollars
------------------------------------------------------------------------
12/31/94 240 No.
12/31/95 260 No.
12/31/96 230 No.
12/31/97 280 No.
12/31/98 260 Yes, beginning 1/01/99.
------------------------------------------------------------------------
All institutions that are subject to the data collection and
reporting requirements must report the data for a calendar year by
March 1 of the subsequent year. In the example, above, the institution
would report the data collected for calendar year 1999 by March 1,
2000.
The Board of Governors of the Federal Reserve System is handling
the processing of the reports for all of the primary regulators. The
reports should be submitted in a prescribed electronic format on a
timely basis. The mailing address for submitting these reports is:
Attention: CRA Processing, Board of Governors of the Federal Reserve
System, 1709 New York Avenue, N.W., 5th Floor Washington, DC 20006
Q2. Should an institution develop its own program for data collection,
or will the regulators require a certain format?
A2. An institution may use the free software that is provided by
the FFIEC to reporting institutions for data collection and reporting
or develop its own program. Those institutions that develop their own
programs must follow the precise format for the new CRA data collection
and reporting rules. This format may be obtained by contacting the CRA
Assistance Line at (202) 872-7584.
Q3. How should an institution report data on lines of credit?
A3. Institutions must collect and report data on lines of credit in
the same way that they provide data on loan originations. Lines of
credit are considered originated at the time the line is approved or
increased; and an increase is considered a new origination. Generally,
the full amount of the credit line is the amount that is considered
originated. In the case of an increase to an existing line, the amount
of the increase is the amount that is considered originated and that
amount should be reported.
Q4. Should renewals of lines of credit be reported?
A4. No. Similar to loan renewals, renewals of lines of credit are
not
[[Page 54663]]
considered loan originations and should not be reported.
Q5. When should merging institutions collect data?
A5. Three scenarios of data collection responsibilities for the
calendar year of a merger and subsequent data reporting
responsibilities are described below.
Two institutions are exempt from CRA collection and
reporting requirements because of asset size. The institutions merge.
No data collection is required for the year in which the merger takes
place, regardless of the resulting asset size. Data collection would
begin after two consecutive years in which the combined institution had
year-end assets of at least $250 million or was part of a holding
company that had year-end banking and thrift assets of at least $1
billion.
Institution A, an institution required to collect and
report the data, and Institution B, an exempt institution, merge.
Institution A is the surviving institution. For the year of the merger,
data collection is required for Institution A's transactions. Data
collection is optional for the transactions of the previously exempt
institution. For the following year, all transactions of the surviving
institution must be collected and reported.
Two institutions that each are required to collect and
report the data merge. Data collection is required for the entire year
of the merger and for subsequent years so long as the surviving
institution is not exempt. The surviving institution may file either a
consolidated submission or separate submissions for the year of the
merger but must file a consolidated report for subsequent years.
Q6. Can small institutions get a copy of the data collection software
even though they are not required to collect or report data?
A6. Yes. Any institution that is interested in receiving a copy of
the software may send a written request to: Attn: CRA Processing, Board
of Governors of the Federal Reserve System, 1709 New York Ave, NW., 5th
Floor, Washington, DC 20006. They may also call the CRA Assistance Line
at (202) 872-7584 or send Internet e-mail to [email protected]
Q7. If a small institution is designated a wholesale or limited purpose
institution, must it collect data that it would not otherwise be
required to collect because it is a small institution?
A7. No. However, small institutions must be prepared to identify
those loans, investments and services to be evaluated under the
community development test.
____.42(a) Loan information required to be collected and maintained
Q1. Must institutions collect and report data on all commercial loans
under $1 million at origination?
A1. No. Institutions that are not exempt from data collection and
reporting are required to collect and report only those commercial
loans that they capture in the Call Report, Schedule RC-C, Part II, and
in the TFR, Schedule SB. Small business loans are defined as those
whose original amounts are $1 million or less and that were reported as
either ``Loans secured by nonfarm or nonresidential real estate'' or
``Commercial and Industrial loans'' in Part I of the Call Report or
TFR.
Q2. For loans defined as small business loans, what information should
be collected and maintained?
A2. Institutions that are not exempt from data collection and
reporting are required to collect and maintain in a standardized,
machine readable format information on each small business loan
originated or purchased for each calendar year:
A unique number or alpha-numeric symbol that can be used
to identify the relevant loan file;
The loan amount at origination;
The loan location; and
An indicator whether the loan was to a business with gross
annual revenues of $1 million or less.
The location of the loan must be maintained by census tract or
block numbering area. In addition, supplemental information contained
in the file specifications includes a date associated with the
origination or purchase and whether a loan was originated or purchased
by an affiliate. The same requirements apply to small farm loans.
Q3. Will farm loans need to be segregated from business loans?
A3. Yes.
Q4. Should institutions collect and report data on all agricultural
loans under $500,000 at origination?
A4. Institutions are to report those farm loans that they capture
in the Call Report, Schedule RC-C, Part II and Schedule SB of the TFR.
Small farm loans are defined as those whose original amounts are
$500,000 or less and were reported as either ``Loans to finance
agricultural production and other loans to farmers'' or ``Loans secured
by farmland'' in Part I of the Call Report and TFR.
Q5. Should institutions collect and report data about small business
and small farm loans that are refinanced or renewed?
A5. An institution collects and reports information about
refinancings but does not collect and report information about
renewals. A refinancing typically involves the satisfaction of an
existing obligation that is replaced by a new obligation undertaken by
the same borrower. When an institution refinances a loan, it is
considered a new origination and loan data should be collected and
reported if otherwise required. Consistent with HMDA, however, if under
the original loan agreement, the institution is unconditionally
obligated to refinance the loan, or is obligated to refinance the loan
subject to conditions within the borrower's control, the institution
would not report these events as originations.
For purposes of the CRA data collection and reporting requirements,
an extension of the maturity of an existing loan is a renewal, and is
not considered a loan origination. Therefore, institutions should not
collect and report data on loan renewals.
Q6. Does a loan to the ``fishing industry'' come under the definition
of a small farm loan?
A6. Yes. Instructions for Part I of the Call Report and Schedule SB
of the TFR include loans ``made for the purpose of financing fisheries
and forestries, including loans to commercial fishermen'' as a
component of the definition for ``Loans to finance agricultural
production and other loans to farmers.'' Part II of Schedule RC-C of
the Call Report and Schedule SB of the TFR, which serve as the basis of
the definition for small business and small farm loans in the revised
regulation, capture both ``Loans to finance agricultural production and
other loans to farmers'' and ``Loans secured by farmland.''
Q7. How should an institution report a home equity line of credit, part
of which is for home improvement purposes, but the predominant part of
which is for small business purposes?
A7. The institution has the option of reporting the portion of the
home equity line that is for home improvement purposes under HMDA. That
portion of the loan would then be considered when examiners evaluate
home mortgage lending. If the line meets the
[[Page 54664]]
regulatory definition of a ``community development loan,'' the
institution should collect and report information on the entire line as
a community development loan. If the line does not qualify as a
community development loan, the institution has the option of
collecting and maintaining (but not reporting) the entire line of
credit as ``Other Secured Lines/Loans for Purposes of Small Business.''
Q8. When collecting small business and small farm data for CRA
purposes, may an institution collect and report information about loans
to small businesses and small farms located outside the United States?
A8. At an institution's option, it may collect data about small
business and small farm loans located outside the United States;
however, it cannot report this data because the CRA data collection
software will not accept data concerning loan locations outside the
United States.
Q9. Is an institution that has no small farm or small business loans
required to report under CRA?
A9. Each institution subject to data reporting requirements must,
at a minimum, submit a transmittal sheet, definition of its assessment
area(s), and a record of its community development loans. If the
institution does not have community development loans to report, the
record should be sent with ``0'' in the community development loan
composite data fields. An institution that has not purchased or
originated any small business or small farm loans during the reporting
period would not submit the composite loan records for small business
or small farm loans.
____.42(a)(2) Loan amount at origination
Q1. When an institution purchases a small business or small farm loan,
which amount should the institution collect and report--the original
amount of the loan or the amount at purchase?
A1. When collecting and reporting information on purchased small
business and small farm loans, an institution collects and reports the
amount of the loan at origination, not at the time of purchase. This is
consistent with the Call Report's and TFR's use of the ``original
amount of the loan'' to determine whether a loan should be reported as
a ``loan to a small business'' or a ``loan to a small farm'' and in
which loan size category a loan should be reported. When assessing the
volume of small business and small farm loan purchases for purposes of
evaluating lending test performance under CRA, however, examiners will
evaluate an institution's activity based on the amounts at purchase.
Q2. How should an institution collect data about multiple loan
originations to the same business?
A2. If an institution makes multiple originations to the same
business, the loans should be collected and reported as separate
originations rather than combined and reported as they are on the Call
Report or TFR, which reflect loans outstanding, rather than
originations. However, if institutions make multiple originations to
the same business solely to inflate artificially the number or volume
of loans evaluated for CRA lending performance, the agencies may
combine these loans for purposes of evaluation under the CRA.
Q3. How should an institution collect data pertaining to credit cards
issued to small businesses?
A3. If an institution agrees to issue credit cards to a business'
employees, all of the credit card lines opened on a particular date for
that single business should be reported as one small business loan
origination rather than reporting each individual credit card line,
assuming the criteria in the ``small business loan'' definition in the
regulation are met. The credit card program's ``amount at origination''
is the sum of all of the employee/business credit cards' credit limits
opened on a particular date. If subsequently issued credit cards
increase the small business credit line, the added amount is reported
as a new origination.
____.42(a)(3) The loan location
Q1. Which location should an institution record if a small business
loan's proceeds are used in a variety of locations?
A1. The institution should record the loan location by either the
location of the business headquarters or the location where the
greatest portion of the proceeds are applied, as indicated by the
borrower.
____.42(a)(4) Indicator of gross annual revenue
Q1. When indicating whether a small business borrower had gross annual
revenues of $1 million or less, upon what revenues should an
institution rely?
A1. Generally, an institution should rely on the revenues that it
considered in making its credit decision. For example, in the case of
affiliated businesses, such as a parent corporation and its subsidiary,
if the institution considered the revenues of the entity's parent or a
subsidiary corporation of the parent as well, then the institution
would aggregate the revenues of both corporations to determine whether
the revenues are $1 million or less. Alternatively, if the institution
considered the revenues of only the entity to which the loan is
actually extended, the institution should rely solely upon whether
gross annual revenues are above or below $1 million for that entity.
However, if the institution considered and relied on revenues or income
of a cosigner or guarantor that is not an affiliate of the borrower,
the institution should not adjust the borrower's revenues for reporting
purposes.
Q2. If an institution that is not exempt from data collection and
reporting does not request or consider revenue information to make the
credit decision regarding a small business or small farm loan, must the
institution collect revenue information in connection with that loan?
A2. No. In those instances, the institution should enter the code
indicating ``revenues not known'' on the individual loan portion of the
data collection software or on an internally developed system. Loans
for which the institution did not collect revenue information may not
be included in the loans to businesses and farms with gross annual
revenues of $1 million or less when reporting this data.
Q3. What gross revenue should an institution use in determining the
gross annual revenue of a start-up business?
A3. The institution should use the actual gross annual revenue to
date (including $0 if the new business has had no revenue to date).
Although a start-up business will provide the institution with pro
forma projected revenue figures, these figures may not accurately
reflect actual gross revenue.
____.42(b) Loan information required to be reported
____.42(b)(1) Small business and small farm loan data
Q1. For small business and small farm loan information that is
collected and maintained, what data should be reported?
A1. Each institution that is not exempt from data collection and
reporting is required to report in machine-readable form annually by
March 1 the following information, aggregated for each census tract or
block numbering area in which the institution
[[Page 54665]]
originated or purchased at least one small business or small farm loan
during the prior year:
The number and amount of loans originated or purchased
with original amounts of $100,000 or less;
The number and amount of loans originated or purchased
with original amounts of more than $100,000 but less than or equal to
$250,000;
The number and amount of loans originated or purchased
with original amounts of more than $250,000 but not more than $1
million; and
To the extent that information is available, the number
and amount of loans to businesses and farms with gross annual revenues
of $1 million or less (using the revenues the institution considered in
making its credit decision).
____.42(b)(2) Community development loan data
Q1. What information about community development loans must
institutions report?
A1. Institutions subject to data reporting requirements must report
the aggregate number and amount of community development loans
originated and purchased during the prior calendar year.
Q2. If a loan meets the definition of a home mortgage, small business,
or small farm loan AND qualifies as a community development loan, where
should it be reported? Can FHA, VA and SBA loans be reported as
community development loans?
A2. Except for multifamily affordable housing loans, which may be
reported by retail institutions both under HMDA as home mortgage loans
and as community development loans, in order to avoid double counting,
retail institutions must report loans that meet the definitions of home
mortgage, small business, or small farm loans only in those respective
categories even if they also meet the definition of community
development loans. As a practical matter, this is not a disadvantage
for retail institutions because any affordable housing mortgage, small
business, small farm or consumer loan that would otherwise meet the
definition of a community development loan will be considered elsewhere
in the lending test. Any of these types of loans that occur outside the
institution's assessment area can receive favorable consideration under
the borrower characteristic criteria of the lending test. See Q&A4
under Sec. ____.22(b)(2) & (3).
Limited purpose and wholesale institutions also must report loans
that meet the definitions of home mortgage, small business, or small
farm loans in those respective categories; however, they must also
report any loans from those categories that meet the regulatory
definition of ``community development loans'' as community development
loans. There is no double counting because wholesale and limited
purpose institutions are not subject to the lending test and,
therefore, are not evaluated on their level and distribution of home
mortgage, small business, small farm and consumer loans.
____.42(b)(3) Home mortgage loans
Q1. Must institutions that are not required to collect home mortgage
loan data by the HMDA collect home mortgage loan data for purposes of
the CRA?
A1. No. If an institution is not required to collect home mortgage
loan data by the HMDA, the institution need not collect home mortgage
loan data under the CRA. Examiners will sample these loans to evaluate
the institution's home mortgage lending. If an institution wants to
ensure that examiners consider all of its home mortgage loans, the
institution may collect and maintain data on these loans.
____.42(c) Optional data collection and maintenance
____.42(c)(1) Consumer loans
Q1. What are the data requirements regarding consumer loans?
A1. There are no data reporting requirements for consumer loans.
Institutions may, however, opt to collect and maintain data on consumer
loans. If an institution chooses to collect information on consumer
loans, it may collect data for one or more of the following categories
of consumer loans: motor vehicle, credit card, home equity, other
secured, and other unsecured. If an institution collects data for loans
in a certain category, it must collect data for all loans originated or
purchased within that category. The institution must maintain these
data separately for each category for which it chooses to collect data.
The data collected and maintained should include for each loan:
A unique number or alpha-numeric symbol that can be used
to identify the relevant loan file;
The loan amount at origination or purchase;
The loan location; and
The gross annual income of the borrower that the
institution considered in making its credit decision.
____.42(c)(1)(iv) Income of borrower
Q1. If an institution does not consider income when making an
underwriting decision in connection with a consumer loan, must it
collect income information?
A1. No. Further, if the institution routinely collects, but does
not verify, a borrower's income when making a credit decision, it need
not verify the income for purposes of data maintenance.
Q2. May an institution list ``0'' in the income field on consumer loans
made to employees when collecting data for CRA purposes as the
institution would be permitted to do under HMDA?
A2. Yes.
____.42(c)(2) Other loan data
Q1. Schedule RC-C, Part II of the Call Report and schedule SB of the
TFR do not allow financial institutions to report loans for commercial
and industrial purposes that are secured by residential real estate.
Loans extended to small businesses with gross annual revenues of $1
million or less may, however, be secured by residential real estate. Is
there a way to collect this information on the software to supplement
an institution's small business lending data at the time of
examination?
A1. Yes. If these loans promote community development, as defined
in the regulation, the institution should collect and report
information about these loans as community development loans.
Otherwise, at an institution's option, it may collect and maintain data
concerning loans, purchases, and lines of credit extended to small
businesses and secured by residential real estate for consideration in
the CRA evaluation of its small business lending. To facilitate this
optional data collection, the software distributed free-of-charge by
the FFIEC provides that an institution may collect this information to
supplement its small business lending data by choosing loan type,
``Other Secured Lines/Loans for Purposes of Small Business,'' in the
individual loan data. (The title of the loan type, ``Other Secured
Lines of Credit for Purposes of Small Business,'' which was found in
the instructions accompanying the 1996 data collection software, is
being changed to ``Other Secured Lines/Loans for Purposes of Small
Business'' in order to accurately reflect that lines of credit and
loans may be reported under this loan type.) This information should be
maintained at the institution but should not be submitted for central
reporting purposes.
[[Page 54666]]
Q2. Must an institution collect data on loan commitments and letters of
credit?
A2. No. Institutions are not required to collect data on loan
commitments and letters of credit. Institutions may, however, provide
for examiner consideration information on letters of credit and
commitments.
Q3. Are commercial and consumer leases considered loans for purposes of
CRA data collection?
A3. Commercial and consumer leases are not considered small
business or small farm loans or consumer loans for purposes of the data
collection requirements in 12 CFR Sec. ____.42(a) & (c)(1). However, if
an institution wishes to collect and maintain data about leases, the
institution may provide this data to examiners as ``other loan data''
under 12 CFR Sec. ____.42(c)(2) for consideration under the lending
test.
____.42(d) Data on affiliate lending
Q1. If an institution elects to have an affiliate's home mortgage
lending considered in its CRA evaluation, what data must the
institution make available to examiners?
A1. If the affiliate is a HMDA reporter, the institution must
identify those loans reported by its affiliate under 12 CFR part 203
(Regulation C, implementing HMDA). At its option, the institution may
either provide examiners with the affiliate's entire HMDA Disclosure
Statement or just those portions covering the loans in its assessment
area(s) that it is electing to consider. If the affiliate is not
required by HMDA to report home mortgage loans, the institution must
provide sufficient data concerning the affiliate's home mortgage loans
for the examiners to apply the performance tests.
Section ____.43--Content and availability of public file
____.43(a) Information available to the public
____.43(a)(1) Public comments
Q1. What happens to comments received by the agencies?
A1. Comments received by a Federal financial supervisory agency
will be on file at the agency for use by examiners. Those comments are
also available to the public unless they are exempt from disclosure
under the Freedom of Information Act.
Q2. Is an institution required to respond to public comments?
A2. No. All institutions should review comments and complaints
carefully to determine whether any response or other action is
warranted. A small institution subject to the small institution
performance standards is specifically evaluated on its record of taking
action, if warranted, in response to written complaints about its
performance in helping to meet the credit needs in its assessment
area(s) (Sec. ____.26(a)(5)). For all institutions, responding to
comments may help to foster a dialogue with members of the community or
to present relevant information to an institution's Federal financial
supervisory agency. If an institution responds in writing to a letter
in the public file, the response must also be placed in that file,
unless the response reflects adversely on any person or placing it in
the public file violates a law.
Q3. May an institution include a response to its CRA Performance
Evaluation in its public file?
A3. Yes. However, the format and content of the evaluation, as
transmitted by the supervisory agency, may not be altered or abridged
in any manner. In addition, an institution that received a less than
satisfactory rating during it most recent examination must include in
its public file a description of its current efforts to improve its
performance in helping to meet the credit needs of its entire
community. The institution must update the description on a quarterly
basis.
____.43(b) Additional information available to the public
____.43(b)(1) Institutions other than small institutions
Q1. Must an institution that elects to have affiliate lending
considered include data on this lending in its public file?
A1. Yes. The lending data to be contained in an institution's
public file covers the lending of the institution's affiliates, as well
as of the institution itself, considered in the assessment of the
institution's CRA performance. An institution that has elected to have
mortgage loans of an affiliate considered must include either the
affiliate's HMDA Disclosure Statements for the two prior years or the
parts of the Disclosure Statements that relate to the institution's
assessment area(s), at the institution's option.
____.43(c) Location of public information
Q1. What is an institution's ``main office'?
A1. An institution's main office is the main, home, or principal
office as designated in its charter.
Section ____.44--Public notice by institutions
Q1. Are there any placement or size requirements for an institution's
public notice?
A1. The notice must be placed in the institution's public lobby,
but the size and placement may vary. The notice should be placed in a
location and be of a sufficient size that customers can easily see and
read it.
Section ____.45--Publication of planned examination schedule
Q1. Where will the agencies publish the planned examination schedule
for the upcoming calendar quarter?
A1. The agencies may use the Federal Register, a press release, the
Internet, or other existing agency publications for disseminating the
list of the institutions scheduled to for CRA examinations during the
upcoming calendar quarter. Interested parties should contact the
appropriate Federal financial supervisory agency for information on how
the agency is publishing the planned examination schedule.
Appendix B to Part ____--CRA Notice
Q1. What agency information should be added to the CRA notice form?
A1. The following information should be added to the form:
OCC-supervised institutions only: The address of the deputy
comptroller of the district in which the institution is located should
be inserted in the appropriate blank. These addresses can be found at
12 CFR Sec. 4.5(a).
OCC-, FDIC-, and Board-supervised institutions: ``Officer in Charge
of Supervision'' is the title of the responsible official at the
appropriate Federal Reserve Bank.
Appendix A--Regional Offices of the Bureau of the Census
To obtain median family income levels of census tracts, MSAs, block
numbering areas and statewide nonmetropolitan areas, contact the
appropriate regional office of the Bureau of the Census as indicated
below. The list shows the states covered by each regional office.
Atlanta
(404) 730-3833.
Alabama, Florida, Georgia
Boston
(617) 424-0510.
[[Page 54667]]
Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont
Charlotte
(704) 344-6144.
District of Columbia, Kentucky, North Carolina, South Carolina,
Tennessee, Virginia
Chicago
(708) 562-1740.
Illinois, Indiana, Wisconsin
Dallas
(214) 640-4470 or (800) 835-9752.
Louisiana, Mississippi, Texas
Denver
(303) 969-7750.
Arizona, Colorado, Nebraska, New Mexico, North Dakota, South Dakota,
Utah, Wyoming
Detroit
(313) 259-1875.
Michigan, Ohio, West Virginia
Kansas City
(913) 551-6711.
Arkansas, Iowa, Kansas, Minnesota, Missouri, Oklahoma
Los Angeles
(818) 904-6339.
California
New York
(212) 264-4730.
New York, Puerto Rico
Philadelphia
(215) 597-8313 or (215) 597-8312.
Delaware, Maryland, New Jersey, Pennsylvania
Seattle
(206) 728-5314.
Alaska, Hawaii, Idaho, Montana, Nevada, Oregon, Washington
End of text of the Interagency Questions and Answers.
Dated: October 11, 1996.
Joe M. Cleaver,
Executive Secretary, Federal Financial Institutions Examination
Council.
[FR Doc. 96-26743 Filed 10-18-96; 8:45 am]
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P, 6720-01-P
