The Community Reinvestment Act has been in the headlines for almost the past year: OCC and FDIC Joint Proposed Rule; OCC going it alone with its Final Rule; the FRB’s Advanced Notice of Proposed Rulemaking. Not to mention the Paycheck Protection Program (PPP) and just lending in general during a pandemic. In May of 2020, the Agencies (Federal Reserve, FDIC and OCC) issued an FAQ discussing the Consideration for Activities in Response to the Coronavirus Pandemic (here). It originally consisted of thirteen FAQs covering definitions like designated disaster areas, revitalization and community needs actions, and of course, PPP loans and their implications on both Call Reports and reporting requirements.
To recap, the Agencies believe that the COVID-19 national emergency does raise unique needs for revitalization and stabilization activities that differ than those taken in response to a natural disaster or other emergency. For that reason, the Agencies will be granting consideration for activities that revitalize or stabilize designated disaster areas by protecting public health and safety, particularly for low- or moderate-income individual, or low- or moderate-income geographies (LMI), or distressed or underserved nonmetropolitan middle-income geographies. These considerations are to be effective through the six-month period after the national emergency declaration is lifted. Qualifying activities for community development loans are those that include supporting community services targeted to LMI individuals and economic development meeting the “size” and “purpose” tests, affordable housing for LMI individuals or families.
When it came to the PPP, it was determined these loans would be considered eligible community development loans in amounts of $1 million or less to for-profit businesses or nonprofit organizations that were secured by nonfarm, nonresidential real estate and were reported as small business loans under the applicable retail lending test. The Agencies placed an emphasis on loans to small businesses located in LMI geographies or distressed or underserved nonmetropolitan middle-income geographies. Those loans greater than $1 million would be considered community development loans if they also had a primary purpose of community development defined per CRA.
On March 8th, the Agencies updated their frequently asked questions and introduced five new clarifications. These new FAQs clarify that the Agencies will not extend CRA service test consideration for PPP-related activities, but those activities may be considered under the CRA lending test when evaluating flexibility or innovative lending programs offered by the bank. Additionally, banks are not to report their CRA loan register PPP loans that have been rescinded or returned under the SBA’s safe harbor, as they will not be considered in their CRA evaluations. Now, PPP loans greater than $1 million in LMI geographies or distressed or underserved nonmetropolitan middle-income geographies will be considered an eligible community development activity.
In regard to non-PPP related CRA concerns during COVID-19, the Agencies have clarified that the waiving of ATM fees, overdraft fees, early withdrawal penalties on CDs and withdrawal fees on savings accounts are going to be considered examples of retail services considered responsive to needs of LMI individuals. Furthermore, allowing an LMI individual to make a draw from a home equity line of credit during the repayment period could constitute as a flexible lending practice. However, allowing an LMI individual to withdraw from an IRA or a HELOC during the draw period are routine banking services and are not to be eligible for CRA considerations. Lastly, services provided virtually by bank representatives that have primarily a purpose of community development and are related to the provision of financial services can serve as an alternative to in-person services.
It is important financial institutions review these latest FAQs and determine how or if this impacts its current practices of documenting and reporting CRA activities. What springs from CRA examinations is a review of Safety and Soundness, so financial institutions must have a clear understanding of any current or new lending or deposit products and offerings, as well as a documented, formalized procedure for its participation in the PPP.