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  Community Reinvestment

Meeting Your Community's Credit Needs: Does Your Bank Measure Up?

Table of Contents

What Is the Community Reinvestment Act?

Looking at Your Bank's CRA Performance—The Big Picture

Standards Used to Evaluate Your Bank's CRA Performance

Your Bank's Overall CRA Rating

What Your Bank's Public CRA File Must Show

Where You Can Find Your Bank's CRA Public File

How You Can Comment on Your Bank's CRA Performance

Criteria for a Large Bank's CRA Rating

As a financial consumer and a concerned citizen, you may be interested in how well your bank or savings and loan is helping meet the credit needs of your community, including low- and moderate-income areas. In fact, by law, the performance of every bank and thrift in meeting these needs is regularly evaluated and rated, and this rating is available to the public.

This document is intended to help you understand how this law—the Community Reinvestment Act (CRA)—affects the way your financial institution serves your community. It describes the factors federal regulators use when they review a bank's CRA performance and explains the rating the bank receives. It also tells you what information is available about a bank's CRA rating and where you can find it.

What Is the Community Reinvestment Act?

The Community Reinvestment Act, passed by Congress in 1977, encourages financial institutions to help meet their communities' needs—through safe and sound lending practices and by providing retail banking and community development services.

Federal regulators monitor whether banks and thrifts are fulfilling their CRA obligations. By law, these federal agencies—the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision—must

regularly review the CRA performance of banks and savings and loans, and
take into account the CRA record of a bank or thrift when it applies to open a new branch or merge with or acquire another institution.
In addition, each of the federal agencies works to educate these institutions about successful CRA programs in other parts of the country and suggests other ideas that might help develop the community.

An amendment to the Community Reinvestment Act in 1990 requires that CRA ratings be made public. Each bank or thrift must maintain a public file that contains the public section of its most recent CRA performance review, a list of its services and branches, written comments from the public, and certain other information.

Looking at Your Bank's CRA Performance - The Big Picture

Before examiners from financial regulatory agencies can judge your bank's CRA performance, they need to get a general sense of your community and how your bank fits into it. They consider a number of factors, including but not limited to
the makeup of the community;
what the local and regional economic conditions are;
what kind of opportunities exist for serving the community through lending and investments;
what your bank's business strategy and products are;
how your bank is doing financially;
what CRA rating your bank has received in the past and, sometimes, how other local institutions have been doing;
what your bank sees as the credit needs of its community; and
what individuals, community and civic organizations, and businesses—as well as state, local, and tribal governments—think about your bank's efforts toward meeting the community's credit needs.

Standards Used to Evaluate Your Bank's CRA Performance

Keeping in mind this general picture of your bank and community, the examiners use specific standards, amended in 1995, for reviewing your bank's CRA performance. While examiners' judgment is still an important part of the process, the standards are intended to be as objective as possible to help make evaluations of banks across the country more consistent.

The examiners apply these standards to rate your bank's overall record of helping to meet the credit needs of the specific area your bank has defined as its assessment area. Depending on whether your bank or thrift is large or small, the standards used to review it (described in the sections below) are somewhat different.

A bank may choose to develop its own strategic plan to be evaluated by rather than use the defined standards. Such a plan must be open to public comment and must be approved by the bank's federal regulatory agency before it can go into effect.

Wholesale banks, which do not make loans to retail customers, and limited purpose banks, which offer only a few products (such as credit cards or auto loans), also receive CRA ratings. These ratings, though, are based on different standards since the banks' activities are more limited.

Standards for Large Banks

Large banks—those with total assets of $250 million or more or that are affiliates of holding companies with assets of $1 billion or more—are evaluated in three areas: lending, investment, and service.

Lending. When evaluating a bank's lending activities and the borrowers it reaches, examiners analyze loans for home mortgages, small businesses, small farms, and community development (as well as consumer loans, in some cases). They look at information about

the total number and total dollar amount of loans;
the geographic distribution of loans—that is, the proportion of the bank's total loans made within its assessment area; how these loans are distributed among low-, moderate-, middle-, and upper income locations;
the characteristics of borrowers—how loans are distributed to people at various income levels and to small businesses and small farms;
the bank's activity in community development—how many and what dollar amount of loans benefit low- and moderate-income people or geographic areas? how many and what size loans promote small business or small farm development? how complex or creative are these loans?
whether the bank uses flexible lending practices to address the credit needs of low- or moderate-income individuals or neighborhoods.
Investment. When evaluating a bank's investments, examiners look not only at a bank's assessment area but also at a broader statewide or regional area surrounding it. Examiners want to know
how much money the bank has invested,
how innovative or complex the investments are,
how well the investments respond to credit and community development needs, and
whether the investments are a different type from those provided by most other investors.
Service. When evaluating retail and community development services, examiners focus on how well these services help meet the credit needs of the institution's community. In the area of retail banking, examiners look at
how branches are distributed throughout the community;
the bank's history of opening and closing branches, particularly those serving low- or moderate-income people or geographic areas;
what alternative systems (such as ATMs or telephone, computer, or by-mail banking services) the bank provides for delivering services to low- and moderate-income areas and individuals; and
whether the range of services provided meets the needs of various neighborhoods at all income levels.

Examiners also consider how responsive and creative a bank is in providing or helping other organizations provide financial services that address special credit needs in the community or region—for example, more affordable housing or more available credit.

Standards for Small Banks

Small banks—those with total assets of less than $250 million, either independent or an affiliate of a holding company with total assets of less than $1 billion—are evaluated by more streamlined standards than those used for larger banks. At a small bank, examiners look at
the share of the bank's deposits used to make loans,
the percentage of loans made within the bank's assessment area,
its record of lending to borrowers of different income levels as well as businesses and farms of different sizes,
the geographic distribution of its loans, and
its record of taking action in response to written complaints about its performance in helping meet the community's credit needs.

Your Banks Overall CRA Rating

Examiners assign your bank an overall CRA rating based on factors included in the performance standards described above. The table below shows how these specific factors contribute to a large bank's overall rating of outstanding, satisfactory, needs to improve, or the lowest rating—substantial noncompliance. A small bank receives one of these four ratings based on its performance under the standards described above.

Regardless of whether your bank is large or small, any evidence of discriminatory or illegal credit practices will have a negative effect on examiners' evaluation of your bank's performance and could lower its overall CRA rating.

What Your Bank's Public CRA File Must Show

Your bank must maintain a public file, updated as of April 1 each year, that includes the following information:
For the current year and two previous years, all written comments from the public about how your bank is helping meet community credit needs. The file must also include your bank's response to these comments.
A copy of the public section of your bank's most recent CRA performance evaluation. Your bank must place the copy in its public files within 30 business days after receiving it. If your bank received a less-than-satisfactory rating during its most recent examination, it must include a description of efforts to improve its performance and update that report every three months.
A list of your bank's current branches with their street addresses and the geographic areas they serve. The list must also show this information for any branches your bank has opened or closed during the current year and previous two years.
A list of services—including hours of operation, available loan and deposit products, and fees—offered at your bank's branches. This list must note any significant differences in services at particular branches.
A map of the bank's assessment area showing its boundaries and identifying the various geographic areas within it, either on the map or in a separate list.
Information on loans that are included in your bank's review.
A copy of your bank's strategic plan if the bank is evaluated by one.
For a large bank, its CRA disclosure statement, prepared every year by its regulator. The statement contains information about small business and small farm loans and the population's income levels for each county where the bank operates.

Where You Can Find Your Bank's CRA Public File

A bank's entire public CRA file must be available at its main office. If your bank operates in more than one state, it must keep a file at one branch office in each of these states. You can ask to inspect this file, at no charge to you, any time the bank is open.

If you do your banking at a branch office, you can ask to see its CRA file, which contains a copy of the public section of the bank's most recent CRA performance evaluation and a list of services provided by your branch. Upon request, your branch must also provide for inspection, within five days, all the information in the public file relating to your branch's assessment area.

You may also ask a bank to provide you with a copy of its public CRA file for you to read at your convenience. The bank is allowed to charge you a reasonable fee, though, to cover the cost of copying and mailing.

Each office or branch of a bank must post a notice in its lobby that describes the purpose of the Community Reinvestment Act. This notice also explains that the public has a right to review a bank's CRA file and to make written comments about the bank's CRA performance. In addition, the notice names the federal regulator of the bank and states whether the bank is owned by a holding company.

How You Can Comment on Your Bank's CRA Performance

The most direct way to voice your opinion about how well your bank is helping to meet your community's credit needs is to talk with the bank's management or directors. You also may write a letter and state that you want it to be included in your bank's CRA public file. Finally, you may contact the nearest office of your bank's federal regulator.
Criteria for a Large Bank's CRA Ratinga
  CRA Ratings
Performance Criteria Outstanding Satisfactoryb Needs to Improve Substantial
Responsiveness to credit and community development needs through lending practices, qualified investments, and services excellent good or adequate poor very poor
Percentage of loans made in the assessment area substantial majority high or adequate small very small
Distribution of loans among geographic areas, people of different income levels, and businesses of different sizes excellent good or adequate poor very poor
Quality of service for credit needs of extremely economically disadvantaged areas, low-income individuals, and small businesses excellent good or adequate poor very poor
Use of creative lending practices to address credit needs of low- or moderate-income people or neighborhoods extensive limited little no
Level of qualified community development investments and grants, particularly those not routinely provided by private investors excellent significant or adequate poor few
Use of innovative or complex qualified investments to support community development needs extensive extensive or occasional rare no
Accessibility of services to all geographic areas and people of different income levels readily accessible reasonably accessible unreasonably inaccessibled unreasonably inaccessibled
Way in which openings and closings of branches have affected access to services, particularly for low- or moderate-income areas or individuals have made more accessible have not adversely affected have adversely affected have significantly adversely affected
Way in which services are provided throughout the assessment area for the convenience and needs of customers services are tailored services do not vary in a way that inconveniences services vary in a way that inconveniences services vary in a way that significantly inconveniences
a The performance criteria for small banks are simpler. See "Standards for Small Banks"

b Banks receive an underlying rating of "high satisfactory" or "low satisfactory," but the public record reflects only a single rating.

c A bank's lending practices carry nearly twice as much weight as either its investment or service practices in the overall rating.

d Particularly to low- or moderate-income areas or individuals.

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