[Federal Register Volume 79, Number 175 (Wednesday, September 10, 2014)]
[Notices]
[Pages 53838-53850]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-21560]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket ID OCC-2014-0021]

FEDERAL RESERVE SYSTEM

[Docket No. OP-1497]

FEDERAL DEPOSIT INSURANCE CORPORATION


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

AGENCY: Office of the Comptroller of the Currency, Treasury (OCC); 
Board of Governors of the Federal Reserve System (Board); Federal 
Deposit Insurance Corporation (FDIC).

ACTION: Notice and request for comment.

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SUMMARY: The OCC, Board, and FDIC (the Agencies) propose to clarify and 
supplement their Interagency Questions and Answers Regarding Community 
Reinvestment to address questions raised by bankers, community 
organizations, and others regarding the Agencies' Community 
Reinvestment Act (CRA) regulations. The Agencies propose to revise 
three questions and answers that address (i) alternative systems for 
delivering retail banking services and (ii) additional examples of 
innovative or flexible lending practices. In addition, the Agencies 
propose to revise three questions and answers addressing community 
development-related issues, including economic development, community 
development loans, and activities that are considered to revitalize or 
stabilize an underserved nonmetropolitan middle-income geography. The 
Agencies also propose to add four new questions and answers, two of 
which address community development services, and two of which provide 
general guidance on responsiveness and innovativeness.

DATES: Comments on the proposed questions and answers must be received 
on or before November 10, 2014.

ADDRESSES: Comments should be directed to:
    OCC: Because paper mail in the Washington, DC area and at the OCC 
is subject to delay, commenters are encouraged to submit comments by 
email, if possible. Please use the title ``Community Reinvestment Act: 
Interagency Questions and Answers Regarding Community Reinvestment'' to 
facilitate the organization and distribution of the comments. You may 
submit comments by any of the following methods:
     Email: [email protected].
     Mail: Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency, Mail Stop 9W-11, 400 7th 
Street SW., Washington, DC 20219.
     Fax: (571) 465-4326.
     Hand Delivery/Courier: 400 7th Street SW., Washington, DC 
20219.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2014-0021'' in your comment. In general, the OCC will 
enter all comments received into the docket and publish them on the 
Regulations.gov Web site without change, including any business or 
personal information that you provide such as name and address 
information, email addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not enclose any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this notice by any of the following methods:
     Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC, 400 7th Street SW., Washington, DC. 
For security reasons, the OCC requires that visitors make an 
appointment to inspect comments. You may do so by calling (202) 649-
6700. Upon arrival, visitors will be required to present valid 
government-issued photo identification and to submit to security 
screening in order to inspect and photocopy comments.
     Docket: You may also view or request available background 
documents and project summaries using the methods described above.
    Board: You may submit comments, identified by Docket No. OP-1497 by 
any of the following methods:
     Agency Web site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include the 
docket number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Address to Robert deV. Frierson, Secretary, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue NW., Washington, DC 20551. All public comments will be made 
available on the Board's Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for 
technical reasons. Accordingly, comments will not be edited to remove 
any identifying or contact information. Public comments may also be 
viewed electronically or in paper in Room MP-500 of the Board's Martin 
Building (20th and C Streets NW., Washington, DC) between 9:00 a.m. and 
5:00 p.m. on weekdays.
    FDIC:
     Mail: Written comments should be addressed to Robert E. 
Feldman, Executive Secretary, Attention: Comments, Federal Deposit 
Insurance Corporation, 550 17th Street NW., Washington, DC 20429.
     Delivery: Comments may be hand delivered to the guard 
station at the rear of the 550 17th Street Building (located on F 
Street) on business days between 7:00 a.m. and 5:00 p.m.
     Agency Web site: http://www.fdic.gov/regulations/laws/federal/. Follow instructions for submitting comments on the agency Web 
site.
     Email: You may also electronically mail comments to 
[email protected].

FOR FURTHER INFORMATION CONTACT: 
    OCC: Bobbie K. Kennedy, Bank Examiner, Compliance Policy Division, 
(202) 649-5470; or Margaret Hesse, Senior Counsel, Community and 
Consumer Law Division, (202) 649-6350, Office of the Comptroller of the 
Currency, 400 7th Street SW., Washington, DC 20219.

[[Page 53839]]

    Board: Catherine M.J. Gates, Senior Project Manager, (202) 452-
2099; or Theresa A. Stark, Senior Project Manager, (202) 452-2302, 
Division of Consumer and Community Affairs, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW., 
Washington, DC 20551.
    FDIC: Patience R. Singleton, Senior Policy Analyst, Supervisory 
Policy Branch, Division of Depositor and Consumer Protection, (202) 
898-6958; Pamela A. Freeman, Senior Examination Specialist, Compliance 
& CRA Examinations Branch, Division of Depositor and Consumer 
Protection, (202) 898-3656; Surya Sen, Section Chief, Supervisory 
Policy Branch, Division of Depositor and Consumer Protection, (202) 
898-6699; or Richard M. Schwartz, Counsel, Legal Division, (202) 898-
7424, Federal Deposit Insurance Corporation, 550 17th Street NW., 
Washington, DC 20429.

SUPPLEMENTARY INFORMATION: 

Background

    The OCC, Board, and FDIC implement the CRA (12 U.S.C. 2901 et seq.) 
through their CRA regulations. See 12 CFR parts 25, 195, 228, and 345. 
The Agencies also issue the ``Interagency Questions and Answers 
Regarding Community Reinvestment'' (Questions and Answers) to provide 
further guidance to agency personnel, financial institutions, and the 
public. The Agencies first published the Questions and Answers under 
the auspices of the Federal Financial Institutions Examination Council 
(FFIEC) in 1996 (61 FR 54647), and last published the Questions and 
Answers in their entirety on March 11, 2010 (2010 Questions and 
Answers) (75 FR 11642). In 2013, the Agencies adopted revised guidance 
on community development topics that amended and superseded five 
questions and answers (Q&A) and added two new Q&As (2013 Guidance). See 
78 FR 69671 (Nov. 20, 2013).
    The Questions and Answers are grouped by the provision of the CRA 
regulations that they discuss, are presented in the same order as the 
regulatory provisions, and employ an abbreviated method of citing to 
the regulations. For example, the small bank performance standards for 
national banks appear at 12 CFR 25.26; for savings associations, the 
small savings association performance standards appear at 12 CFR 
195.26; for Federal Reserve System member banks supervised by the 
Board, they appear at 12 CFR 228.26; and for state nonmember banks, 
they appear at 12 CFR 345.26. For ease of reference, the citation to 
those regulatory provisions in the Questions and Answers is set forth 
in a simplified format as 12 CFR .26. Each individual Q&A is 
numbered using a system that consists of the regulatory citation and a 
number, connected by a dash. For example, the first Q&A addressing 12 
CFR .26 would be identified as Sec.  .26-1.
    In accordance with their statutory responsibilities, the Agencies 
regularly review examination policies, procedures, and guidance to 
better serve the goals of the CRA. To achieve these goals, the Agencies 
regularly conduct outreach with, and review comments from, industry, 
community organizations, and examiners, including public hearings held 
in 2010.\1\ Many of the comments reviewed raised issues relating to 
examiners' consideration given to access to banking services and 
community development services and, more generally, on the need for 
additional guidance on performance criteria under the lending, 
investment, and service tests. The Agencies reviewed the Questions and 
Answers and identified areas that may warrant clarification or 
additional guidance to address and clarify some of the issues raised by 
commenters.
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    \1\ See 75 FR 35686 (June 23, 2010).
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Overview of Comments

    Some commenters raised questions and concerns related to access to 
banking services and alternative systems for delivering retail banking 
services. For example, commenters stated that examiners place too much 
weight on the distribution of branching under the service test. These 
commenters suggested that the Agencies should ensure that financial 
institutions are evaluated in a manner that is responsive to changes in 
the financial services marketplace. Other commenters added that 
examiners should place more emphasis on providing access to, and 
promoting usage of, financial services that enable individuals and 
families to build wealth. Other commenters urged the Agencies to 
evaluate alternative delivery systems based on their actual 
effectiveness and availability, not just the fact that they are 
offered. In addition, commenters asserted that community development 
services are not given appropriate consideration in the service test 
and, by extension, in the overall CRA evaluation, relative to retail 
banking services.
    Some commenters indicated that the Agencies should increase their 
focus on qualitative factors when considering an institution's lending, 
investment, or services, particularly related to community development, 
and that the Agencies should encourage more strongly the delivery of 
high-impact products and services. Other commenters stated that the 
Agencies should encourage financial institutions to be flexible in 
designing products and services targeted to low- and moderate-income 
and underbanked individuals and geographies.
    Commenters also have urged the Agencies to provide incentives for 
financial institutions to offer fair and affordable credit products, 
such as amortizing small dollar loans that are sustainable for both 
borrowers and financial institutions. Some of these commenters urged 
the Agencies to adopt guidance that would encourage financial 
institutions to offer sustainable consumer loans, including 
alternatives to payday loans. In connection with small dollar and home 
mortgage lending, a number of commenters stressed the importance of 
financial literacy education activities and counseling.
    Commenters also addressed economic development. Some commenters 
stated that the Agencies should adopt guidance that would support the 
creation or expansion of technical assistance intermediaries that help 
new or existing small businesses access micro-enterprise or small 
business lending opportunities. Commenters also requested additional 
examples of CRA-eligible small business-related loans, investments, and 
services, particularly related to increasing small business lending to 
underbanked entrepreneurs.
    A number of commenters suggested that the Agencies should address 
whether alternative energy facilities and energy efficiency 
enhancements that are responsive to local needs are eligible for CRA 
consideration. The Agencies have also been asked whether financing that 
enables the expansion of communication technology in rural areas and in 
Native American communities would be eligible for CRA consideration.
    The Agencies propose to clarify the CRA regulations to address 
these questions and concerns. This notice proposing additional 
clarifications to the Agencies' CRA regulations builds upon the 
Agencies' 2013 Guidance addressing community development-related 
issues. After the Agencies have considered comments received on this 
proposal, the Agencies plan to formally adopt and republish the new and 
revised Q&As.

[[Page 53840]]

Proposed Revisions to Existing Q&As

I. Access to Banking Services

A. Availability and Effectiveness of Retail Banking Services

    The CRA regulations identify the performance criteria examiners 
consider when evaluating the availability and effectiveness of an 
institution's systems for delivering retail banking services under the 
service test. See 12 CFR .24(d). Specifically, the regulations 
provide that the Agencies evaluate the availability and effectiveness 
of a large institution's systems for delivering retail banking services 
pursuant to the following criteria:
    (1) The current distribution of the institution's branches among 
low-, moderate-, middle-, and upper-income geographies;
    (2) in the context of the current distribution of the institution's 
branches, the institution's record of opening and closing branches, 
particularly branches located in low- or moderate-income geographies or 
primarily serving low- or moderate-income individuals;
    (3) the availability and effectiveness of alternative systems for 
delivering retail banking services in low- and moderate-income 
geographies and to low- and moderate-income individuals; and
    (4) the range of services provided in low-, moderate-, middle-, and 
upper-income geographies and the degree to which the services are 
tailored to meet the needs of those geographies. See 12 CFR 
.24(d).
    Existing Q&As Sec.  .24(d)-1 and Sec.  .24(d)(3)-
1 provide further guidance related to the evaluation of retail banking 
services in the service test applicable to large financial 
institutions.
    Existing Q&A Sec.  .24(d)-1 provides guidance regarding 
how examiners evaluate the availability and effectiveness of an 
institution's systems for delivering retail banking services. The Q&A 
states, in part, that ``the service test performance standards place 
primary emphasis on full service branches while still considering 
alternative systems, such as automated teller machines (`ATM').'' The 
Q&A further states that alternative systems, such as ATMs, will be 
considered ``only to the extent that they are effective alternatives in 
providing services to low- and moderate-income areas and individuals.'' 
Based on this guidance, examiners have focused primarily on an 
institution's branching activities when evaluating the institution's 
service test performance. The emphasis on branch distribution continues 
despite technological advances in the retail banking industry, such as 
Internet or online banking, mobile banking, remote deposit capture, and 
24-hour Internet banking kiosks, which provide financial institutions 
new methods to deliver retail banking services to consumers.
    Some commenters contend that the primary emphasis on evaluating 
access to, and distribution of, physical branches to deliver retail 
banking services undervalues other means of providing these services, 
such as alternative delivery systems. Some of these commenters 
contended that this emphasis on the existence and distribution of 
retail bank branches is unwarranted, especially as financial 
institutions increasingly use alternative delivery systems to deliver 
financial services to all consumers. These commenters suggested that 
alternative delivery systems should receive greater consideration under 
the regulations' service test when they are effective in delivering 
retail banking services in low- and moderate-income geographies and to 
low- and moderate-income individuals. Other commenters, however, still 
believe that branches should be the primary emphasis of the service 
test.
    The Agencies agree with commenters that additional clarification of 
the extent to which alternative delivery systems will be considered is 
necessary in order to recognize an institution's use of such systems to 
make products and services available to benefit low- and moderate-
income geographies and individuals. Given the extent of technological 
innovation in the delivery of banking services, alternative delivery 
systems can create opportunities for institutions to better reach and 
serve low- and moderate-income geographies and individuals. 
Nonetheless, the Agencies recognize that, under the CRA regulations, 
alternative delivery systems supplement the services provided by a 
financial institution's branch and deposit-taking ATM structure because 
assessment areas are delineated around the institution's branches and 
ATMs.
    Therefore, the Agencies propose to revise existing Q&A Sec.  
.24(d)-1 to clarify how examiners should evaluate and consider 
alternative systems for delivering retail banking services in an 
institution's assessment area(s).
    The Agencies propose deleting language that states ``performance 
standards place primary emphasis on full service branches'' and further 
deleting the statement that provides that alternative systems are 
considered ``only to the extent'' that they are effective alternatives 
in providing needed services to low- and moderate-income geographies 
and individuals. Changes in technology and the financial market 
increasingly provide opportunities for financial institutions to use 
alternative delivery systems effectively to provide needed services in 
low- and moderate-income geographies and to low- and moderate-income 
individuals. The Agencies encourage the use of all types of delivery 
systems to help meet the needs of low- and moderate-income geographies 
and individuals and, therefore, believe that this language should be 
removed to provide certainty among financial institutions that such 
activities should be considered during a CRA evaluation.
    The Agencies believe that the proposed revisions to existing 
guidance would encourage broader availability of alternative delivery 
systems to low- and moderate-income geographies and individuals without 
diminishing the value full-service branches provide to communities. The 
text of proposed revised Q&A Sec.  .24(d)-1 follows:
    Q&A Sec.  .24(d)-1. How do examiners evaluate the 
availability and effectiveness of an institution's systems for 
delivering retail banking services?
    A1. Convenient access to full-service branches and effective 
alternative systems to deliver retail banking services within a 
community are important factors in determining the availability of 
credit and non-credit services. Examiners evaluate an institution's 
current distribution of branches and its record of opening and closing 
branches, particularly branches located in low- or moderate-income 
geographies or primarily serving low- or moderate-income individuals. 
However, an institution is not required to expand its branch network or 
operate unprofitable branches. Examiners also consider the availability 
and effectiveness of an institution's alternative systems for expanding 
the delivery of retail banking services by evaluating factors that 
demonstrate consumer accessibility and use of such systems in low- and 
moderate-income geographies and by low- and moderate-income 
individuals. These factors used in evaluating alternative systems for 
delivering retail banking services are discussed in Q&A Sec.  
.24(d)(3)-1.
    The Agencies solicit comments on all aspects of this proposed 
revised Q&A. In addition, the Agencies specifically request commenters' 
views on the following question.
    1. Does the proposed revised guidance strike the appropriate 
balance between consideration of traditional delivery systems (e.g., 
branches) and alternative systems for serving low- and moderate-income 
geographies and individuals?

[[Page 53841]]

B. Alternative Systems for Delivering Retail Banking Services

    As discussed above, the availability and effectiveness of 
alternative systems for delivering retail banking services in low- and 
moderate-income geographies and to low- and moderate-income individuals 
is one of four performance criteria that examiners consider when 
evaluating the availability and effectiveness of a financial 
institution's systems for delivering retail banking services. See 12 
CFR .24(d)(3). Existing Q&A Sec.  .24(d)(3)-1 is 
intended to provide additional guidance on how examiners evaluate 
alternative systems for delivering retail banking services. This Q&A 
currently states that there are a ``multitude of ways in which an 
institution can provide services'' and lists ATMs, banking by telephone 
or computer, and bank-by-mail as examples of alternative delivery 
systems. The answer further states, in part, that delivery systems 
``other than branches will be considered under the regulation to the 
extent that they are effective alternatives to branches in providing 
needed services to low- and moderate-income areas and individuals.''
    Commenters noted that the existing Q&A should be updated to include 
examples that reflect technological advances in delivering retail 
banking services. These commenters also noted that the existing Q&A 
does not discuss the regulations' requirement that examiners consider 
the availability of alternative systems, provide examples of how to 
measure their effectiveness in reaching low- and moderate-income 
geographies or individuals, or provide insight into how an institution 
can demonstrate that its alternative delivery systems are effectively 
reaching low- and moderate-income geographies or individuals located in 
the institution's assessment area.
    The Agencies agree with commenters' observation that additional 
guidance regarding how examiners will evaluate the availability and 
effectiveness of alternative delivery systems is warranted. In 
addition, the Agencies agree that it would be helpful to update the 
list of examples of alternative delivery systems even though the 
examples provided in the existing Q&A were not intended to limit 
consideration of new methods as technology evolves.
    To address commenters concerns, the Agencies propose to revise Q&A 
Sec.  .24(d)(3)-1 to recognize the broad range of alternative 
systems that financial institutions use to deliver retail banking 
services to low- and moderate-income geographies and individuals. The 
revised Q&A would also include examples of alternative delivery systems 
that reflect current technological advances in the industry, but also 
note that such examples are not intended to limit consideration of 
systems that have yet to be created.
    In addition, to recognize the industry's broader use of alternative 
systems for delivering retail banking services, the Agencies propose to 
provide further guidance on factors that examiners use to evaluate 
whether alternative delivery systems are an available and effective 
means of providing retail banking services to low- and moderate-income 
geographies and individuals. Specifically, the Agencies propose to 
revise existing Q&A Sec.  .24(d)(3)-1 to further clarify how 
examiners can assess the availability and effectiveness of an 
institution's alternative delivery systems by evaluating factors that 
demonstrate consumer accessibility and the use of those systems in low- 
and moderate-income geographies and by low- and moderate-income 
individuals. The Agencies propose that examiners evaluate the following 
factors when assessing the availability and effectiveness of an 
institution's alternative delivery systems: (i) The ease of access, 
whether physical or virtual; (ii) the cost to consumers, as compared 
with other delivery systems; (iii) the range of services delivered; 
(iv) the ease of use; (v) the rate of adoption; and (vi) the 
reliability of the system. The Agencies do not intend that every 
feature or factor would need to be satisfied for an institution's 
alternative systems for delivering retail banking services to be 
considered available and effective. Further, as is currently the case, 
alternative systems for delivering retail banking services are 
considered only when they are offered, which assumes that the necessary 
infrastructure or technology supporting their use is available.
    The proposed revised Q&A would also state that financial 
institutions could provide available data on consumer usage or 
transactions and the other factors outlined above to demonstrate the 
availability and effectiveness of the institution's alternative 
delivery systems. To provide flexibility to financial institutions, the 
proposed revised guidance would clarify that examiners will consider 
any information an institution maintains and provides demonstrating 
that the institution's alternative delivery systems are available to, 
and used by, low- and moderate-income individuals.
    The text of proposed revised Q&A Sec.  .24(d)(3)-1 
follows:
    Q&A Sec.  .24(d)(3)-1. How do examiners evaluate 
alternative systems for delivering retail banking services?
    A1. There are a number of alternative systems used by financial 
institutions to deliver retail banking services to customers. Non-
branch delivery systems, such as ATMs, online and mobile banking, and 
other means by which banks provide services to their customers evolve 
over time. No matter the means of delivery, examiners evaluate the 
extent to which the alternative delivery systems are available and 
effective in providing financial services to low- and moderate-income 
geographies and individuals. For example, a system may be determined to 
be effective based on the accessibility of the system to low- and 
moderate-income geographies and low- and moderate-income individuals.
    To determine whether a financial institution's alternative delivery 
system is an available and effective means of delivering retail banking 
services in low- or moderate-income geographies and to low- or 
moderate-income individuals, examiners may consider a variety of 
factors, including
     The ease of access, whether physical or virtual;
     the cost to consumers, as compared with other delivery 
systems;
     the range of services delivered;
     the ease of use;
     the rate of adoption; and
     the reliability of the system.
    Examiners will consider any information an institution maintains 
and provides to examiners demonstrating that the institution's 
alternative delivery systems are available to, and used by, low- or 
moderate-income individuals, such as data on customer usage or 
transactions.
    The Agencies solicit comments on all aspects of this proposed 
revised Q&A. In addition, the Agencies specifically request commenters' 
views on the following questions.
    2. Are the factors listed for consideration when examiners evaluate 
the availability and effectiveness of alternative delivery systems 
sufficiently flexible to be used by examiners as the financial services 
marketplace evolves? Are there other factors that should be included?
    3. What types of information are financial institutions likely to 
routinely maintain that may be used to demonstrate that an 
institution's alternative delivery systems are available to, and used 
by, low- and moderate-income individuals?
    4. What other sources of data and quantitative information could 
examiners use to evaluate the ease of

[[Page 53842]]

access; cost to consumers, as compared with other delivery systems; 
range of services delivered; ease of use; rate of adoption; and 
reliability of alternative delivery systems? Do financial institutions 
have such data readily available for examiners to review?
    5. When considering cost to consumers, as compared with other 
delivery systems, and the range of services delivered, should examiners 
evaluate these features relative to other delivery systems (i) offered 
by the institution, (ii) offered by institutions within the 
institution's assessment area(s), or (iii) offered by the banking 
industry generally?
    6. Do the proposed revisions adequately address changes in the way 
financial institutions deliver products in the context of assessment 
area(s) based on the location of a financial institution's branches and 
deposit-taking ATMs?

II. Innovative or Flexible Lending Practices

    Under the performance standards applicable to large financial 
institutions, an institution's use of innovative or flexible lending 
practices is one of five factors examiners review as part of the 
lending test. See 12 CFR .22(b)(5). Examiners evaluate an 
institution's ``use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or moderate-
income individuals or geographies.'' See 12 CFR .22(b)(5). 
Existing Q&A Sec.  .22(b)(5)-1 provides guidance regarding the 
range of practices that examiners may consider in evaluating the 
innovativeness or flexibility of an institution's lending practices, 
and lists two examples of such practices.
    Existing Q&A Sec.  .22(b)(5)-1 states that examiners are 
not limited to reviewing the overall variety and specific terms and 
conditions of credit products when evaluating innovativeness, but that 
an evaluation may also include consideration of related innovations 
that augment the success and effectiveness of the institution's 
community development loan program or lending programs that address the 
credit needs of low- or moderate-income geographies or individuals. The 
existing guidance provides two examples of practices that may or may 
not be innovative or flexible on their own, but are viewed as 
innovative practices when considered in conjunction with related 
activity. The current examples include (i) a technical assistance 
program for loan recipients administered in conjunction with a 
community development loan program, and (ii) a contracting program for 
small business borrowers established in connection with a small 
business lending program. These examples emphasize that practices 
receive consideration under the lending test as being innovative when 
they augment the success and effectiveness of particular lending 
programs that address the credit needs of low- or moderate-income 
geographies or individuals.
    The Agencies believe that, when implemented correctly, innovative 
or flexible practices can help meet the credit needs of low- or 
moderate-income geographies or individuals. The Agencies believe 
existing guidance would benefit from additional examples of innovative 
or flexible lending practices that reflect advancement in lending. 
Including more recent examples may help examiners and institutions 
think more broadly about the types of practices that could encourage 
additional lending that would benefit low- or moderate-income 
geographies or individuals.
    The Agencies propose to revise existing Q&A Sec.  
.22(b)(5)-1 to expand the list of examples of innovative or 
flexible lending practices. The proposed revised Q&A would explain that 
examiners will consider whether, and to what extent, the innovative or 
flexible practices augment the success and effectiveness of the 
institution's lending program. The proposed Q&A also would emphasize 
that an innovative or flexible lending practice is not required to 
obtain a specific rating, but rather is a qualitative consideration 
that, when present, can enhance a financial institution's CRA 
performance.
    In addition, the Agencies propose to revise the Q&A by adding two 
new examples of innovative or flexible lending practices. The first 
example describes small dollar loan programs as an innovative practice 
when such loans are made in a safe and sound manner with reasonable 
terms, and are offered in conjunction with outreach initiatives that 
include financial literacy or a savings component. The Agencies are 
including small dollar loan programs as an example of an innovative or 
flexible lending practice to encourage such programs as alternatives to 
higher-cost credit products that many low- or moderate-income 
individuals currently may depend upon to meet their small dollar credit 
needs.
    The Agencies note that small dollar loan programs currently receive 
consideration under the lending test, and that these programs are 
already referenced in Q&A Sec.  .22(a)-1 as a type of lending 
activity that is likely to be responsive in helping to meet the credit 
needs of many communities. See Q&A Sec.  .22(a)-1. However, 
including small dollar loan programs as an example of an innovative or 
flexible lending practice acknowledges that banks may employ outreach 
initiatives in conjunction with financial literacy education or offer 
linked savings programs to improve the success of affiliated lending 
programs in meeting the credit needs of their communities. The Agencies 
believe that ensuring proper consideration for such initiatives as 
innovative or flexible lending practices is consistent with the goals 
of the regulations because they facilitate institutions' abilities to 
meet the credit needs of their communities.
    The second example of an innovative or flexible lending practice 
that the Agencies propose to add to existing Q&A Sec.  
.22(b)(5)-1 describes mortgage or consumer lending programs 
that utilize alternative credit histories in a manner that would 
benefit low- or moderate-income individuals. The Agencies understand 
that low- or moderate-income individuals with limited conventional 
credit histories face challenges in obtaining access to credit. 
Alternative credit histories supplement conventional trade line 
information with additional information about the borrower, such as 
rent and utility payments. For individuals who do not qualify for 
credit based on the use of conventional credit reports, but who have a 
positive payment history with regard to obligations such as a rental 
agreement or utility account, such additional information may 
supplement an assessment of a borrower's risk profile, consistent with 
safe and sound underwriting practices. The Agencies believe that 
considering alternative credit histories to supplement conventional 
underwriting practices may provide an opportunity for some additional 
creditworthy low- or moderate-income individuals to gain access to 
credit.
    Finally, the Agencies propose to revise the existing question's 
reference to a ``range of practices,'' to conform the question to the 
existing and proposed revised answers.
    The text of proposed revised Q&A Sec.  .22(b)(5)-1 
follows:
    Sec.  .22(b)(5)-1: What do examiners consider in 
evaluating the innovativeness or flexibility of an institution's 
lending under the lending test applicable to large institutions?
    A1. In evaluating the innovativeness or flexibility of an 
institution's lending practices (and the complexity and innovativeness 
of its community development lending), examiners will not be limited to 
reviewing the overall

[[Page 53843]]

variety and specific terms and conditions of the credit products 
themselves. Examiners also consider whether, and the extent to which, 
innovative or flexible terms or products augment the success and 
effectiveness of the institution's community development loan programs 
or, more generally, of its loan programs that address the credit needs 
of low- or moderate-income geographies or individuals. Although 
examiners evaluate how innovative or flexible lending practices address 
the credit needs of low- or moderate-income geographies or individuals, 
an innovative or flexible lending practice is not required in order to 
obtain a specific rating. Examples of innovative or flexible lending 
practices include:
     In connection with a community development loan program, 
an institution may establish a technical assistance program under which 
the institution, directly or through third parties, provides affordable 
housing developers and other loan recipients with financial consulting 
services. Such a technical assistance program may, by itself, 
constitute a community development service eligible for consideration 
under the service test of the CRA regulations. In addition, the 
technical assistance may be considered favorably as an innovative or 
flexible practice that augments the success and effectiveness of the 
related community development loan program.
     In connection with a small business lending program in a 
low- or moderate-income area and consistent with safe and sound lending 
practices, an institution may implement a program under which, in 
addition to providing financing, the institution also contracts with 
the small business borrowers. Such a contracting arrangement would not, 
itself, qualify for CRA consideration. However, it may be favorably 
considered as an innovative or flexible practice that augments the loan 
program's success and effectiveness, and improves the program's ability 
to serve community development purposes by helping to promote economic 
development through support of small business activities and 
revitalization or stabilization of low- or moderate-income geographies.
     In connection with a small dollar loan program offered in 
a safe and sound manner and with reasonable terms, an institution may 
establish outreach initiatives or financial counseling targeted to low- 
or moderate-income individuals or communities. The institution's 
efforts to encourage the availability, awareness, and use of the small 
dollar loan program to meet the credit needs of low- and moderate-
income individuals, in lieu of higher-cost credit, should augment the 
success and effectiveness of the lending program. Such loans may be 
considered responsive under Q&A Sec.  .22(a)-1, and the use of 
such outreach initiatives in conjunction with financial literacy 
education or linked savings programs also may be favorably considered 
as an innovative or flexible practice to the extent that they augment 
the success and effectiveness of the related loan program. Such 
initiatives may receive consideration under other performance criteria 
as well. For example, an initiative to partner with a nonprofit 
organization to provide financial counseling that encourages 
responsible use of credit may, by itself, constitute a community 
development service eligible for consideration under the service test.
     In connection with a mortgage or consumer lending program 
targeted to low- or moderate-income geographies or individuals, 
consistent with safe and sound lending practices, an institution may 
establish underwriting standards that utilize alternative credit 
histories, which would benefit low- and moderate-income individuals who 
lack sufficient conventional credit histories to be evaluated under the 
bank's underwriting standards. The use of such underwriting standards 
may be favorably considered as an innovative or flexible practice that 
augments the success and effectiveness of the lending programs.
    The Agencies solicit comments on all aspects of this proposed 
revised Q&A. In addition, the Agencies specifically request commenters' 
views on the following questions.
    7. Is the proposed revised guidance sufficient to encourage 
institutions to design more innovative or flexible lending programs 
that are responsive to community needs?
    8. Are the new examples described in the proposed revised guidance 
useful? Do the benefits of using alternative credit histories in 
underwriting standards that benefit low- or moderate-income persons 
outweigh any concerns raised by the use of alternative credit histories 
of which the Agencies should be aware?
    9. Is there additional guidance that the Agencies should provide to 
better enable examiners and institutions to identify those 
circumstances in which the use of alternative credit histories will 
benefit low- or moderate-income individuals?

III. Community Development

    Community development is an important component of community 
reinvestment and is considered in the CRA evaluations of financial 
institutions of all types and sizes. Community development activities 
are considered under the regulations' large institution, intermediate 
small institution, and wholesale and limited purpose institution 
performance tests. See 12 CFR Sec. Sec.  .22(b)(4), 
.23, .24(e), .26(c), and 
.25, respectively. In addition, small institutions 
may use community development activity to receive consideration toward 
an outstanding rating.
    The Agencies believe that community development generally improves 
the circumstances for low- and moderate-income individuals and 
stabilizes and revitalizes the communities in which they live or work. 
The 2013 Guidance addressed several aspects of community development. 
The Agencies propose to further refine the Questions and Answers to 
provide additional clarification about community development-related 
topics that were not addressed in the 2013 Guidance.

A. Economic Development

    The CRA regulations at 12 CFR .12(g)(3) define 
community development to include ``activities that promote economic 
development by financing businesses or farms that meet the size 
eligibility standards of the Small Business Administration's 
Development Company or Small Business Investment Company programs (13 
CFR 121.301) or have gross annual revenues of $1 million or less.'' The 
Questions and Answers provide additional guidance on activities that 
promote economic development in Q&As Sec.  .12(g)(3)-
1, Sec.  .12(i)-1, Sec.  .12(i)-3, 
and Sec.  .12(t)-4.
    Existing Q&A Sec.  .12(g)(3)-1 further explains 
what is meant by the phrase ``promote economic development.'' The 
guidance provides that activities promote economic development by 
financing small businesses or farms if they meet two ``tests'': (i) A 
``size test'' (e.g., the recipient of the activity must meet the size 
eligibility standards of the Small Business Administration's 
Development Company (SBDC) or Small Business Investment Company (SBIC) 
or have gross annual revenues of $1 million or less); and (ii) a 
``purpose test,'' which is intended to ensure that a financial 
institution's activities promote economic development consistent with 
the CRA regulations. Existing Q&A Sec.  .12(g)(3)-1 
states

[[Page 53844]]

that activities meet the purpose test if they ``support permanent job 
creation, retention, and/or improvement for persons who are currently 
low- or moderate-income, or support permanent job creation, retention, 
and/or improvement either in low- or moderate-income geographies or in 
areas targeted for redevelopment by Federal, state, local, or tribal 
governments.'' The Q&A further explains, ``[t]he Agencies will presume 
that any loan to or investment in a SBDC, SBIC, Rural Business 
Investment Company, New Markets Venture Capital Company, or New Markets 
Tax Credit-eligible Community Development Entity promotes economic 
development.''
    Some bankers contend that existing Q&A Sec.  
.12(g)(3)-1 narrows the scope and intent of the 
regulations, which do not define ``economic development'' beyond the 
``size test.'' They believe 12 CFR .12(g)(3) provides 
that all activities that finance businesses or farms that meet the size 
eligibility standards have a purpose of promoting economic development, 
and that no additional consideration beyond financing is necessary to 
demonstrate the promotion of economic development.
    In addition, others have stated that the existing guidance on 
whether an activity promotes economic development is unclear and leads 
to the inconsistent treatment by examiners of economic development 
activities under the CRA regulations. For example, the purpose test in 
existing Q&A Sec.  .12(g)(3)-1 refers to ``permanent 
job creation, retention, and/or improvement for persons who are 
currently low- or moderate-income.'' (Emphasis added.) The Agencies 
have learned through discussions with bankers and others that the use 
of the word ``currently'' may lead some examiners to recognize only 
activities that support low-wage jobs. Because bankers often are unable 
to demonstrate that employees were low- or moderate-income when hired, 
they often track the number of jobs at wages commensurate with incomes 
that are low or moderate for the area. As a result, the guidance may 
create incentives inconsistent with its own stated purpose of promoting 
job improvement opportunities for low- or moderate-income persons. 
Bankers and others also have indicated that the purpose test in the 
existing Q&A may have a dampening effect on economic development and 
related job creation. Notably, statistics show that small businesses 
are responsible for roughly one-half of all private sector employment 
and create a significant number of jobs. However, financial 
institutions' activities with micro-lenders and financial 
intermediaries that provide assistance to start-up businesses may not 
receive consideration because those institutions cannot demonstrate 
that the loans made by those entities are to, or will create jobs for, 
persons who are currently low- or moderate-income, or to businesses 
located in low- or moderate-income areas, until the micro-lender or 
financial intermediary makes loans to start-up businesses with the 
institutions' funds. As a result, financial institutions may hesitate 
to provide assistance to such entities, potentially reducing the 
resources available to micro-lenders and other financial intermediaries 
and the potential new businesses that would depend on their support.
    In addition, some Q&As provide examples of activities that promote 
economic development under the CRA regulations that are not mentioned 
in the purpose test as outlined in Q&A Sec.  
.12(g)(3)-1. Specifically, both Q&As Sec.  
.12(i)-1 and Sec.  .12(i)-3 note 
that providing technical assistance to small businesses is a community 
development service that involves the ``provision of financial 
services'' and Q&A Sec.  .12(t)-4 lists examples of 
qualified investments, including some that promote economic 
development. These examples do not refer to the narrower scope of the 
purpose test and, as a result, if read and applied independently from 
the guidance in Q&A Sec.  .12(g)(3)-1, could lead to 
inconsistent application of the guidance on examinations.
    The Agencies note that the existing guidance provides that to meet 
the purpose test, the institution's activity must promote economic 
development. However, the Agencies agree that the guidance may benefit 
from additional clarification to facilitate consistent application of 
the ``purpose test'' and to ensure that all activities promoting 
economic development are considered.
    Accordingly, the Agencies propose several revisions to Q&A Sec.  
.12(g)(3)-1 to clarify what is meant by ``promote 
economic development'' and to better align this Q&A with other 
guidance, including Q&As Sec.  .12(i)-1 and Sec.  
.12(i)-3, regarding consideration for economic 
development activities undertaken by financial institutions. First, the 
Agencies propose to revise the statement that activities promote 
economic development if they ``support permanent job creation, 
retention, and/or improvement for persons who are currently low- or 
moderate-income'' by removing the word ``currently.'' The Agencies 
believe that, as currently drafted, the statement may unnecessarily 
focus bank community development activities on supporting low-wage 
jobs.
    Second, the Agencies propose to add additional examples that would 
demonstrate a purpose of economic development. The Agencies propose to 
revise the guidance to add that activities promote economic development 
if they support (1) permanent job creation, retention, and/or 
improvement through (i) workforce development and/or job or career 
training programs that target unemployed or low- or moderate-income 
persons; or (ii) the creation or development of small businesses or 
farms; or (iii) technical assistance or supportive services for small 
businesses or farms, such as shared space, technology, or 
administrative assistance; or (2) Federal, state, local, or tribal 
economic development initiatives that include provisions for creating 
or improving access by low- or moderate-income persons, to jobs, 
affordable housing, financial services, or community services.
    The Agencies also propose to re-format the guidance to list the 
various types of activities that demonstrate a purpose of economic 
development separately. Finally, the proposed revised Q&A would include 
Community Development Financial Institutions that finance small 
businesses or small farms in the list of entities for which the 
Agencies will presume that any loan to or investment in promotes 
economic development.
    The text of proposed revised Q&A Sec.  
.12(g)(3)-1 follows:
    Sec.  .12(g)(3)-1:``Community development'' 
includes activities that promote economic development by financing 
businesses or farms that meet certain size eligibility standards. Are 
all activities that finance businesses and farms that meet the size 
eligibility standards considered to be community development?
    A1. No. The concept of ``community development'' under 12 CFR 
.12(g)(3) involves both a ``size'' test and a 
``purpose'' test that clarify what economic development activities are 
considered under CRA. An institution's loan, investment, or service 
meets the ``size'' test if it finances, either directly, or through an 
intermediary, businesses or farms that either meet the size eligibility 
standards of the Small Business Administration's Development Company 
(SBDC) or Small Business Investment Company (SBIC) programs, or have 
gross annual revenues of $1 million or less. To meet the ``purpose 
test,'' the institution's loan, investment, or service must promote 
economic development. These activities are

[[Page 53845]]

considered to promote economic development if they support:
     Permanent job creation, retention, and/or improvement
    [cir] For low- or moderate-income persons;
    [cir] In low- or moderate-income geographies;
    [cir] In areas targeted for redevelopment by Federal, state, local, 
or tribal governments;
    [cir] Through workforce development and/or job or career training 
programs that target unemployed or low- or moderate-income persons;
    [cir] Through the creation or development of small businesses or 
farms; or
    [cir] Through technical assistance or supportive services for small 
businesses or farms, such as shared space, technology, or 
administrative assistance; or
     Federal, state, local, or tribal economic development 
initiatives that include provisions for creating or improving access by 
low- or moderate income persons, to jobs, affordable housing, financial 
services, or community services.

The agencies will presume that any loan to or investment in a SBDC, 
SBIC, Rural Business Investment Company, New Markets Venture Capital 
Company, New Markets Tax Credit-eligible Community Development Entity, 
or Community Development Financial Institution that finances small 
businesses or small farms promotes economic development. (See also Q&As 
Sec.  .42(b)(2)-2, Sec.  .12(h)-2, 
and Sec.  .12(h)-3 for more information about which 
loans may be considered community development loans.)

    The Agencies solicit comments on all aspects of this proposed 
revised Q&A. In addition, the Agencies specifically request commenters' 
views on the following questions.
    10. Does the proposed revised guidance clarify what economic 
development activities are considered under CRA?
    11. What information should examiners use to demonstrate that an 
activity meets the size and purpose tests described in the proposed 
revised guidance?
    12. Does the proposed revised guidance help to clarify what is 
meant by job creation for low- or moderate-income individuals?
    13. Are the proposed examples demonstrating that an activity 
promotes economic development for CRA purposes appropriate? Are there 
other examples the Agencies should include that would demonstrate that 
an activity promotes economic development for CRA purposes?
    14. What information should examiners review when determining the 
performance context of an institution seeking CRA consideration for its 
economic development activities?
    15. What information is available that could be used to evaluate 
the local business environment and economic development needs in a low- 
or moderate-income geography or among low- or moderate-income 
individuals within the institution's assessment area(s)?
    16. Are there particular measurements of impact that examiners 
should consider when evaluating the quality of jobs created, retained, 
or improved?

B. Community Development Loans

    The Agencies' CRA regulations at 12 CFR .12(h) 
define ``community development loan'' to mean a loan that has community 
development as its primary purpose. Existing Q&A Sec.  
.12(h)-1 provides examples of community development 
loans. The Agencies propose to add an example to clarify how examiners 
may consider loans related to renewable energy or energy-efficient 
technologies that also have a community development component. These 
activities commonly are referred to as ``green'' activities and are not 
specifically addressed under existing guidance.
    Community organizations, examiners, and bankers have stated that 
affordable housing providers may install renewable energy or energy-
efficient technologies to help reduce operational costs and maintain 
the affordability of single- and multi-family rental housing. 
Additionally, affordable housing developers may incorporate energy-
efficient equipment into new and rehabilitated housing units or common 
area facilities to reduce utility costs and improve long-term 
affordability for low- and moderate-income homeowners. Further, 
communities may use sustainable energy sources to reduce the cost of 
providing services. Communities also may incorporate the development of 
related industries into local economic development plans to support job 
creation initiatives.
    Bankers have commented that examiners do not always give 
consideration for projects or initiatives that incorporate ``green'' 
components because the concept is not specifically addressed in either 
the CRA regulations or the Questions and Answers. In addition, 
examiners may be hesitant to provide consideration because the benefit 
to low- or moderate-income residents, borrowers, or communities may not 
be easily quantified, particularly in cases in which the benefit is 
indirect. For example, renewable energy savings may reduce operating 
costs for an affordable housing development overall, without 
necessarily accruing a direct benefit to individual residents. Another 
example of such indirect benefit might be a loan to facilitate the 
installation of a solar power system, when the reduction in utility 
costs due to the sale of electricity generated by the solar panels is 
allocated to cover the expense of providing electricity to common areas 
of an affordable housing development.
    The Agencies have learned of examples in which financial 
institutions helped finance energy-efficiency initiatives related to 
the rehabilitation or development of affordable housing projects and 
were not given CRA consideration for their activities. The Agencies 
have also heard from bankers that having specific examples in guidance 
helps to create incentives within their financial institutions to 
pursue such projects. The Agencies concur that loans that enable energy 
initiatives that help to reduce the cost of operating or maintaining 
affordable housing, even if the benefit to residents is indirect, 
qualify for consideration as community development loans.
    To address these comments and concerns, the Agencies propose to 
revise Q&A Sec.  .12(h)-1 to incorporate a new 
example of a community development loan that would illustrate how a 
loan that finances renewable energy or energy-efficient technologies 
and that also has a community development component may be considered 
in a financial institution's performance evaluation.
    All loans considered in an institution's CRA evaluation, including 
loans that finance renewable energy or energy-efficient technologies, 
must be consistent with the safe and sound operation of the institution 
and should not include features that could compromise any lender's 
existing lien position.
    The text of proposed revised Q&A Sec.  .12(h)-1 
follows:
    Sec.  .12(h)-1:What are examples of community 
development loans?
    A1. Examples of community development loans include, but are not 
limited to, loans to
     Borrowers for affordable housing rehabilitation and 
construction, including construction and permanent financing of 
multifamily rental property serving low- and moderate-income persons;
     not-for-profit organizations serving primarily low- and 
moderate-income

[[Page 53846]]

housing or other community development needs;
     borrowers to construct or rehabilitate community 
facilities that are located in low- and moderate-income areas or that 
serve primarily low- and moderate-income individuals;
     financial intermediaries including Community Development 
Financial Institutions, New Markets Tax Credit-eligible Community 
Development Entities, Community Development Corporations, minority- and 
women-owned financial institutions, community loan funds or pools, and 
low-income or community development credit unions that primarily lend 
or facilitate lending to promote community development;
     local, state, and tribal governments for community 
development activities;
     borrowers to finance environmental clean-up or 
redevelopment of an industrial site as part of an effort to revitalize 
the low- or moderate-income community in which the property is located;
     businesses, in an amount greater than $1 million, when 
made as part of the Small Business Administration's 504 Certified 
Development Company program; and
     borrowers to finance renewable energy or energy-efficient 
equipment or projects that support the development, rehabilitation, 
improvement, or maintenance of affordable housing or community 
facilities, such as a health clinic, even if the benefit to low- or 
moderate-income individuals from reduced cost of operations is 
indirect, such as reduced cost of providing electricity to common areas 
of an affordable housing development.
    The rehabilitation and construction of affordable housing or 
community facilities, referred to above, may include the abatement or 
remediation of, or other actions to correct, environmental hazards, 
such as lead-based paint, that are present in the housing, facilities, 
or site.
    The Agencies solicit comments on all aspects of this proposed 
revised Q&A. In addition, the Agencies specifically request commenters' 
views on the following questions.
    17. Should loans for renewable energy or energy-efficient equipment 
or projects that support the development, rehabilitation, improvement, 
or maintenance of community facilities that serve low- or moderate-
income individuals be considered under the CRA regulations?
    18. Do the proposed revisions make clear which energy-efficiency 
activities would be considered under the CRA regulations?

C. Revitalize or Stabilize Underserved Nonmetropolitan Middle-Income 
Geographies

    The Agencies' CRA regulations at 12 CFR .12(g)(4) define 
community development to include activities that revitalize or 
stabilize particular areas. Existing Q&A Sec.  .12(g)(4)(iii)-
4 provides further guidance by listing examples of activities that help 
to revitalize or stabilize underserved nonmetropolitan middle-income 
geographies. The Agencies propose to revise this guidance by adding an 
example of a qualified activity related to communications 
infrastructure.
    The Federal government actively promotes the expansion of broadband 
infrastructure into rural and tribal areas due to its importance to 
global competitiveness, job creation, innovation, and the expansion of 
markets for American businesses. Yet many areas continue to lack 
adequate access to this crucial resource.\2\ Further, the availability 
of broadband is essential to access banking services, particularly as 
financial institutions shift away from branch-based delivery systems. 
Currently, consumers and small businesses in many rural and tribal 
areas may not have reliable access to Internet-based alternative 
delivery systems for banking services because they do not have access 
to broadband service. In addition, improved broadband access supports 
economic development, as small businesses and farms increasingly use 
broadband-reliant technologies for payment processing systems, remote 
deposit capture, to access credit facilities, and to market and arrange 
delivery of products.
---------------------------------------------------------------------------

    \2\ See ``Accelerating Broadband Infrastructure Deployment,'' 
Exec. Order No. 13,616, 77 FR 36903 (June 20, 2012).
---------------------------------------------------------------------------

    The Agencies agree that the availability of a reliable 
communications infrastructure is important to help to revitalize or 
stabilize underserved nonmetropolitan middle-income geographies. It is 
particularly important as banking services, as well as services such as 
credit and housing counseling, are increasingly delivered online.
    To address these concerns, the Agencies propose to add a new 
example involving communication infrastructure as an activity that 
would be considered to ``revitalize or stabilize'' an underserved 
nonmetropolitan middle-income geography. Additionally, in order to 
improve readability, the format of the answer has been revised to 
include a bulleted list containing the examples of activities. The text 
of proposed revised Q&A Sec.  .12(g)(4)(iii)--4 
follows:


Sec.  .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?

    A4. 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, affordable housing, or 
communication services, 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;
     a renovated elementary school that serves children from 
the community, including children from low- and moderate-income 
families; or
     a new or rehabilitated communication infrastructure, such 
as broadband internet service, that serves the community, including 
low- and moderate-income residents.
    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&As Sec.  .12(g)(4)(ii)-2 and 
Sec.  .12(g)(4)(iii)-3.

[[Page 53847]]

    The Agencies solicit comments on all aspects of this proposed 
revised Q&A. In addition, the Agencies specifically request commenters' 
views on the following questions.
    19. Should communications infrastructure, such as broadband 
internet service, that serves an institution's community, including 
low- and moderate-income residents, be considered an activity that 
revitalizes or stabilizes a community? Should CRA consideration be 
given to such activities?
    20. Does the proposed revised guidance sufficiently clarify which 
activities related to communications infrastructure would be considered 
under the CRA?

Proposed New Questions and Answers

I. Community Development Services

A. Evaluating Retail Banking and Community Development Services

    Community development services are an important component of 
community reinvestment. These services promote credit and affordable 
product availability, technical assistance to community development 
organizations, and financial education programs for low- and moderate-
income individuals. The performance criteria for the large institution 
service test are comprised of two parts: (i) Retail banking services, 
and (ii) community development services. Pursuant to the regulations, 
examiners analyze both the availability and effectiveness of a 
financial institution's systems for delivering retail banking services 
and the extent and innovativeness of its community development 
services.
    Despite the benefits of community development services, and 
regulatory language requiring their consideration, as discussed above, 
commenters have asserted that community development services are not 
given sufficient consideration in the service test relative to retail 
banking services. To address this concern, the Agencies are proposing a 
new Q&A Sec.  .24(a)-1 that would clarify how retail banking 
services and community development services are evaluated. In addition, 
the proposed new Q&A would explain the importance of the community 
development service criterion of the service test.
    The CRA regulations define a community development service as a 
service that (i) has as its primary purpose community development; (ii) 
is related to the provision of financial services; and (iii) has not 
been considered in the evaluation of the institution's retail banking 
services under 12 CFR Sec.  .24(d). Examples of community 
development services noted in the Questions and Answers include retail 
services that benefit or serve low- or moderate-income consumers. 
Consequently, many examiners consider services that benefit low- and 
moderate-income consumers, such as low-cost transaction or savings 
accounts and electronic benefit transfers, under the retail performance 
criteria of the service test rather than as community development 
services.
    Under the regulations, the Agencies evaluate community development 
services pursuant to two criteria: (i) The extent to which the 
institution provides community development services, and (ii) the 
innovativeness and responsiveness of community development services. 
See 12 CFR Sec.  .24(e). However, commenters contend that 
there seems to be little emphasis placed on determining whether 
products and services, which are intended to improve or increase access 
by low- or moderate-income individuals to financial services, are 
effective or responsive to community needs as required under the 
regulation.
    Accordingly, the Agencies propose a new Q&A Sec.  
.24(a)--1 to clarify how retail banking services and 
community development services are evaluated. The Agencies intend this 
clarification to improve consistency and reduce uncertainty regarding 
the performance criteria in the service test and encourage additional 
community development services by affirming the importance of community 
development services. The text of proposed new Q&A Sec.  
.24(a)-1 follows:


Sec.  .24(a)-1:  How do examiners evaluate retail banking 
services and community development services under the large institution 
service test?

    A1. In evaluating retail services, examiners consider the 
availability and effectiveness of an institution's systems to deliver 
banking services, particularly in low- and moderate-income geographies 
and to low- and moderate-income individuals, the range of services 
provided in low-, moderate-, middle-, and upper-income geographies, and 
the degree to which the services are tailored to meet the needs of 
those geographies.
    In evaluating community development services, examiners consider 
the extent of community development services offered, and the 
responsiveness and effectiveness of those retail services deemed 
community development services under Q&A Sec.  
.12(i)--3 because they improve or increase access to 
financial services by low- and moderate-income individuals or in low- 
or moderate-income geographies. Examiners will consider any information 
provided by the institution that demonstrates community development 
services are responsive to those needs.
    The Agencies solicit comments on all aspects of this proposed new 
Q&A. In addition, the Agencies specifically request commenters' views 
on the following questions.
    21. Does the proposed new guidance sufficiently clarify how 
examiners evaluate retail and community development services under the 
large institution service test? If not, why not? How could the answer 
be made clearer?
    22. What types of information are financial institutions likely to 
maintain that may be used to demonstrate that an institution's 
community development services are responsive to the needs of low- and 
moderate-income individuals or in low- and moderate-income geographies?

B. Quantitative and Qualitative Measures of Community Development 
Services

    As noted earlier, the regulations require the evaluation of (i) the 
extent to which an institution provides community development services, 
and (ii) the innovativeness and responsiveness of community development 
services when considering community development service performance 
under the service test. See 12 CFR .24(e). However, commenters 
assert that it is often difficult to quantitatively or qualitatively 
evaluate community development services and that the difficulty appears 
to impede consideration of community development services in the 
service test.
    Bankers note inconsistencies in how community development services 
are evaluated quantitatively. For instance, some performance 
evaluations reflect the number of hours that financial institution 
employees spend in board meetings, delivering workshops, or providing 
financial counseling services, while other performance evaluations 
reflect the range of services provided and/or the number of 
organizations or individuals served. In addition, commenters contend 
that there is inadequate consideration of whether products and 
services, which are intended to improve or increase access by low- and 
moderate-income individuals to financial services, are effective or 
responsive to community needs, as required under the CRA regulations.
    The Agencies agree with commenters that further guidance would 
promote consistency in the quantitative

[[Page 53848]]

evaluation of community development services. In particular, the 
Agencies believe that it is important to clarify that examiners need 
not look at any one specific quantitative factor when evaluating 
community development services.
    In order to address these concerns, the Agencies are proposing a 
new Q&A Sec.  .24(e)--2 that would address the quantitative 
and qualitative factors that examiners review when evaluating community 
development services to determine whether community development 
services are effective and responsive. The text of proposed new Q&A 
Sec.  .24(e)-2 follows:
    Sec.  .24(e)-2: In evaluating community development 
services, what quantitative and qualitative factors do examiners 
review?
    A2. The community development services criteria are important 
factors in the evaluation of a large institution's service test 
performance. Both quantitative and qualitative aspects of community 
development services are considered during the evaluation. Examiners 
assess the extent to which community development services are offered 
and used. The review is not limited to a single quantitative factor, 
for example, the number of hours financial institution staff devotes to 
a particular community development service. Rather, the evaluation also 
assesses the degree to which community development services are 
responsive to community needs. Examiners will consider any relevant 
information provided by the institution and from third parties to 
quantify the extent and responsiveness of community development 
services.
    The Agencies solicit comments on all aspects of this proposed new 
Q&A. In addition, the Agencies specifically request commenters' views 
on the following questions.
    23. Does the proposed new guidance sufficiently explain the 
importance of the qualitative factors related to community development 
services?
    24. What types of information are financial institutions and 
relevant third parties likely to maintain that may be used to 
demonstrate the extent to which community development services are 
offered and used?

II. Responsiveness and Innovativeness

A. Responsiveness

    The term ``responsive'' is found throughout the CRA regulations and 
the Questions and Answers. Generally, the Agencies' regulations and 
guidance promote an institution's responsiveness to credit and 
community development needs by providing that the greater an 
institution's responsiveness to credit and community development needs 
in its assessment area(s), the higher the CRA rating that is assigned 
to that institution.\3\ For example, Q&A Sec.  .21(a)-2 
explains that responsiveness is meant to lend a qualitative element to 
the rating system. Other Q&As explain that examiners should give 
greater weight to those activities that are most responsive to 
community needs, including the needs of low- and moderate-income 
individuals or neighborhoods. See, e.g., Q&As Sec.  
.12(g)(4)(ii)-2 and Sec.  .12(g)(4)(iii)-3. Other 
Q&As mention various types of activities that may be considered 
responsive to community needs. See, e.g., Q&As Sec.  
.12(g)(3)-1 and Sec.  .12(t)-8. Many of the Q&As 
addressing ``responsiveness'' also indicate that an institution's 
performance context influences assessment of the responsiveness of a 
given activity. Further, Q&A Sec.  .12(h)-6, which was revised 
as part of the 2013 Guidance, also placed emphasis on an institution's 
responsiveness to community development needs and opportunities in its 
assessment area(s).
---------------------------------------------------------------------------

    \3\ For example, Appendix A--Ratings states, ``The [Agency] 
rates [an institution's] investment performance `outstanding' if, in 
general, it demonstrates: . . . (C) Excellent responsiveness to 
credit and community development needs.'' 12 CFR app. 
A(b)(2)(i). Responsiveness is generally a consideration in all of 
the ratings.
---------------------------------------------------------------------------

    When the Agencies revised their CRA rules to adopt the concept of 
``intermediate small'' institutions and added a community development 
test for those institutions in 2005, one performance factor in the new 
community development test evaluated the institution's responsiveness 
through community development activities to community development 
lending, investment, and service needs. To elaborate on this factor, 
the agencies also adopted Q&A Sec.  .26(c)(4)-1 to describe 
``responsiveness to community development needs'' in the context of the 
community development test for intermediate small institutions.
    Because the concept of ``responsiveness'' is utilized in the CRA 
regulations and Questions and Answers applicable to all covered 
institutions, the Agencies propose a new Q&A Sec.  .21(a)-3 
that sets forth general guidance on how examiners evaluate whether a 
financial institution has been responsive to credit and community 
development needs. The proposed Q&A is intended to encourage 
institutions to think strategically about how to best meet the needs of 
their communities based on their performance context.
    The new Q&A indicates that examiners will look at not only the 
volume and types of an institution's activities, but also how effective 
those activities have been. Examiners always evaluate responsiveness in 
light of an institution's performance context. The proposed Q&A 
suggests several information sources that may inform examiners' 
evaluations of performance context and responsiveness. The text of 
proposed new Q&A Sec.  .21(a)-3 follows:
    Sec.  .21(a)-3: ``Responsiveness'' to credit and community 
development needs is either a criterion or otherwise a consideration in 
all of the performance tests. How do examiners evaluate whether a 
financial institution has been ``responsive'' to credit and community 
development needs?
    A1. Examiners evaluate the volume and type of an institution's 
activities, i.e., retail and community development loans and services 
and qualified investments, as a first step in evaluating the 
institution's responsiveness to community credit needs. In addition, an 
assessment of ``responsiveness'' encompasses the qualitative aspects of 
performance, including the effectiveness of the activities. For 
example, some community development activities require specialized 
expertise or effort on the part of the institution or provide a benefit 
to the community that would not otherwise be made available. In some 
cases, a smaller loan may have more benefit to a community than a 
larger loan. Activities are considered particularly responsive to 
community development needs if they benefit low- and moderate-income 
individuals, low- or moderate-income geographies, designated disaster 
areas, or distressed or underserved nonmetropolitan middle-income 
geographies.
    Examiners evaluate the responsiveness of an institution's 
activities to credit and community development needs in light of the 
institution's performance context. That is, examiners consider the 
institution's capacity, its business strategy, the needs of the 
community, and the opportunities for lending, investments, and services 
in the community. To inform their evaluation, examiners may consider 
information from many sources, including
     Demographic and other information compiled by local, 
state, and Federal government entities;
     public comments received by the Agency, for example, in 
response to its publication of its planned examination schedule;
     information from community leaders or organizations; and

[[Page 53849]]

     the results of an assessment, prepared by an institution 
in the normal course of business, of the credit and community 
development needs in the institution's assessment area(s) and how the 
institution's activities respond to those needs.
    The Agencies solicit comments on all aspects of this proposed new 
Q&A. In addition, the Agencies specifically request commenters' views 
on the following questions.
    25. Does this proposed new guidance appropriately highlight the 
importance of responsiveness to credit and community development needs 
and provide a flexible, yet clear, standard for determining how 
financial institutions will receive consideration?
    26. Are there other sources of information that examiners should 
consider when evaluating an institution's responsiveness to credit and 
community development needs?
    27. In connection with community development activities that will 
not directly benefit a financial institution's assessment area(s), as 
described in Q&A Sec.  .12(h)-6 in the 2013 Guidance, would 
the proposed new Q&A help a financial institution in making decisions 
about the community development activities in which to participate? 
Note that Q&A Sec.  .12(h)-6 addresses two categories of 
community development activities that will not directly benefit a 
financial institution's assessment area(s): (i) Those that have a 
purpose, mandate, or function to serve the assessment area(s); and (ii) 
those that do not directly benefit the assessment area(s) but that do 
benefit geographies or individuals in the broader statewide or regional 
area that includes the institution's assessment area(s).

B. Innovativeness

    Innovativeness, like responsiveness, is a standard that is found 
throughout the CRA regulations. For example, ``innovativeness'' is 
included as a standard throughout the performance tests for large 
financial institutions. The large institution lending test evaluates 
the innovativeness of community development lending and the 
institution's use of innovative lending practices in a safe and sound 
manner to address the credit needs of low- or moderate-income 
individuals or geographies. See 12 CFR .22(b)(4) and (b)(5). 
The large institution investment test evaluates the innovativeness or 
complexity of qualified investments. See 12 CFR .23(e)(2). 
Similarly, the large institution service test evaluates the 
innovativeness and responsiveness of community development services. 
See 12 CFR .24(e)(2).
    The three-part performance criteria in the community development 
test for wholesale or limited purpose banks includes an evaluation of 
the use of innovative or complex qualified investments, community 
development loans, or community development services. See 12 CFR 
.25(c)(2). Finally, when evaluating a strategic plan, the 
Agencies evaluate a plan's measurable goals according to the regulatory 
criteria, all of which mention innovativeness. See 12 CFR 
.27(g)(3).\4\
---------------------------------------------------------------------------

    \4\ ``Innovativeness'' is not a factor in the community 
development test applicable to intermediate small institutions. See 
Q &A Sec.  .21(a)-2.
---------------------------------------------------------------------------

    The Questions and Answers also provide further guidance on what is 
meant by ``innovativeness.'' For example, under the large institution 
lending test, the Agencies state that in evaluating the innovativeness 
of an institution's lending practices (and the innovativeness of its 
community development lending), examiners are not limited to reviewing 
the overall variety and specific terms and conditions of the credit 
products themselves. In connection with the evaluation of an 
institution's lending, examiners also may give consideration to related 
innovations when they augment the success and effectiveness of the 
institution's lending under community development loan programs or, 
more generally, its lending under its loan programs that address the 
credit needs of low- and moderate-income geographies or individuals. 
See Q&A Sec.  .22(b)(5)-1.
    In addition, the Questions and Answers provide that innovative 
lending practices, innovative or complex qualified investments, and 
innovative community development services are not required for a 
``satisfactory'' or ``outstanding'' CRA rating, even for large 
institutions or wholesale and limited purpose institutions. See Q&A 
Sec.  .28-1. However, under these tests, the use of innovative 
lending practices, qualified investments, and community development 
services may augment the consideration given to an institution's 
performance under the quantitative criteria of the regulations, 
resulting in a higher level of performance rating. Id.
    Bankers have sought further guidance, reporting that there are 
inconsistencies in the types of activities that have been considered 
innovative. For instance, bankers have mentioned that some examiners 
consider community development services innovative only if they are new 
to a particular market or to the assessment area, while others consider 
an activity innovative if it is new to the institution.
    The Agencies agree that additional clarification regarding the 
meaning of ``innovativeness'' would benefit both examiners and 
institutions. Therefore, the Agencies are proposing a new Q&A Sec.  
.21(a)-4 that would address what is meant by 
``innovativeness.'' First, the proposed new guidance discusses 
innovativeness based on the institution, stating that an innovative 
practice or activity will be considered when an institution implements 
meaningful improvements to products, services, or delivery systems that 
respond more effectively to customer and community needs, particularly 
those segments enumerated in the definition of community development. 
Then, the proposed new Q&A addresses innovativeness in terms of an 
institution's market and customers, specifically stating that 
innovation includes the introduction of products, services, or delivery 
systems by institutions, which do not have the capacity to be market 
leaders in innovation, to their low- or moderate-income customers or 
segments of consumers or markets not previously served. The Agencies' 
proposal stresses that institutions should not innovate simply to meet 
this criterion of the applicable test, particularly if, for example, 
existing products, services, or delivery systems effectively address 
the needs of all segments of the community. Finally, the proposed new 
Q&A indicates that practices that cease to be innovative may still 
receive qualitative consideration for being flexible, complex, or 
responsive. A practice typically ceases to be innovative for an 
institution when the once innovative practice has become a standard, 
everyday practice of the institution.
    The text of proposed new Q&A Sec.  .21(a)-4 follows:
    Sec.  .21(a)-4: What is meant by ``innovativeness''
    A. Innovativeness is one of several qualitative considerations 
under the lending, investment, and service tests. The community 
development test for wholesale and limited purpose institutions 
similarly considers ``innovative'' loans, investments, and services in 
the evaluation of performance. Under the CRA regulations, an innovative 
practice or activity will be considered when an institution implements 
meaningful improvements to products, services, or delivery systems that 
respond more effectively to customer and community needs, particularly 
those segments enumerated in the definition of community development.

[[Page 53850]]

    Institutions should not innovate simply to meet this criterion of 
the applicable test, particularly if, for example, existing products, 
services, or delivery systems effectively address the needs of all 
segments of the community. Innovative activities are especially 
meaningful when they emphasize serving, for example, low- or moderate-
income consumers or distressed or underserved non-metropolitan middle-
income geographies in new or more effective ways. Innovation also 
includes the introduction of existing types of products, services, or 
delivery systems by institutions, which do not have the capacity to be 
market leaders in innovation, to their low- or moderate-income 
customers or segments of consumers or markets not previously served. 
Practices that cease to be innovative may still receive qualitative 
consideration for being flexible, complex, or responsive.
    The Agencies solicit comments on all aspects of this proposed new 
Q&A. In addition, the Agencies specifically request commenters' views 
on the following questions.
    28. Does the proposed new guidance clarify what is meant by 
innovativeness?
    29. Does the proposed new guidance appropriately explain 
innovations that may occur at financial institutions of different sizes 
and types?
    30. Is it clear that innovative activities are not required?

General Comments

    The Agencies invite comments on any aspect of this proposal. The 
Agencies particularly would like comments addressing those questions 
specifically noted at the end of the discussion of each of the proposed 
revised and new Q&As in this supplementary information section.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (44 U.S.C. 3501 et 
seq.) (PRA), the Agencies may not conduct or sponsor, and a person is 
not required to respond to, a collection of information unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number. The proposed revisions to the Questions and Answers 
would not involve any new collections of information pursuant to the 
PRA. Consequently, no information will be submitted to OMB for review.

Solicitation of Comments Regarding the Use of ``Plain Language''

    Section 722 of the Gramm-Leach-Bliley Act of 1999, 12 U.S.C. 4809, 
requires the Agencies to use ``plain language'' in all proposed and 
final rules published after January 1, 2000. Although this guidance is 
not a proposed or final rule, comments nevertheless are invited on 
whether the proposed revised interagency Q&As are stated clearly, and 
how the guidance might be revised to make it easier to read.

    Dated: August 6, 2014.
Thomas J. Curry,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, September 4, 2014.
Secretary of the Board.
    Dated at Washington, DC, this 14th day of August, 2014.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2014-21560 Filed 9-9-14; 8:45 am]
BILLING CODE 4810-33-6210-01- 6714-01-P