and to provide equal credit access to those who live and/or work
in LMI neighborhoods. That being said, the 2005 modifications
to the regulation created a stronger link between fair lending
regulations and the CRA, which have been further amplified
by the introduction of the CFPB within Title X of the July 2010
Dodd-Frank Wall Street Reform and Consumer Protection Act.
During the summer of 2010, the Office of the Comptroller
of the Currency (OCC), Federal Reserve Board (board), Federal
Deposit Insurance Corporation (FDIC), and Office of Thrift
Supervision (OTS) held joint public hearings in four cities across
the country to solicit public comments about their regulations
governing the CRA evaluation procedures. While a few suggestions generated controversy, several garnered the support of the
banking industry and community advocates, which could have
been implemented as “win-win” modifications to the regulation. However, the agencies did not have the political support
to make any substantive changes to the regulation and, to date,
nothing has been published. 3 An updated interagency Q&A was
anticipated to be released in early 2013 to answer some of the
questions raised during the hearings that could be addressed
without legislative approval.
CRA examiners received a great deal of criticism for what
community advocates have described as inflated CRA ratings.
During the CRA hearings, advocates questioned why the country
has experienced a record number of foreclosures as a result of
questionable lending practices, and they suggested that financial
Keys to a Successful Exam
A successful CRA exam outcome has become increasingly
important. Take these steps to ensure success:
■ ■ Understand the regulations—How do they impact your
institution?
■ ■ Originate new loans, investments, and services targeted to
LMI borrowers and geographies.
■ ■ Engage with the compliance/fair lending team(s) within your
organization to understand consumer compliance risks that
could impact your evaluation. Develop mitigation
strategies to ensure that your CRA and Fair Lending
programs are in sync.
■ ■ Evaluate your CRA performance against your
own previous performance and/or that of your
peers regularly.
■ ■ Communicate your findings to those
within your organization so that they
might refine programs to respond to
identified weaknesses.
■ ■ Create performance context and
communicate regularly with your
examiners when questions arise.
■ ■ Don’t delay—start now.
institutions be penalized for their involvement in such practices.
The advocates requested that more stringent evaluation criteria be
enacted to prevent financial institutions from receiving favorable
CRA consideration for subprime lending or other activities that
don’t truly benefit LMI borrowers or neighborhoods. While it
would be pure speculation to attempt to draw a direct correlation
to the criticisms received, we are beginning to see a trend of lower
CRA exam ratings—many involve downgrades that resulted from
violations of various consumer protection regulations.
On the other side of the argument, certain political leaders
called the CRA regulation itself into question by claiming it
was one of the root causes of the country’s financial crisis and
demanding its repeal. In November 2008, 4 the board issued a
“Staff Analysis of the Relationship between the CRA and the
Subprime Crisis,” which concluded that there was no connection
between the two. It cited statistics showing that only six percent
of all higher-priced loans were made by CRA-covered lenders to
borrowers and neighborhoods targeted by the CRA. Regardless
of the board’s conclusions that record foreclosures did not result
from the CRA, there hasn’t been sufficient political support for
regulatory reform. Therefore, the agencies have used their powers
to provide interpretive clarification through the Q&As.
Effective March 10, 2010, the agencies published new and
revised Q&As. On December 15, 2010, they published a new
final rule encouraging depository institutions to support eligible
development activities in areas designated under the Neighborhood Stabilization Program (NSP) administered by the U.S.
Department of Housing and Urban Development (HUD), which
became effective on January 14, 2011. Understanding the impacts
of these new changes is critical for the success of your institution’s
next CRA exam. 5
new Q&a: Community services targeted to
low- or Moderate-income individuals
In response to a request to simplify the validation of community
services targeted to LMI individuals, the new Q&A provided
some specific examples:
■ ■ Services targeted to clients of a nonprofit organization whose
mission is to serve LMI persons, or as a condition of government grant funding is restricted to offering services to LMI
persons: Many nonprofits will provide information about
grant funding on their public websites; however, you can
validate whether the agency receives a majority (51 percent
or more) of its funding from government sources on its tax
return (Form 990, Page 9, Part VIII Statement of Revenue,
Line 1e. Government grants - contributions). One of the most
complete public sources of this information comes from the
subscription service GuideStar— www.guidestar.org.
■ ■ Services offered by nonprofit organizations located and providing services in LMI neighborhoods: Previously, it was necessary
to be able to prove that the primary beneficiaries of services
offered by a nonprofit organization were LMI individuals.
With this new clarification, there is now a presumption that
