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Understanding CRA Reform

Feb 22, 2021ComplianceCompliance, CRA

Understanding CRA Reform

An overview and comparison of the Federal Reserve’s CRA ANPR and the OCC’s final ruling

Since its enactment in 1977, the Community Reinvestment Act (CRA) has been an important tool in addressing redlining and the lack of investments in low- to middle-income (LMI) communities. It requires banks to meet the lending needs of their community, including credit-worthy LMI individuals and minority-owned businesses. However, it has failed to keep pace with today’s evolving banking environment or improve credit accessibility for those it was designed to protect.

It’s been more than 25 years since the last revisions to the CRA, and during that time mobile and digital banking has grown in popularity without being addressed in CRA requirements. In addition, the gap between black and white home ownership is 3% greater than it was in 1960.¹ It’s clear that the CRA needs to be revisited and updated. This article will compare and contrast the OCC’s and the Fed’s efforts to strengthen and modernize existing CRA requirements.

The Office of the Comptroller of the Currency

The OCC released an Advanced Notice of Proposed Rulemaking in August 2018. The FDIC joined the OCC and released a joint Notice of Proposed Rulemaking in December 2019 and opened the floor to stakeholder comments to help inform and guide the final ruling. Citing the need to focus on issues related to the 2020 COVID-19 pandemic, the FDIC removed themselves from the rulemaking process. In May 2020, the OCC released their final ruling, which includes, but is not limited to:

Clearly enumerating CRA qualifying activities
Defining assessment areas
Establishing performance standards
Establishing data collection and retention requirements

While the final rule went into effect on October 1, 2020, banks subject to general, wholesale and limited performance standards have until January 1, 2023 to comply. Intermediate and small banks must comply with the ruling by January 1, 2024.

The Federal Reserve

In September 2020, the Fed released an ANPR on updating their CRA regulations with a 120-day comment period ending February 16, 2021. Stakeholders “have expressed strong support for the agencies to work together to modernize CRA.”² Stakeholders were asked for feedback regarding the Fed’s efforts to:

Bring greater clarity, consistency, and transparency to performance evaluations
Minimize data collection and reporting burden
Base performance evaluations on bank size, business models and local conditions
Clarify and expand eligible CRA activities in LMI communities
Recognize the special circumstances of small banks in rural areas

Their intent is to ensure LMI banking needs are met, promote financial inclusion and address changes in the banking industry over the past 25 years.

How they differ.

Both reform efforts seek to align CRA requirements and reporting with today’s banking needs, from modernizing assessment areas to clarifying eligible activities for CRA credit. However, the approaches differ in a few areas.

While the OCC rule was finalized, the FED ANPR is still accepting comments. Pundits believe there is still time for the agencies to come together to provide uniform regulations, as stakeholders across the board have requested.

Be ready for your next CRA examination.

Understanding updated CRA requirements, from whichever regulatory body you report to, is essential to receive the CRA credit your bank has earned. At Marquis, we’ve kept and continue to keep our finger on the pulse of the CRA modernization process. When it becomes time to implement new CRA regulations, Marquis compliance experts will be ready. Marquis has a proven history of helping clients tell their CRA story.

“Our recent CRA Exam was truly a team effort, involving our Production Officers, CFO, Investment Officer, CRA Committee and some invaluable help from Marquis,” says Roger McLaren, Vice President, Inwood National Bank. “With CRA, like in life, you have to keep score, tell your story and pat yourself on the back. In the end, it comes down to solid record-keeping. Between our efforts, Marquis Software’s ability to sort and organize our data, and assistance from Marquis Compliance Professional Services, we were able to assemble the data we needed, analyze the results, and verify our success. It all culminated in an Outstanding CRA Exam rating.”

Contact us at [email protected] to see how Marquis is addressing this much-needed change to the CRA and how it affects your institution.

1 Urban Institute, Reducing the Racial Homeownership Gap https://www.urban.org/policy-centers/housing-finance-policy-center/projects/reducing-racial-homeownership-gap

2 Federal Reserve, Fact Sheet on the Community Reinvestment Act, Advanced Notice of Proposed Rulemaking, September 2020 https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200921a1.pdf

PPP, CRA and Fair Lending – How the Payment Protection Program Affects Compliance Reporting

2020 has been a year of incredible disruption. As the country and rest of the world deal with the fallout of the COVID-19 Pandemic, small businesses struggle to stay viable, retain employees and cover operating expenses. The Coronavirus Aid, Relief and Economic Security Act (CARES) was implemented to supply much needed economic relief.

The Payment Protection Program (PPP) portion of the CARES Act offered small business owners a means to meet their financial obligations. However, there are inherent difficulties involved. Business owners found supplying all the appropriate documentation and certificates to be a complicated process while financial institutions struggled with constant updates, unclear guidance and inadequate resources.

Regardless of whether ill intent was involved, protected classes did not consistently receive the aid they needed. This became apparent in May when a Unidos US survey¹ was released. Of the Black and Latino small businesses requesting relief, over half asked for less than $20,000 to cover employment and operating expenses. Of those, 12% received the funding they requested and 41% received no help at all. 21% were still waiting to hear if they qualified. Examiners and regulators will be looking closely to make sure your institution lives up to regulatory expectations.

Reporting continues as usual.

Despite the difficulties, PPP lending will be considered when evaluating CRA and Fair Lending. PPP loans can be eligible for CRA credit if you know what you’re looking for, but that can be difficult to do.

Because PPP rolled out so quickly and the volume of requests was so large, many financial institutions were required to reallocate untrained resources to loan processing as a result. And with the August 8, 2020 extension, loan processing is still eating up valuable time and resources. Due to unfamiliarity with the documentation and application process, many of the reallocated personnel may not be aware of Fair Lending and CRA requirements and how it affects their financial institution. This has the potential to make it even more difficult to meet the demands of CRA and Fair Lending expectations.

Helpful Guidance

The best way to protect your institution from compliance risk remains the same as it was before COVID-19 became our new normal.

Document. Test. Monitor. Train.

Clarify what has happened with your loan processes to this point and get down the details now. Why were loans that were denied dispositioned in the manner they were? What procedures may have changed and why? How were fraud attempts dealt with? Then get your story down, including how you intend to rectify any at-risk policies. Once noted, leverage that knowledge to make sure protected classes are truly protected during PPP loan processing and the loan forgiveness stage.

Correct anything that can be fixed now, document and explain oversights and the actions taken to fix them and train your loan personnel top to bottom. Then review procedures and follow up on your actions to ensure you’re moving in the right direction. Finally, keep your Compliance Management System (CMS) up to date and your team, including the Board, on the same page. This is often an overwhelming and time-consuming endeavor. You don’t have to face it alone.

Marquis – here when you need us.

Let Marquis become your compliance partner. We offer a two-prong solution to help you get the CRA credit you deserve and tell your compliance story successfully.

CenTrax NEXT, our proprietary compliance system created exclusively for the financial industry, enables you to assemble, analyze and act on your data. This is not a software solution released in response to the current situation. CenTrax NEXT is a proven compliance reporting solution that will continue to deliver value well past COVID-19 and its fallout.

We also offer guidance with Marquis Professional Services. Our team of dedicated experts continues to stay current on the frequent updates, fluctuating requirements and possible reporting issues of PPP and all of their ramifications. Their job is to alleviate your stress, offering you the guidance you need to identify possible risk areas and develop your story.

Just as your financial institution stepped up to help your customers and members, Marquis is here to help you navigate the often-confusing demands and requirements when reporting your PPP loans for CRA and completing Fair Lending analysis. Please get in touch to find out more about CenTrax NEXT and Marquis Professional Services.

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