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Welcome to the newest feature of Community Investments,
a forum dedicated to the open exchange of information. To inaugurate
our “Letters” column, we’ve decided to publish
a selection of regulatory questions that we’ve received in
the last month.
We look forward to publishing a dynamic, interesting and educational
feature each quarter. Your letters and commentary will help make
that possible. If you have a question, opinion or brief anecdote
to share, please send it to the attention of Ariel Andres, production
coordinator, by mail, fax or e-mail. The contact information is
provided in the staff box located to the left. Best Regards, The
Staff of CI
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Q. W ill examiners review community devel-opment data from
the time of the last exam or before? What kind of loan growth
will they be looking for?
CI. Examiners will review community development data from your
last exam forward. They will consider community development loan
and investment growth relative to the overall growth of your bank’s
portfolio.
Q. Our bank was recently asked to co-sponsor an affordable
housing conference, but the conference venue isn’t located
in a low- or moderate-income neighborhood. Does our sponsorship
qualify?
CI. Your sponsorship is a qualified investment as long as the
conference is specifically designed to address the community development
needs (i.e. affordable housing, small business, economic development,
etc.) of low-and moderate-income persons or neighborhoods.
Q. Our bank has been asked to finance the construction of
multi-family units located in a low-income census tract, but affordable
to middle-income households. Will we receive lending test credit?
CI. Your bank will receive lending test credit only if you can
demonstrate that the devel-opment will stimulate additional investment
to the area (a community or retail center, for example), thereby
contributing to the stabilization and revitalization of the low-income
community in which it is located.
Q. I am the CRA Officer of a credit card bank that offers
only a narrow product line to a regional market (credit cards
to businesses). I heard at a recent CRA roundtable that having
a narrow product line doesn’t auto-matically give us a limited
purpose designation. Will you explain?
CI. The person you heard at the CRA roundtable was correct. Having
a narrow product line does not automatically render your institution
Ælimited purpose’. In your case, your bank provides loans
directly to businesses in the form of a credit card. Since these
are not consumer credit cards, they are reportable as “commercial
or industrial” loans for purposes of the Call Report. Furthermore,
the regulation categorizes credit cards to businesses as small
business loans. This type of retail lending product is examined
under the lending test, which prevents your bank from receiving
a limited purpose designation. Examiners are adept, however, at
merging conventional CRA examination procedures into the context
of a bank with a fairly narrow product line.
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Q. Should our Assessment Area include loan production offices
(LPOs)?
CI. Branch location is the primary means of establishing an Assessment
Area. Since LPOs are not considered branches, the answer is no,
unless your LPOs are in areas where your bank also has established
branches. Although rumor has it that some regulatory agencies
have been “more flexible” than others on this issue,
the regulation is clear that non deposit-taking facilities should
be excluded from a bank’s assessment area. We’ll let
you know if and when this changes in the future.
Q. Where can I find information about credit needs within
my assessment area?
CI. This depends on where you do business. In some rural areas,
published information is difficult to track down, but not impossible.
You might begin your search by calling your state’s department
of rural development or a state association that focuses on rural
issues. In urban areas, information sources are more plentiful.
In either case, some of the best sources are local affordable
housing developers and small business assistance providers. You
might want to consider formalizing a program that regularly solicits
feedback from key nonprofit organizations. This could be done
through a periodic questionnaire or phone update. You might even
consider developing an advisory group that meets regularly to
discuss client-credit needs.
If your time is limited, consider checking the Census Bureau’s
web page for demographic information by census tract (www.census.gov).
These data can provide a good foundation for determining housing
types and potential for multi-family, single-family, or mixed-use
loans. If your bank is a member of the Federal Home Loan Bank
System, you may want to review Affordable Housing Program grants
to ascertain the types of projects being funded in specific areas.
The web sites of state and local departments of commerce are also
worth checking. Whatever you decide, create a long-range plan
and regularly check the quality of your information to make sure
that it’s: a) accurate, and b) enhancing your lending program.
Financial institutions not supervised by the Federal Reserve
are encouraged to verify this information with their regulatory
agency.
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