CRA: An Examiner's Perspective
Train for Results!
Regardless of which procedures are used to evaluate your institution,1 training for a CRA-aware culture will decrease the possibility of CRA-related activities not being captured for consideration by your regulator. CRA-aware training is a blend of CRA technical requirements, communication of respective assessment area credit and community development needs, identification of geographies and populations driving credit and community development needs, and communication of the institution’s CRA strategy for meeting those needs. Logical candidates for training include branch managers; commercial, consumer and small-business lending officers and staff; and other retail banking management.
The objective of the CRA training is not to make all employees CRA experts; it is simply to provide them with the knowledge to determine if activities that flow through their business line should be flagged for consideration by CRA personnel. Tracking CRA activities on an ongoing basis reduces the headache of trying to retroactively compile activities to display CRA performance for an upcoming evaluation. Additionally, tracking provides the institution with the ability to internally monitor CRA performance, which is key in the identification of conspicuous gaps in lending, investments and services that may not be readily apparent.2 Information obtained through monitoring may be used to proactively address shortcomings in an institution’s CRA performance or, at a minimum, explore the reasons behind the gaps in performance rather than waiting for the outcome of an evaluation.
In discussing the lending test,3 it is important to emphasize the significance of collecting applicant income and revenue size to ensure the loan is correctly identified under the borrower distribution test. Capturing this information at the time of origination avoids the retroactive process of identifying the data to prepare for an examination. CRA lending training should include identifying names of locations in the assessment area that are considered low- or moderate-income (LMI) census tracts. For small-business and small-farm lending, the institution can document either the location of small businesses or small farms or where the proceeds of the loan are applied.4 In the latter case, documenting where the funds are applied may make a difference in the percentage of loans made in LMI tracts of the lender’s assessment area.
Training related to the five community development purposes (affordable housing, community services, economic development, revitalization or stabilization, and neighborhood stabilization programs) is more impactful when it is associated with names of locations that are LMI, nonmetropolitan middle-income areas that are distressed or underserved, and enterprise and empowerment zones located in the assessment area.5
In conclusion, providing CRA-aware training increases the resources in the institution on the lookout for CRA-related activities, which decreases the possibility of those activities being overlooked, reduces the burden of exam preparation and enhances the ability to internally monitor CRA performance.
- Procedures include small, intermediate small, large, wholesale/limited purpose and strategic plan bank evaluation procedures located at www.ffiec.gov/cra/examinations.htm. [ back to text ]
- Community Reinvestment Act: Developing a Strategy for Success, Consumer Compliance Outlook: Third Quarter 2014. [ back to text ]
- In evaluations of wholesale/limited purpose institutions, only the institution’s community development lending is reviewed through the community development test. [ back to text ]
- A Guide to CRA Data Collection and Reporting, www.ffiec.gov/cra/guide.htm. [ back to text ]
- Small institutions may also have certain CRA development activities considered that enhance credit in their assessment area(s) to raise an overall satisfactory rating to that of outstanding. [ back to text ]