Letting the Sun Shine in on CRA

On April 1, the CRA sunshine provisions of the Gramm-Leach-Bliley Act took effect. The provisions, which are contained in Regulation G—Disclosure and Reporting of CRA-Related Agreements, require financial institutions and their community-development partners to publicly disclose certain transactions and agreements and to file reports annually about them.

CRA sunshine applies to written agreements that are made in fulfillment of CRA. Covered agreements involve loans, funds or other resources; the agreements are between an insured depository institution (or its affiliate) and a non-governmental entity or person.

Insured depository institutions (IDIs) include banks, savings associations, bank-holding companies and financial-holding companies that receive federal deposit insurance. A non-governmental entity or person (NGEP) is any company, organization or individual other than a federal, state, local or tribal government. NGEPs do not include federally chartered public corporations that receive federal funds.

If an IDI or NGEP believes it may have a covered agreement, it should first review its current community development partnerships. Then, it should contact all involved parties to discuss whether agreements are covered. If the agreements are covered, then the IDI or NGEP should ensure compliance with all reporting requirements.

Covered Agreements

These are any contact, arrangement or understanding that meets all of the following five criteria:

1. The agreement must be in writing, but is not limited to legally binding written contracts. It includes other written agreements that reflect a mutual arrangement or understanding.

2. The parties to the agreement are an IDI and NGEP.

3. The agreement states that the IDI must either:

• Provide cash payments, grants or other consideration (except loans) that has an aggregate value of more than $10,000 in any calendar year, or
• Make loans in an aggregate principal amount of more than $50,000 in any calendar year.

(Note: Individual mortgage loans are not covered, regardless of the identity of the borrower or the rate charged on the loan. Also, loans are not covered unless they are made at substantially below-market interest rates.)

4. The agreement must be made pursuant to, or in connection with, the fulfillment of the CRA. An agreement is in fulfillment of the CRA if it:

• Involves the performance of loan, service and investment activity that factors in a CRA examination or a decision to approve or deny an application.
• Is an activity that is likely to receive favorable CRA consideration from the regulatory agencies.

5. There must be a CRA communication between the parties in the agreement.

CRA Communication

The final rules state that a CRA communication has three parts: content, knowledge and time.

1. Content

• The content of the communication is considered to concern CRA if:
  Any written or oral comment or testimony provided to a federal banking agency concerns the IDI's CRA performance.
• Any written comment submitted to the IDI discusses the adequacy of the IDI's performance under CRA and must be included in the institution's CRA public file. Any discussion or other contact with an IDI about providing (or refraining from providing) written or oral comments or testimony to a federal banking agency concerns the adequacy of the IDI's CRA performance.
• Any discussion or other contact with an IDI about providing (or refraining from providing) written comments concerns the adequacy of the institution's CRA performance and must be included in the institution's CRA public file.
• Any discussion or other contact occurs with an IDI about its performance under CRA.

2. Knowledge

• Conditions apply to both the IDI and NGEP. An IDI is considered to have knowledge of a CRA communication with an NGEP if any of the following three conditions apply: An employee of the IDI approves, directs, authorizes or negotiates the agreement with the NGEP.
• An employee of the IDI who is designated with responsibility for CRA compliance knows the IDI is negotiating an agreement with the NGEP.
• An executive officer of the IDI is aware that an agreement is being negotiated with the NGEP.

In addition, if a communication is part of public testimony to an agency or is part of the IDI's CRA public file, the IDI is presumed to have knowledge of the communication.

An NGEP is considered to have knowledge of the CRA communication if any of the following conditions apply:

• A director, employee or member of the NGEP approves, directs, authorizes or negotiates the agreement.
• The person who functions as an executive officer of the NGEP is aware that an agreement is being negotiated with the IDI.

3. Time

The rule spells out the length of time during which any contact might be considered an official CRA communication.

• Oral or written communication with a regulatory agency three years prior to the agreement.
• Any written communication with the IDI three years prior to the agreement.
• Oral communications with the IDI regarding testimony to an agency or comments in the public CRA file three years prior to the agreement.
• Oral communication with the IDI regarding the adequacy of its CRA performance one year prior to the agreement.

Disclosure Requirements

(This section applies only to covered agreements entered into after Nov. 12, 1999.)

1. Duration of obligation:

• NGEP—The obligation to disclose ends 12 months after the term of the agreement.
• IDI—The obligation to disclose ends 36 months after the term of the agreement

2. If an NGEP and IDI are involved in a covered agreement, a copy of the agreement must be made available to any individual or entity upon request; however the NGEP or IDI may withhold either confidential or proprietary information using Freedom of Information Act (FOIA) standards. An IDI also may satisfy this requirement by including a copy of the agreement in the IDI's CRA Public File.

3. Public disclosure must include:

• The names and addresses of each IDI or NGEP.
• The amount of payments, loans, fees and other consideration provided.
• How the funds will be used.
• The term of the agreement.
• Any other information the supervisory agencies deem to be public information.

4. Disclosure to a supervisory agency:

• An IDI must submit within 60 days before the end of each calendar quarter:
• A complete copy of each agreement for that quarter or a list of all agreements for that quarter. Essential information includes the:
• Name and address of each IDI and NGEP involved.
• Date of the agreement.
• Estimated total value of payments, fees, loans, etc.
• Date the agreement ends.
• If applicable, a copy of any public version of the agreement and an explanation justifying FOIA exclusions.
• Within 30 days of receiving a request from an agency, an NGEP must submit:
• A complete copy of each agreement for that quarter.
• If applicable, a copy of any public version of the agreement and an explanation
  justifying FOIA exclusions.

Annual Reports

1. Duration of reporting requirement—Applies to covered agreements entered into on or after May 12, 2000. The:

• NGEP must file the report if it received or used funds received under the agreement that year.
• IDI must file the report if it provided or received payments, fees or loans under a covered agreement that year.
• IDI must file the report if it has data to report on loans, investments or services provided under a covered agreement that year.

2. Effective dates (applies to covered agreements that terminated prior to April 1, 2001):

• Public: Disclosure of agreements to the public will be available until April 1, 2002.
• Agencies: Disclosure to the agencies:
• NGEP—available until April 1, 2002.
• IDI—must provide either a copy of the agreement or a list of all agreements by June 30, 2001.

3. Annual reports for fiscal years ending on or before Dec. 31, 2000, concerning covered agreements entered into between May 12, 2000, and Dec. 31, 2000, are due on June 30, 2001. The:

• IDI sends its annual report to the appropiate supervisory agency.
• NGEP sends its annual report to the appropriate supervisory agency or to an IDI that is party to the agreement.