[Federal Register Volume 71, Number 171 (Tuesday, September 5, 2006)]
[Notices]
[Pages 52375-52379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-14648]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

[No. 2006-32]


Community Reinvestment Act; Questions and Answers Regarding 
Community Reinvestment; Notice

AGENCY: Office of Thrift Supervision (OTS).

ACTION: Notice.

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SUMMARY: This notice revises OTS guidance relating to the Community 
Reinvestment Act (CRA).

DATES: Effective date: September 5, 2006.

FOR FURTHER INFORMATION CONTACT: Celeste Anderson, Senior Program 
Manager, Operation Risk, (202) 906-7990; Richard Bennett, Counsel, 
Regulations and Legislation Division, (202) 906-7409, Office of Thrift 
Supervision, 1700 G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

    To help savings associations meet their responsibilities under the 
CRA and to increase public understanding of the CRA regulations, OTS, 
the Office of the Comptroller of the Currency (OCC), the Board of 
Governors of the Federal Reserve (Board), and the Federal Deposit 
Insurance Corporation (FDIC) have previously published guidance in the 
form of questions and answers about the CRA regulations. That guidance 
is intended to provide the informal views of agency staff for use by 
examiners and other agency personnel, financial institutions, and the 
public, and is supplemented periodically. See Interagency Questions and 
Answers Regarding Community Reinvestment, 66 FR 36620 (July 12, 2001) 
(2001 Interagency Q&As).
    Today, OTS is issuing questions and answers to provide additional 
guidance for savings associations. OTS proposed this guidance on April 
12, 2006. (70 FR 18807). Today's final guidance is identical to the 
proposed OTS guidance and very similar to final guidance jointly issued 
by the OCC, Board, and FDIC on March 10, 2006 (71 FR 12424). However, 
as with OTS's proposal, today's final guidance only includes questions 
and answers that pertain to OTS's revised definition of ``community 
development'' and certain other provisions of the CRA rule that are 
common to all four agencies. It does not include questions and answers 
that pertain to additional revisions the OCC, Board, and FDIC made to 
their CRA rules in their August 2, 2005 rulemaking (70 FR 44256), since 
OTS has not adopted those revisions to date. Other minor wording 
differences between OTS's guidance and that of the other agencies were 
highlighted in the preamble to OTS's April 12, 2006 notice.
    As in the 2001 Interagency Q&As, the questions and answers are 
grouped by the provision of the CRA regulations that they discuss and 
are presented in the same order as the regulatory provisions. As a 
result of technical changes made to the four federal banking agencies' 
CRA rules (70 FR 15570 (March 28, 2005)) and recent revisions to OTS's 
CRA rule, some of the numbering in the 2001 Interagency Q&As no longer 
corresponds to the appropriate sections of the revised regulation. 
However, in today's questions and answers, if a reference is made to an 
existing question and answer, the number of the existing question and 
answer, as published in the 2001 Interagency Q&As, is given, even if 
the old reference does not

[[Page 52376]]

accurately describe the current provision in the regulations. OTS staff 
is working to update the 2001 Interagency Q&As and will correct the 
citation references in a revised integrated document containing all the 
questions and answers.

II. Comments on Proposed Questions and Answers

    OTS received 21 comment letters on its proposed guidance. Two were 
from financial institution trade associations. Eighteen were from 
entities that could generally be described as organizations that 
advocate for community reinvestment or affordable housing or that 
provide or finance affordable housing. One was from an individual whose 
personal or professional interest in CRA was unclear and who simply 
recommended continued government supervision of thrift institutions for 
CRA compliance.
    The proposed guidance was generally well received by commenters. 
Indeed, the most common comment from organizations was not about the 
proposed guidance per se, but about the CRA rule itself. These 
commenters urged OTS to make further conforming amendments to its CRA 
rule so that OTS's CRA rule would once again be consistent with those 
of the other agencies. In particular, these commenters urged OTS to 
adopt the intermediate small institution test and add the regulatory 
provision elaborating on illegal or discriminatory lending practices 
that count unfavorably in an institution's CRA evaluation. One also 
specifically urged OTS to eliminate the flexible weight option for 
large, retail savings associations.
    One financial institution trade association and a few organizations 
expressed concerns about the extent to which the guidance emphasizes 
activities that benefit low- and moderate-income individuals. The trade 
association argued that the guidance overemphasizes activities that can 
be documented as benefiting low- and moderate-income individuals. It 
pointed out that in non-metropolitan areas, low-and moderate-income 
census tracts are not as segregated as they are in large metropolitan 
areas and identifying low- and moderate-income individuals who will 
benefit from a program is not easy. It explained that community banks 
conduct activities that benefit an entire community but may not have 
sufficient data to demonstrate particular benefit to low- and moderate-
income individuals. Accordingly, it advocated that any activity that 
benefits an entire community should be granted CRA credit, regardless 
of whether it can be demonstrated to serve low- and moderate-income 
individuals. It argued that, particularly with respect to activities 
that assist in disaster recovery, it is not appropriate to focus on 
whether an activity benefits low- and moderate-income areas but rather 
on whether it benefits the community at large.
    In direct contrast, the organizations emphasized the need to keep 
CRA focused on low- and moderate-income families and communities. Some 
suggested that all the agencies' CRA questions and answers should be 
clearer in this emphasis.
    The trade association also urged the agencies to publish a list of 
designated disaster areas for ease of reference, rather than making the 
public rely on the list published by the Federal Emergency Management 
Agency (FEMA) on its Web site. It also urged the agencies to 
continually update the lists in the guidance of community development 
services and qualified investments, commenting that the lists are 
helpful. One organization proposed a number of changes that would make 
OTS's questions and answers less consistent with those of the other 
agencies.

III. Final Questions and Answers

    Having considered the comments, OTS has decided to finalize the 
guidance as proposed. OTS's approach with these questions and answers 
is to make them as consistent as possible with those of the other 
agencies, given that some differences are necessary because of 
differences in the CRA rules themselves. Since OTS is adopting the 
questions and answers as proposed without any changes, it does not 
repeat the detailed discussion of each of the questions and answers 
that it included in the preamble to its April 12, 2006 proposal. 
Instead, OTS refers interested readers to that document.
    As discussed above, the organizations who commented urged OTS to 
make further conforming amendments to its CRA rule so that it once 
again would be consistent with those of the other agencies. OTS is 
still considering whether to do so.
    With respect to commenters who expressed opposing views on the 
extent to which the guidance should emphasize activities that benefit 
low- and moderate-income individuals, OTS believes the guidance, 
uniform among all agencies, strikes the appropriate balance. As 
discussed in Q&A sections 563e.12(g)(4)-2, 563e.12(g)(4)(ii)-2, and 
563e.12(g)(4)(iii)-3, OTS generally will consider all activities that 
revitalize or stabilize a distressed nonmetropolitan middle-income 
geography or designated disaster area, but will give greater weight to 
those activities that are most responsive to community needs, including 
needs of low- or moderate-income individuals or neighborhoods. Also, as 
discussed in Q&A section 563e.12(g)(4)(iii)-4, OTS will consider 
activities to revitalize or stabilize an underserved nonmetropolitan 
middle-income geography if they help to meet essential community needs, 
including the needs of low- or moderate-income individuals.
    With regard to the comment on identifying designated disaster 
areas, at this time OTS believes the quickest and most reliable way for 
the public to determine which geographies are in designated disaster 
areas is to refer to FEMA's Web site www.fema.gov. As explained in Q&A 
section 563e.12(g)(4)(ii)-1, geographies encompassed by a Major 
Disaster Declaration count except for those counties designated to 
receive only FEMA Public Assistance Emergency Work Category A (Debris 
Removal) and/or Category B (Emergency Protective Measures). With regard 
to the comment on updating the lists of community development services 
and qualified investments that qualify for CRA credit, OTS anticipates 
updating CRA guidance as appropriate.
    Q&A section 563e.12(g)(4)(ii)-2 explains activities that revitalize 
or stabilize and designated disaster area. These include activities 
that provide housing, financial assistance, and services to individuals 
who have been displaced from designated disaster areas (e.g., where a 
savings association assists displaced individuals who evacuate into its 
assessment area).
    Finally, OTS wishes to highlight one aspect of CRA credit for 
activities that revitalize or stabilize designated disaster areas that 
is not specifically discussed in the questions and answers but has been 
addressed in other guidance. This issue has to do with geographical 
limits on the availability of credit for disaster relief efforts.
    In a December 20, 2005 memorandum to all chief executive officers, 
OTS indicated it would favorably consider activities by savings 
associations that revitalize or stabilize the areas stricken by 
Hurricanes Katrina and Rita, even if those areas are outside the 
association's assessment area or the broader statewide or regional 
area. OTS CEO Mem. 232 (December 20, 2005), available at 
http://www.ots.treas.gov/docs/2/25232.pdf. OTS indicated that while the 
CRA regulation does not set forth an expectation for savings 
associations to engage in activities outside their assessment areas or 
broader statewide or

[[Page 52377]]

regional areas, given the magnitude of these disasters and their impact 
on the country, if any association elected to engage in such 
activities, OTS would favorably consider them. That guidance was 
limited in application to that unique situation.
    The text of OTS's revisions to the Interagency Questions and 
Answers Regarding Community Reinvestment follows:

Section 563e.12(g)(4) Activities That Revitalize or Stabilize

    Section 563e.12(g)(4)-1: Is the same definition of community 
development applicable to all savings associations?
    Yes, one definition of community development is applicable to all 
savings associations.
    Section 563e.12(g)(4)-2: Will activities that provide housing for 
middle-income and upper-income persons qualify for favorable 
consideration as community development activities when they help to 
revitalize or stabilize a distressed or underserved, nonmetropolitan 
middle-income geography or designated disaster areas?
    An activity that provides housing for middle- or upper-income 
individuals qualifies as an activity that revitalizes or stabilizes a 
distressed nonmetropolitan middle-income geography or a designated 
disaster area if the housing directly helps to revitalize or stabilize 
the community by attracting new, or retaining existing, businesses or 
residents and, in the case of a designated disaster area, is related to 
disaster recovery. OTS generally will consider all activities that 
revitalize or stabilize a distressed nonmetropolitan middle-income 
geography or designated disaster area, but will give greater weight to 
those activities that are most responsive to community needs, including 
needs of low- or moderate-income individuals or neighborhoods. For 
example, a loan solely to develop middle- or upper-income housing in a 
community in need of low- and moderate-income housing would be given 
very little weight if there is only a short-term benefit to low- and 
moderate-income individuals in the community through the creation of 
temporary construction jobs. (A housing-related loan is not evaluated 
as a ``community development loan'' if it has been reported or 
collected by the institution or its affiliate as a home mortgage loan, 
unless it is a multifamily dwelling loan. See 12 CFR 563e.12(h)(2)(i) 
and Q&A section ----.12(i) & 563e.12(h)-2.) OTS will presume that an 
activity revitalizes or stabilizes such a geography or area if the 
activity is consistent with a bona fide government revitalization or 
stabilization plan or disaster recovery plan. See Q&A section --
--.12(h)(4) & 563e.12(g)(4)-1 and Q&A section ----.12(i) & 563e.12(h)-
4.
    In underserved nonmetropolitan middle-income geographies, 
activities that provide housing for middle- and upper-income 
individuals may qualify as activities that revitalize or stabilize such 
underserved areas if the activities also provide housing for low- or 
moderate-income individuals. For example, a loan to build a mixed-
income housing development that provides housing for middle- and upper-
income individuals in an underserved nonmetropolitan middle-income 
geography would receive positive consideration if it also provides 
housing for low- or moderate-income individuals.

Section 563e.12(g)(4)(ii) Activities That Revitalize or Stabilize 
Designated Disaster Areas

    Section 563e.12(g)(4)(ii)-1: What is a ``designated disaster area'' 
and how long does the designation last?
    A ``designated disaster area'' is a major disaster area designated 
by the Federal Government. Such disaster designations include, in 
particular, Major Disaster Declarations administered by the Federal 
Emergency Management Agency (FEMA) (http://www.fema.gov), but exclude 
counties designated to receive only FEMA Public Assistance Emergency 
Work Category A (Debris Removal) and/or Category B (Emergency 
Protective Measures).
    Examiners will consider savings association activities related to 
disaster recovery that revitalize or stabilize a designated disaster 
area for 36 months following the date of designation. Where there is a 
demonstrable community need to extend the period for recognizing 
revitalization or stabilization activities in a particular disaster 
area to assist in long-term recovery efforts, this period may be 
extended.
    Section 563e.12(g)(4)(ii)-2: What activities are considered to 
``revitalize or stabilize'' a designated disaster area, and how are 
those activities considered?
    OTS generally will consider an activity to revitalize or stabilize 
a designated disaster area if it helps to attract new, or retain 
existing, businesses or residents and is related to disaster recovery. 
An activity will be presumed to revitalize or stabilize the area if the 
activity is consistent with a bona fide government revitalization or 
stabilization plan or disaster recovery plan. OTS generally will 
consider all activities relating to disaster recovery that revitalize 
or stabilize a designated disaster area, but will give greater weight 
to those activities that are most responsive to community needs, 
including the needs of low- or moderate-income individuals or 
neighborhoods. Qualifying activities may include, for example, 
providing financing to help retain businesses in the area that employs 
local residents, including low- and moderate-income individuals; 
providing financing to attract a major new employer that will create 
long-term job opportunities, including for low- and moderate-income 
individuals; providing financing or other assistance for essential 
community-wide infrastructure, community services, and rebuilding 
needs; and activities that provide housing, financial assistance, and 
services to individuals in designated disaster areas and to individuals 
who have been displaced from those areas, including low- and moderate-
income individuals (see, e.g., Q&A section ----.12(j) & 563e.12(i)-3; 
Q&A section ----.12(s) & 563e.12(r)-4; Q&A sections ----.22(b)(2) & 
(3)-4; Q&A sections ----.22(b)(2) & (3)-5; and Q&A section --
--.24(d)(3)-1).

Section 563e.12(g)(4)(iii) Activities That Revitalize or Stabilize 
Distressed or Underserved, Nonmetropolitan Middle-income Geographies

    Section 563e.12(g)(4)(iii)-1: What criteria are used to identify 
distressed or underserved, nonmetropolitan middle-income geographies?
    Eligible nonmetropolitan middle-income geographies are those 
designated by OTS as being in distress or that could have difficulty 
meeting essential community needs (underserved). A particular geography 
could be designated as both distressed and underserved. As defined in 
12 CFR 563e.12(k), a geography is a census tract delineated by the 
United States Bureau of the Census.
    A nonmetropolitan middle-income geography will be designated as 
distressed if it is in a county that meets one or more of the following 
triggers: (1) An unemployment rate of at least 1.5 times the national 
average, (2) a poverty rate of 20 percent or more, or (3) a population 
loss of ten percent or more between the previous and most recent 
decennial census or a net migration loss of five percent or more over 
the five-year period preceding the most recent census.
    A nonmetropolitan middle-income geography will be designated as 
underserved if it meets criteria for population size, density, and 
dispersion that indicate the area's population is

[[Page 52378]]

sufficiently small, thin, and distant from a population center that the 
tract is likely to have difficulty financing the fixed costs of meeting 
essential community needs. OTS will use as the basis for these 
designations the ``urban influence codes,'' numbered ``7,'' ``10,'' 
``11,'' and ``12,'' maintained by the Economic Research Service of the 
United States Department of Agriculture.
    Data source information along with the list of eligible 
nonmetropolitan census tracts will be published on the Federal 
Financial Institutions Examination Council Web site (http://www.ffiec.gov).
    Section 563e.12(g)(4)(iii)-2: How often will the list of designated 
distressed or underserved, nonmetropolitan middle-income geographies be 
updated?
    The list will be reviewed and updated annually as needed. The list 
will be published on the Federal Financial Institutions Examination 
Council Web site (http://www.ffiec.gov).
    To the extent that changes to the designated census tracts occur, 
OTS has determined to adopt a twelve-month lag period. This lag period 
will be in effect for the twelve months immediately following the date 
when a census tract that was designated as distressed or underserved is 
removed from the designated list. Revitalization or stabilization 
activities undertaken during the lag period will receive consideration 
as community development activities if they would have been considered 
to have a primary purpose of community development if the census tract 
in which they were located were still designated as distressed or 
underserved.
    Section 563e.12(g)(4)(iii)-3: What activities are considered to 
``revitalize or stabilize'' a distressed nonmetropolitan middle-income 
geography, and how are those activities evaluated?
    An activity revitalizes or stabilizes a distressed nonmetropolitan 
middle-income geography if it helps to attract new, or retain existing, 
businesses or residents. An activity will be presumed to revitalize or 
stabilize the area if the activity is consistent with a bona fide 
government revitalization or stabilization plan. OTS generally will 
consider all activities that revitalize or stabilize a distressed 
nonmetropolitan middle-income geography, but will give greater weight 
to those activities that are most responsive to community needs, 
including needs of low-or moderate-income individuals or neighborhoods. 
Qualifying activities may include, for example, providing financing to 
attract a major new employer that will create long-term job 
opportunities, including for low- and moderate-income individuals, and 
activities that provide financing or other assistance for essential 
infrastructure or facilities necessary to attract or retain businesses 
or residents. See Q&A section ----.12(h)(4) & 563e.12(g)(4)-1 and Q&A 
section ----.12(i) & 563e.12(h)-4.
    Section 563e.12(g)(4)(iii)-4: What activities are considered to 
``revitalize or stabilize'' an underserved nonmetropolitan middle-
income geography, and how are those activities evaluated?
    The regulation provides that activities revitalize or stabilize an 
underserved nonmetropolitan middle-income geography if they help to 
meet essential community needs, including needs of low-or moderate-
income individuals. Activities such as financing for the construction, 
expansion, improvement, maintenance, or operation of essential 
infrastructure or facilities for health services, education, public 
safety, public services, industrial parks, or affordable housing, will 
be evaluated under these criteria to determine if they qualify for 
revitalization or stabilization consideration. Examples of the types of 
projects that qualify as meeting essential community needs, including 
needs of low-or moderate-income individuals, would be a new or expanded 
hospital that serves the entire county, including low- and moderate-
income residents; an industrial park for businesses whose employees 
include low-or moderate-income individuals; a new or rehabilitated 
sewer line that serves community residents, including low-or moderate-
income residents; a mixed-income housing development that includes 
affordable housing for low- and moderate-income families; or a 
renovated elementary school that serves children from the community, 
including children from low- and moderate-income families. Other 
activities in the area, such as financing a project to build a sewer 
line spur that connects services to a middle-or upper-income housing 
development while bypassing a low-or moderate-income development that 
also needs the sewer services, generally would not qualify for 
revitalization or stabilization consideration in geographies designated 
as underserved. However, if an underserved geography is also designated 
as distressed or a disaster area, additional activities may be 
considered to revitalize or stabilize the geography, as explained in 
Q&A sections 563e.12(g)(4)(ii)-2 and 563e.12(g)(4)(iii)-3.

Section 563e.12(i) Community Development Service

    Section 563e.12(i)-3: What are examples of community development 
services?
    Examples of community development services include, but are not 
limited to, the following:
     Providing financial services to low- and moderate-income 
individuals through branches and other facilities located in low- and 
moderate-income areas, unless the provision of such services has been 
considered in the evaluation of a saving association's retail banking 
services under 12 CFR 563e.24(d);
     Providing technical assistance on financial matters to 
nonprofit, tribal or government organizations serving low- and 
moderate-income housing or economic revitalization and development 
needs;
     Providing technical assistance on financial matters to 
small businesses or community development organizations, including 
organizations and individuals who apply for loans or grants under the 
Federal Home Loan Banks' Affordable Housing Program;
     Lending employees to provide financial services for 
organizations facilitating affordable housing construction and 
rehabilitation or development of affordable housing;
     Providing credit counseling, home-buyer and home-
maintenance counseling, financial planning or other financial services 
education to promote community development and affordable housing;
     Establishing school savings programs and developing or 
teaching financial education curricula for low-or moderate-income 
individuals;
     Providing electronic benefits transfer and point of sale 
terminal systems to improve access to financial services, such as by 
decreasing costs, for low-or moderate-income individuals;
     Providing international remittance services that increase 
access to financial services by low- and moderate-income persons (for 
example, by offering reasonably priced international remittance 
services in connection with a low-cost account); and
     Providing other financial services with the primary 
purpose of community development, such as low-cost bank accounts, 
including ``Electronic Transfer Accounts'' provided pursuant to the 
Debt Collection Improvement Act of 1996, or free government check 
cashing that increases access to financial services for low-or 
moderate-income individuals.

Examples of technical assistance activities that might be provided to

[[Page 52379]]

community development organizations include:
     Serving on a loan review committee;
     Developing loan application and underwriting standards;
     Developing loan processing systems;
     Developing secondary market vehicles or programs;
     Assisting in marketing financial services, including 
development of advertising and promotions, publications, workshops and 
conferences;
     Furnishing financial services training for staff and 
management;
     Contributing accounting/bookkeeping services; and
     Assisting in fund raising, including soliciting or 
arranging investments.

Section 563e.12(t) Qualified Investment

    Section 563e.12(t)-1: When evaluating a qualified investment, what 
consideration will be given for prior-period investments?
    When evaluating a savings association's qualified investment 
record, examiners will consider investments that were made prior to the 
current examination, but that are still outstanding. Qualitative 
factors will affect the weighting given to both current period and 
outstanding prior-period qualified investments. For example, a prior-
period outstanding investment with a multi-year impact that addresses 
assessment area community development needs may receive more 
consideration than a current period investment of a comparable amount 
that is less responsive to area community development needs.
    Section 563e.12(t)-4: What are examples of qualified investments?
    Examples of qualified investments include, but are not limited to, 
investments, grants, deposits or shares in or to:
     Financial intermediaries (including, Community Development 
Financial Institutions (CDFIs), Community Development Corporations 
(CDCs), minority- and women-owned financial institutions, community 
loan funds, and low-income or community development credit unions) that 
primarily lend or facilitate lending in low- or moderate-income areas 
or to low- and moderate-income individuals in order to promote 
community development, such as a CDFI that promotes economic 
development on an Indian reservation;
     Organizations engaged in affordable housing rehabilitation 
and construction, including multifamily rental housing;
     Organizations, including for example, Small Business 
Investment Companies (SBICs), specialized SBICs, and Rural Business 
Investment Companies (RBICs), that promote economic development by 
financing small businesses or small farms;
     Facilities that promote community development in low- and 
moderate-income areas for low- and moderate-income individuals, such as 
youth programs, homeless centers, soup kitchens, health care 
facilities, battered women's centers, and alcohol and drug recovery 
centers;
     Projects eligible for low-income housing tax credits;
     State and municipal obligations, such as revenue bonds, 
that specifically support affordable housing or other community 
development;
     Not-for-profit organizations serving low- and moderate-
income housing or other community development needs, such as counseling 
for credit, home-ownership, home maintenance, and other financial 
services education; and
     Organizations supporting activities essential to the 
capacity of low- and moderate-income individuals or geographies to 
utilize credit or to sustain economic development, such as, for 
example, day care operations and job training programs that enable 
people to work.

Section 563e.26 Small Savings Association Performance Standards

    Section 563e.26-1: When evaluating a small savings association's 
performance, will examiners consider, at the institution's request, 
retail and community development loans originated or purchased by 
affiliates, qualified investments of affiliates, or community 
development services of affiliates?
    Yes. However, a small institution that elects to have examiners 
consider affiliate activities must maintain sufficient information that 
the examiners may evaluate these activities under the appropriate 
performance criteria and ensure that the activities are not claimed by 
another institution. The constraints applicable to affiliate activities 
claimed by large institutions also apply to small institutions. See Q&A 
section --.22(c)(2) and related guidance provided to large institutions 
regarding affiliate activities. Examiners will not include affiliate 
lending in calculating the percentage of loans and, as appropriate, 
other lending-related activities located in a savings association's 
assessment area.
    This concludes the text of OTS's revisions to the Interagency 
Questions and Answers Regarding Community Reinvestment.

    By the Office of Thrift Supervision.

    Dated: August 23, 2006.
John M. Reich,
Director.
 [FR Doc. E6-14648 Filed 9-1-06; 8:45 am]
BILLING CODE 6720-01-P