[Federal Register Volume 81, Number 142 (Monday, July 25, 2016)]
[Rules and Regulations]
[Pages 48506-48556]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16693]



[[Page 48505]]

Vol. 81

Monday,

No. 142

July 25, 2016

Part II





 Department of the Treasury





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Office of the Comptroller of the Currency





Federal Reserve System





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Federal Deposit Insurance Corporation





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12 CFR Parts 25, 195, 228, et al.





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

  Federal Register / Vol. 81 , No. 142 / Monday, July 25, 2016 / Rules 
and Regulations  

[[Page 48506]]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 25 and 195

[Docket ID OCC-2014-0021]

FEDERAL RESERVE SYSTEM

12 CFR Part 228

[Docket No. OP-1497]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 345


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

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: Guidance on the interpretation and application of the Community 
Reinvestment Act regulations.

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SUMMARY: The OCC, Board, and FDIC (the Agencies) are adopting as final 
revisions to the Interagency Questions and Answers Regarding Community 
Reinvestment (Questions and Answers) based on the proposal issued on 
September 10, 2014 addressing alternative systems for delivering retail 
banking services; community development-related issues; and the 
qualitative aspects of performance, including innovative or flexible 
lending practices and the responsiveness and innovativeness of an 
institution's loans, qualified investments, and community development 
services. The Agencies are clarifying nine of the 10 proposed questions 
and answers (Q&A), revising four existing Q&As for consistency, and 
adopting two new Q&As. The Agencies are not adopting one of the 
proposed revisions to guidance that addressed the availability and 
effectiveness of retail banking services. Finally, the Agencies are 
making technical corrections to the Questions and Answers to update 
cross-references and remove references related to the Office of Thrift 
Supervision (OTS) as obsolete. The Agencies are publishing all of the 
new and revised Q&As, as well as those Q&As that were published in 2010 
and 2013 and that remain in effect in this final guidance.

DATES: This document goes into effect on July 25, 2016.

FOR FURTHER INFORMATION CONTACT: OCC: Bobbie K. Kennedy, Bank Examiner, 
Compliance Policy Division, (202) 649-5470; Vonda Eanes, National Bank 
Examiner and District Community Affairs Officer, Community Affairs, 
(202) 649-6420; 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.
    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, (202) 898-6859; Sharon B. Vejvoda, Senior Examination 
Specialist, Compliance and CRA Examinations Branch, (202) 898-3881; 
Surya Sen, Section Chief, Supervisory Policy Branch, (202) 898-6699, 
Division of Depositor and Consumer Protection; or Richard M. Schwartz, 
Counsel (202) 898-7424; or Sherry Ann Betancourt, Counsel, (202) 898-
6560, Legal Division, Federal Deposit Insurance Corporation, 550 17th 
Street NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Agencies implement the Community Reinvestment Act (CRA) (12 
U.S.C. 2901 et seq.) through their CRA regulations. See 12 CFR parts 
25, 195, 228, and 345. The CRA is designed to encourage regulated 
financial institutions to help meet the credit needs of their entire 
communities. The CRA regulations establish the framework and criteria 
by which the Agencies assess an institution's record of helping to meet 
the credit needs of its community, including low- and moderate-income 
neighborhoods, consistent with safe and sound operations. The 
regulations provide different evaluation standards for institutions of 
different asset sizes and types.
    The Agencies publish the Questions and Answers \1\ to provide 
guidance on the interpretation and application of the CRA regulations 
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). The Questions and Answers were last published in 
full by the Agencies 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 Q&As and added two 
new Q&As (2013 Questions and Answers) (78 FR 69671), which supplemented 
the 2010 Questions and Answers. This document supplements, revises, 
republishes, and supersedes the 2010 Questions and Answers and the 2013 
Questions and Answers.
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    \1\ Throughout this document, ``Questions and Answers'' refers 
to the ``Interagency Questions and Answers Regarding Community 
Reinvestment'' in its entirety; ``Q&A'' refers to an individual 
question and answer within the Questions and Answers.
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    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, for thrifts, the small savings 
association performance standards appear at 12 CFR 195.26; for national 
banks, the small bank performance standards appear at 12 CFR 25.26; 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. Accordingly, the citation would be to 12 CFR __.26. Each 
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.
    Although a particular Q&A may provide guidance on one regulatory 
provision, e.g., 12 CFR __.22, which relates to the lending test 
applicable to large institutions, its content may also be applicable 
to, for example, small institutions, which are evaluated pursuant to 
small institution performance standards found at 12 CFR __.26. Thus, 
readers with a particular interest in small institution issues, for 
example, should review Q&As relevant to other financial institutions as 
well.

A. The 2014 Proposal and Overview of Comments

    On September 10, 2014, the Agencies proposed to revise six existing 
Q&As.\2\ Two Q&As addressed the availability and effectiveness of 
retail banking services \3\ and one Q&A addressed innovative or 
flexible lending practices.\4\ The other three proposed

[[Page 48507]]

revised Q&As addressed 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.\5\ The Agencies also proposed 
to add four new Q&As, two of which addressed community development 
services,\6\ and two of which provided general guidance on 
responsiveness and innovativeness.\7\
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    \2\ 75 FR 53838 (Sept. 10, 2014).
    \3\ Q&As Sec.  __.24(d)-1 and Sec.  __.24(d)(3)-1.
    \4\ Q&A Sec.  __.22(b)(5)-1.
    \5\ Q&As Sec.  __.12(g)(3)-1; Sec.  __.12(h)-1; and Sec.  
__.12(g)(4)(iii)-4.
    \6\ Q&As Sec.  __.24(a)-1 and Sec.  __.24(e)-2.
    \7\ Q&As Sec.  __.21(a)-3 and Sec.  __.21(a)-4.
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    Together, the Agencies received 126 different comment letters on 
the proposed Q&As, plus over 900 form letter submissions. The 
commenters included financial institutions and their trade associations 
(collectively, industry commenters), community development advocates 
and consumer organizations (collectively, community organization 
commenters), state bank supervisors, Federal agencies, and other 
interested parties.
    Most commenters supported the Agencies' efforts to clarify the CRA 
guidance. Some commenters also suggested revisions to the proposed new 
and revised Q&As, as well as posed questions or stated concerns about 
the Q&As. Comments received by the Agencies on each revised or new 
proposed Q&A are discussed in further detail below in Parts II and III.

B. Summary of Final Q&As

    The Agencies are adopting nine of the 10 proposed Q&As with 
clarifications to reflect commenters' suggestions. Parts II and III 
below discuss the clarifications made to these nine Q&As. Further, as 
discussed more fully below in Part II.C.i., in response to comments 
received, the Agencies are not adopting as final the proposed revisions 
to Q&A Sec.  __.24(d)-1, one of the Q&As that addresses the 
availability and effectiveness of retail banking services.
    The Agencies are also revising four additional existing Q&As \8\ 
and adopting two new Q&As \9\ based on questions and suggestions 
provided by the commenters. Finally, as discussed in Part IV, the 
Agencies have made technical corrections to 25 Q&As to update, for 
example, regulatory references, addresses, and references related to 
the former OTS.
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    \8\ Q&As Sec.  __.12(g)-1, Sec.  __.12(i)-3, Sec.  __.12(t)-4, 
and Sec.  __.26(c)(3)-1.
    \9\ Q&As Sec.  __.12(g)-4 and Sec.  __.24(d)(4)-1.
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    As has been done in the past, the Agencies intend to provide 
training on all aspects of the new and revised Questions and Answers 
for examiners, as well as outreach for bankers and other interested 
parties.

II. Revisions to Existing Q&As

A. 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 __.22(b)(4), __.23, __.24(e), __.26(c), 
and __.25. In addition, small institutions may use community 
development activities 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 Agencies proposed to provide additional clarification of three 
Q&As addressing community development-related topics.
i. Economic Development
    The CRA regulations 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 (SBDC) or Small Business 
Investment Company (SBIC) programs (13 CFR 121.301) or have gross 
annual revenues of $1 million or less.'' See 12 CFR __.12(g)(3). 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 explained the phrase ``promote 
economic development.'' This Q&A stated that activities promote 
economic development by financing small businesses or farms if they 
meet two ``tests'': (i) A ``size test'' (the beneficiaries of the 
activity must meet the size eligibility standards of the SBDC or SBIC 
programs 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 stated that 
activities promote economic development 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 explained, ``[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.''
    The Agencies proposed to revise existing Q&A Sec.  __.12(g)(3)-1 to 
clarify what is meant by the phrase ``promote economic development,'' 
and to better align this Q&A with other guidance provided in existing 
Q&As Sec.  __.12(i)-1 and Sec.  __.12(i)-3 regarding consideration of 
economic development activities undertaken by financial institutions. 
Further, the Agencies proposed to revise the guidance to add additional 
examples that would demonstrate a purpose of economic development, such 
as workforce development and technical assistance support for small 
businesses. In addition, the Agencies requested public comment on seven 
questions regarding the proposed revisions to the Q&A.
    The Agencies received 40 comments addressing proposed revised Q&A 
Sec.  __.12(g)(3)-1. Most commenters provided general comments about 
the proposed revised Q&A, with relatively few responding to the seven 
specific questions posed by the Agencies. Commenters generally 
supported the Agencies' efforts to clarify the types of activities that 
promote economic development. One industry commenter mentioned that 
changing the format to a bulleted list of activities that demonstrate a 
purpose of economic development is helpful.
    A few industry commenters suggested eliminating the purpose test 
altogether, asserting that the regulations require only that activities 
relate to businesses that meet Small Business Administration (SBA) 
size-eligibility requirements. However, the Agencies note the intent of 
the purpose test is to explain what is meant by the phrase ``promote 
economic development.'' The purpose test ensures that examiners 
consider only activities that promote economic development as 
activities with a primary purpose of community development. Other loans 
to small businesses and small farms are considered as retail loans if 
they meet certain loan-size standards (see 12 CFR

[[Page 48508]]

__.12(v) and (w)); larger loans to small businesses and small farms 
that do not meet the purpose test would not be considered in a CRA 
evaluation as small business or small farm loans. Furthermore, they 
would not be considered as community development loans, unless they 
have an alternate community development purpose as defined in 12 CFR 
__.12(g).
    The Agencies specifically asked what information is available to 
demonstrate that an activity meets the size and purpose tests. One 
community organization commenter suggested that examiners consider the 
size of the business by revenues or, alternatively, the mission 
statement of the intermediary lender, if the statement provides 
sufficient detail on the types of businesses served, to demonstrate an 
activity meets the size test. A few industry commenters suggested that 
all activities that support small businesses should be presumed to 
qualify and meet the purpose test.
    As noted above, existing Q&A Sec.  __.12(g)(3)-1 explained that the 
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. The Agencies proposed a revision to the 
Q&A to add the following presumption: For loans to or investments in a 
Community Development Financial Institution (CDFI) that finances small 
businesses or small farms. As discussed below, the Agencies are 
adopting this proposed amendment to Q&A Sec.  __.12(g)(3)-1 regarding 
CDFIs.
    The Agencies also proposed to revise the existing Q&A Sec.  
__.12(g)(3)-1 by removing the reference to persons who are 
``currently'' low- or moderate-income in order to clarify that banks 
can focus on community development activities that extend beyond 
support for low-wage jobs. The Agencies specifically requested input on 
whether the proposed revision would help to clarify what is meant by 
job creation, retention, or improvement for low- or moderate-income 
individuals. Commenters generally agreed with removing the reference to 
persons who are ``currently'' low- or moderate-income. However, most 
commenters indicated that the proposal did not sufficiently clarify 
what is meant by job creation, retention, or improvement for low- or 
moderate-income persons beyond the creation of low-wage jobs. Industry 
commenters reiterated concerns that the primary method to demonstrate 
that activities benefit low- or moderate-income individuals is to 
provide evidence of low-wage jobs, which is not consistent with the 
spirit or intent of the CRA. These commenters also expressed concerns 
that the proposal did not include examples of methods that could be 
used to demonstrate that the persons for whom jobs are created, 
retained, or improved are low- or moderate-income, and asked that the 
Agencies incorporate examples into the final Q&A.
    The Agencies are adopting revisions to existing Q&A Sec.  
__.12(g)(3)-1 largely as proposed, but with additional clarifications.
    First, the Agencies recognize that financial institutions may rely 
on a variety of methods to demonstrate that activities promote economic 
development. To make clear that financial institutions may provide 
various types of information to demonstrate that an activity meets the 
purpose test, the Agencies have added a statement in the final Q&A 
clarifying that examiners will employ appropriate flexibility in 
reviewing any information provided by a financial institution that 
reasonably demonstrates that the purpose, mandate, or function of an 
activity meets the purpose test.
    In addition to the above revisions, the Agencies had proposed to 
add examples of types of activities that would meet the purpose test of 
promoting economic development. The Agencies are adopting these 
examples largely as proposed, but with some clarifications and 
revisions to address commenters' concerns, as discussed more fully 
below. Accordingly, the Agencies are adopting this final Q&A with 
reference to activities that are considered to promote economic 
development if they support permanent job creation, retention, and/or 
improvement:
     For low- or moderate-income persons;
     in low- or moderate-income geographies;
     in areas targeted for redevelopment by Federal, state, 
local, or tribal governments;
     by financing intermediaries that lend to, invest in, or 
provide technical assistance to start-ups or recently formed small 
businesses or small farms; or
     through technical assistance or supportive services for 
small businesses or farms, such as shared space, technology, or 
administrative assistance.
    The final Q&A also recognizes that Federal, state, local, or tribal 
economic development initiatives that include provisions for creating 
or improving access by low- or moderate-income persons to jobs, or job 
training or workforce development programs, promote economic 
development.
    The Agencies note that only one of the examples in the final Q&A 
explicitly refers to permanent job creation, retention, and/or 
improvement for low- or moderate-income persons. The Agencies encourage 
activities that promote economic development through opportunities for 
low- and moderate-income individuals to obtain higher wage jobs, such 
as through private industry collaborations with workforce development 
programs for unemployed persons and are clarifying that examiners will 
consider the qualitative aspects of performance related to all 
activities that promote economic development. In particular, activities 
will be considered more responsive to community needs if a majority of 
jobs created, retained, and/or improved benefit low- or moderate-income 
individuals.
    The Agencies also note that Q&A Sec.  __.12(g)(2)-1 provides 
examples of ways in which an institution could determine that community 
services and, therefore, other types of community development 
activities, including economic development, are targeted to low- or 
moderate-income individuals. In particular, the example explaining that 
an institution may use readily available data for the average wage for 
workers in a particular occupation or industry could be useful when 
determining whether an activity promotes economic development.
    The Agencies specifically asked whether the proposed examples 
demonstrating that an activity promotes economic development for CRA 
purposes were appropriate, and whether there are other examples the 
Agencies should include. Most commenters generally agreed the proposed 
examples were appropriate. Several community organization commenters, 
as well as a state bank supervisory agency commenter, suggested the Q&A 
should also include a reference to the ``quality of jobs'' created, 
retained, or improved. Industry commenters, however, opposed a 
``quality of jobs standard,'' expressing concerns related to increased 
subjectivity by examiners and the Agencies and documentation burden on 
institutions, small businesses or small farms, and examiners. The 
Agencies recognize that the term ``quality'' is subjective, not easily 
defined, and heavily influenced by local economic conditions, needs, 
and opportunities. The amount of time, resources, and expertise needed 
to fairly evaluate the quality of jobs created, retained, and/or 
improved for low- or moderate-income individuals could be overly 
burdensome

[[Page 48509]]

for examiners, financial institutions, and small businesses or small 
farms. However, the Agencies note that examiners are not precluded from 
considering qualitative factors relative to a particular financial 
institution's performance context, including, at the institution's 
option, any information provided on the quality of jobs created, 
retained, or improved through any of the types of activities listed in 
the Q&A's description of the purpose test as promoting economic 
development.
    The Agencies proposed that permanent job creation, retention, and/
or improvement is supported ``through the creation or development of 
small businesses or farms'' and, therefore, such activity would be 
considered to promote economic development and meet the ``purpose 
test.'' The Agencies proposed this example in an effort to recognize 
the impact small businesses have on job creation in general, and to 
address industry concerns that activities in support of intermediary 
lenders or other service providers, such as business incubators that 
lend to start-up businesses and help businesses become bankable and 
sustainable, are often not considered under the purpose test. Industry 
commenters have previously indicated that such activities are not 
considered because it is not clear under the purpose test that these 
activities help promote economic development since any job creation, 
retention, or improvement would occur in the future--after the 
businesses are organized or more established. However, there were 
concerns that the proposed guidance stating that permanent job 
creation, retention, and/or improvement ``through the creation or 
development of small business or farms'' may be overly broad and could 
result in diffuse potential benefit to low- or moderate-income persons 
or geographies. The Agencies are adopting this example with revisions 
to clarify that examiners will consider activities that support 
permanent job creation, retention, and/or improvement by financing 
intermediaries that lend to, invest in, or provide technical assistance 
to start-up or recently formed small businesses or small farms. This 
example applies to loans to, investments in, or services to 
intermediaries that, in turn, lend to, invest in, or provide technical 
assistance to small businesses or small farms, and not to activities 
provided directly by an institution to small businesses or small farms. 
A loan to a small business or small farm would be considered under the 
lending test applicable to a particular institution--for example, for 
large institutions, under the retail lending evaluation criteria.
    The Agencies also proposed to add activities that support permanent 
job creation, retention, and/or improvement ``[t]hrough workforce 
development and/or job or career training programs that target 
unemployed or low- or moderate-income persons'' to the list of 
activities that are considered to promote economic development under 
the purpose test. Two government agency commenters expressed concerns 
that these activities, in and of themselves, may not involve financing 
small businesses or small farms and, therefore, would not meet the size 
test. To address these concerns, the final Q&A does not incorporate 
this example in the list of those types of activities that promote 
economic development under the purpose test. However, the Agencies are 
amending existing Q&As Sec.  __.12(g)-1 and Sec.  __.12(t)-4 to clarify 
that activities related to workforce development or job training 
programs for low- or moderate-income or unemployed persons are 
considered qualified community development activities.
    The last example of a type of activity that would be considered to 
promote economic development that the Agencies proposed referred to 
``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.'' Industry and community organization 
commenters suggested amending or eliminating this proposed activity 
altogether because it blurs the line between activities that support 
economic development and those that support other types of community 
development and could create confusion. Although the Agencies' original 
intention was to recognize all Federal, state, local, or tribal 
economic development initiatives, the Agencies agree with these 
commenters and have eliminated references to affordable housing, 
financial services, and community services, which would receive 
consideration under other prongs of the definition of ``community 
development.'' However, the Agencies have otherwise retained the 
example in the final Q&A being adopted, and have added a reference to 
governmental economic development initiatives that include job training 
or workforce development programs, because those initiatives are 
closely related to job creation, retention, and/or improvement.
    Commenters overwhelmingly supported adding CDFIs that finance small 
businesses or small farms to the list of entities for which loans or 
investments are presumed to promote economic development; even so, some 
questioned limiting the presumption to CDFIs that finance small 
businesses or small farms. The Agencies are adopting this revision as 
proposed. In order for a CDFI to promote economic development by 
financing small businesses and small farms, it follows that any CDFI 
presumed to promote economic development would need to finance small 
businesses or small farms. Additionally, the Agencies are further 
revising the statement granting presumptions for activities related to 
the specified entities to include services provided to these entities, 
as well loans and investments.
    Several commenters representing the Historic Tax Credit (HTC) 
industry suggested changes to the proposed Q&A that would expand and 
clarify the circumstances under which CRA consideration would be 
available for loans and investments related to projects involving HTCs. 
These commenters suggested the Agencies amend Q&A Sec.  __.12(g)(3)-1 
to create a presumption that activities related to HTC projects qualify 
for CRA consideration as promoting economic development by financing 
small businesses and small farms. Because not all HTC projects would 
meet the requirements to qualify for CRA consideration under 12 CFR 
__.12(g)(3), the Agencies believe it would be inappropriate to grant 
such a presumption. Nonetheless, in instances in which loans to, or 
investments in, projects that receive HTCs do meet the regulatory 
definition of community development, including the geographic 
restrictions, the Agencies concur that CRA consideration should be 
provided. For example, a loan to, or investment in, an HTC project that 
does, in fact, relate to a facility that will house small businesses 
that support permanent job creation, retention, or improvement for low- 
or moderate-income individuals, in low- or moderate-income areas, or in 
areas targeted for redevelopment by Federal, state, local, or tribal 
governments may receive CRA consideration as promoting economic 
development. Further, a loan to or investment in an HTC project that 
will provide affordable housing or community services for low- or 
moderate-income individuals would meet the definition of community 
development as affordable housing or a community service targeted to 
low- or

[[Page 48510]]

moderate-income individuals, respectively. Similarly, loans to or 
investments in HTC projects may also meet the definition of community 
development when the project revitalizes or stabilizes a low- or 
moderate-income geography, designated disaster area, or a designated 
distressed or underserved nonmetropolitan middle-income geography. 
Greater weight will be given to those HTC-related activities that are 
most responsive to community credit needs, including the needs of low- 
or moderate-income individuals or geographies. See Q&As Sec.  __.12(g)-
1, Sec.  __.12(g)(2)-1, Sec.  __.12(g)(4)-2, Sec.  __.12(g)(4)(i)-1, 
and Sec.  __.12(g)(4)(ii)-2 through-4.
    In response to the Agencies' request for input on the types of 
information examiners should review when determining the performance 
context of an institution, some community organizations suggested 
consulting local studies and Federal Reserve Bank credit surveys; 
talking with CDFIs, local municipalities, and community organizations 
that work directly with small businesses; reviewing municipal needs 
assessments; and evaluating business and local demographic data. One 
industry commenter suggested examiners could review financial 
institution Consolidated Reports of Condition and Income (Call Reports) 
and academic or governmental economic development reports or adopted 
plans. Another industry commenter suggested that existing Q&As explain 
that an institution may provide examiners with any relevant information 
and, therefore, provide sufficient guidance without overlaying 
prescriptive changes that could be counter-productive to an 
institution's efforts to balance innovativeness and responsiveness with 
its unique business strategy. Also regarding performance context, 
community organization commenters called for examiners to conduct 
``robust'' analyses of local needs, including localized data on 
employment needs and opportunities for low- or moderate-income 
individuals. The Agencies will consider commenters' suggestions going 
forward.
    Finally, one community organization commenter noted that activities 
that support technical assistance may not involve ``financing'' small 
businesses or small farms and, therefore, may not be consistent with 
the size test. Providing technical assistance on financial matters to 
small businesses is currently cited as an example of a community 
development service in Q&A Sec.  __.12(i)-3 and involves the provision 
of financial services. The Agencies long ago recognized that many small 
businesses, particularly start-up companies, are not immediately 
prepared for, or qualified to engage in, traditional bank financing 
and, therefore, included providing technical assistance to small 
businesses and small farms as a community development activity. 
However, the Agencies understand that reasoning may not be clear to 
examiners or financial institutions. To address this issue, the 
Agencies have amended the description of the ``size test'' in the final 
Q&A to explain that the term ``financing'' in this context is 
considered broadly and includes technical assistance that readies a 
business that meets the size eligibility standards to obtain financing. 
The Agencies intend this explanation to ensure that technical 
assistance that readies a small business or small farm to obtain 
financing is an activity that promotes economic development and, thus, 
would receive consideration as a community development activity.
ii. Revitalize or Stabilize Underserved Nonmetropolitan Middle-Income 
Geographies
    The definition of ``community development'' includes ``activities 
that revitalize or stabilize . . . underserved nonmetropolitan middle-
income geographies . . . .'' See 12 CFR __.12(g)(4)(iii). The CRA 
regulations further provide that activities revitalize or stabilize 
underserved nonmetropolitan middle-income geographies if they help to 
meet essential community needs, including the needs of low- or 
moderate-income individuals. See 12 CFR __.12(g)(4)(iii)(B). Existing 
Q&A Sec.  __.12(g)(4)(iii)-4 provided further guidance by listing 
examples of activities that would be considered to help to revitalize 
or stabilize underserved nonmetropolitan middle-income geographies. The 
Agencies proposed to revise this guidance by adding a new example 
describing an activity related to a new or rehabilitated communications 
infrastructure in recognition that the availability of reliable 
communications infrastructure, such as broadband Internet service, is 
important in helping to revitalize or stabilize underserved 
nonmetropolitan middle-income geographies.
    The Agencies received 66 comments addressing the proposed addition 
of the new example involving communications infrastructure. Commenters' 
views on whether the new example should be added to Q&A Sec.  
__.12(g)(4)(iii)-4 were mixed.
    A number of commenters expressed concern regarding the addition of 
a new or rehabilitated communications infrastructure as an example of 
an activity that would be considered to revitalize or stabilize a 
nonmetropolitan middle-income geography. These commenters, primarily 
representing community organizations, generally expressed the view that 
CRA consideration should be used as a means of encouraging financial 
institutions to find more direct ways to meet the needs of low- or 
moderate-income individuals and geographies. One individual commenter 
that opposed the addition of the example expressed concern that 
``regulatory creep'' was moving the focus of the CRA away from its 
original mission of helping to meet community credit needs.
    In contrast, most industry commenters, as well as a few community 
organization commenters, supported the addition of the new example 
addressing communications infrastructure. These commenters stated that 
such an example would provide further clarity regarding what 
constitutes an activity that could revitalize or stabilize underserved 
nonmetropolitan middle-income geographies. Many commenters who 
supported the addition of the new example noted the importance of 
communications infrastructure, and in particular broadband access, to 
the economic viability of underserved nonmetropolitan middle-income 
geographies' residents and businesses in the current marketplace. 
Further, many of these commenters noted that the addition of the new 
example also may help to improve access to alternative systems of 
delivering retail banking services, which require reliable access to 
broadband.
    The Agencies are adopting the new example describing a new or 
rehabilitated communications infrastructure because they continue to 
believe that, consistent with the CRA regulatory definition of 
``community development,'' communications infrastructure is an 
essential community service. Specifically, the definition of 
``community development'' provides that activities that help meet 
``essential community needs'' revitalize and stabilize underserved 
nonmetropolitan middle-income geographies. Further, existing Q&A Sec.  
__.12(g)(4)(iii)-4 clarifies that ``financing for the construction, 
expansion, improvement, maintenance, or operation of essential 
infrastructure'' may qualify for revitalization or stabilization 
consideration. As noted above, in the Agencies' view, reliable 
communications infrastructure is increasingly essential to the economic

[[Page 48511]]

viability of all residents of underserved nonmetropolitan middle-income 
geographies, including low- and moderate-income individuals.
    Several industry and community organization commenters, as well as 
a commenter representing a state banking supervisor, sought 
clarification regarding the extent to which the new or rehabilitated 
communications infrastructure must benefit low- or moderate-income 
individuals or geographies. The Agencies considered whether to provide 
additional clarification addressing these comments and determined that 
additional guidance was not necessary. First, existing Q&A Sec.  
__.12(g)(4)(iii)-4 states that, to receive CRA consideration on the 
basis of revitalizing or stabilizing an underserved nonmetropolitan 
middle-income geography, a project must meet essential community needs, 
including the needs of low- or moderate-income individuals. Although 
the geographies (a term defined at 12 CFR __.12(k) as census tracts) 
addressed by Q&A Sec.  __.12(g)(4)(iii)-4 are designated as middle-
income, there typically are low- and moderate-income individuals and 
neighborhoods interspersed throughout these nonmetropolitan 
geographies.
    Second, the CRA regulations \10\ and Q&A Sec.  __.12(g)(4)(iii)-4 
do not require that financial institutions demonstrate that projects 
primarily benefit the low- and moderate-income individuals or 
neighborhoods in these geographies in order to receive CRA 
consideration for revitalizing or stabilizing the underserved 
nonmetropolitan middle-income geographies. The Agencies believe that 
the current explanation in Q&A Sec.  __.12(g)(4)(iii)-4 is clear 
regarding the benefits to an underserved nonmetropolitan middle-income 
geography and the low- and moderate-income individuals within that 
geography.
---------------------------------------------------------------------------

    \10\ See 12 CFR __.12(g)(4)(iii).
---------------------------------------------------------------------------

    Two industry commenters and one community organization commenter 
requested that the proposed new example not be limited to Q&A Sec.  
__.12(g)(4)(iii)-4, asserting that communications infrastructure should 
also be considered to be an activity that revitalizes or stabilizes 
distressed nonmetropolitan middle-income, and low- or moderate-income, 
geographies. One industry commenter stated that it should be made clear 
that investments in new or rehabilitated communications infrastructure, 
and not just loans related to such activities, would receive CRA 
consideration. In addition, a few commenters requested generally that 
the Agencies clarify that the list of examples included in Q&A Sec.  
__.12(g)(4)(iii)-4 is not exhaustive.
    In response to these comments, the Agencies are adopting a new Q&A 
Sec.  __.12(g)-4. This new Q&A explains that examples included 
throughout the Questions and Answers are not exhaustive; rather, the 
Agencies provide examples to illustrate the types of activities that 
may qualify for consideration under a particular provision of the 
regulations. Nonetheless, the Agencies emphasize that the examples that 
are expressly provided are not the only activities that might receive 
CRA consideration. In addition, new Q&A Sec.  __.12(g)-4 explains that 
financial institutions may receive consideration for a community 
development activity, such as a qualified investment, if it serves a 
similar community development purpose as an activity described in an 
example related to a different type of community development activity, 
such as a community development loan. If a financial institution can 
demonstrate that an activity it has undertaken has a primary purpose of 
community development and meets the relevant geographic requirements, 
that activity should receive CRA consideration.
    The Agencies considered whether the example pertaining to a new or 
rehabilitated communications infrastructure should be added to any 
other Q&As, such as Q&A Sec.  __.12(g)(4)(iii)-3, but declined to add 
the example to any other Q&As. The Agencies believe that new Q&A Sec.  
__.12(g)-4, described above, should provide guidance as to whether a 
new or rehabilitated communications infrastructure might receive CRA 
consideration in other contexts. The Agencies do not believe it is 
necessary to add the same example to any other Q&As.
    Some industry and community organization commenters, as well as the 
U.S. Environmental Protection Agency (EPA), requested that the Agencies 
add additional examples of activities that qualify for consideration as 
activities that revitalize or stabilize underserved nonmetropolitan 
middle-income geographies. For example, the EPA suggested expanding Q&A 
Sec.  __.12(g)(4)(iii)-4 to address renewable energy facilities, which 
it posited could be considered ``public services.'' (As discussed 
below, loans to finance certain renewable energy facilities has been 
added to the examples of community development loans in Q&A Sec.  
__.12(h)-1.) Consistent with the explanation in new Q&A Sec.  __.12(g)-
4, if a financial institution were to submit information demonstrating 
that financing or investing in renewable energy facilities qualifies 
for CRA consideration under, for example, 12 CFR __.12(g)(4)(iii), or 
any of the other provisions within the definition of community 
development, then the financial institution would receive consideration 
for the activity. Therefore, the Agencies are not expressly adding a 
reference to renewable energy facilities to the list of examples in Q&A 
Sec.  __.12(g)(4)(iii)-4.
    Other commenters suggested that loans enabling flood control 
measures should be considered as an example of a community development 
loan. Although these comments were offered as a suggestion for an 
example of a community development loan in connection with Q&A Sec.  
__.12(h)-1, the Agencies believe that the commenters' suggestion of a 
new or rehabilitated flood control measure is another example of 
essential infrastructure that could qualify as an activity that 
revitalizes or stabilizes an underserved nonmetropolitan middle-income 
geography. As such, the Agencies have added the following new example 
in Q&A Sec.  __.12(g)(4)(iii)-4: ``a new or rehabilitated flood control 
measure, such as a levee or storm drain, that serves the community, 
including low- and moderate-income residents.''
iii. Community Development Loans
    The Agencies' CRA regulations define ``community development loan'' 
to mean a loan that has community development as its primary purpose. 
See 12 CFR __.12(h). Existing Q&A Sec.  __.12(h)-1 provides examples of 
community development loans. The Agencies proposed to add a new example 
of loans to finance certain renewable energy or energy-efficient 
technologies. The proposed example was intended to clarify that such 
loans may be considered as community development loans when the 
renewable energy or energy-efficiency improvements help reduce 
operational costs and maintain the affordability of single-family or 
multifamily housing or community facilities that serve low- and 
moderate-income individuals.
    The Agencies received 43 distinct comments and 917 form letters 
addressing the proposed example in Q&A Sec.  __.12(h)-1. Industry and 
community organization commenters, as well as commenters representing 
environmental organizations, generally supported adding the proposed 
example to the Q&A. However, a few community organization commenters 
expressed differing opinions regarding how the Agencies proposed to 
describe that an indirect benefit from renewable energy

[[Page 48512]]

improvements would be considered. A few community organization 
commenters believed that the benefit to low- or moderate-income 
households or geographies should be more clear and direct. These 
commenters asserted that loans financing renewable energy or energy-
efficiency initiatives should be required to result in a demonstrable 
reduction in the operating or maintenance cost for affordable housing 
or community facilities serving low- or moderate-income individuals in 
order to qualify for CRA consideration as community development loans. 
In response to these comments, the Agencies agree that there should be 
a discernible benefit to the affordable housing or community facilities 
serving low- or moderate-income individuals. Thus, the Agencies have 
revised the example in Q&A Sec.  __.12(h)-1 to remove the reference to 
``indirect benefit.'' However, to provide further clarification, the 
Agencies have added an example illustrating how renewable energy 
facilities could benefit low- or moderate-income individuals by 
reducing a tenant's utility cost or the cost of providing utilities to 
common areas in an affordable housing development.
    In addition, a number of commenters representing the renewable 
energy industry asked the Agencies to consider renewable energy 
facilities that are not attached directly on the affordable housing or 
community services facility, explaining that this approach could be 
more efficient, technologically simpler, or less costly if a particular 
building site is not oriented to optimize renewable energy generation. 
In response to these comments, the Agencies have revised the example in 
the final Q&A to clarify that a renewable energy project may be located 
on-site or off-site. This clarification would apply, for example, to a 
community-scale or micro-grid renewable energy facility or solar panels 
placed on carports instead of being physically mounted on the main 
building, so long as the benefit from the energy generated is provided 
to an affordable housing project or a community facility that has a 
community development purpose. To demonstrate that activities related 
to a renewable energy facility or project have a primary purpose of 
community development, an institution may provide a copy of the 
contractual agreement, such as a lease, power purchase agreement, or 
energy service contract, that allocates energy or otherwise reduces 
energy cost to benefit affordable housing or a community facility that 
serves low- or moderate-income individuals.
    The EPA suggested adding ``revitalizing a contaminated property by 
installing renewable energy'' to the list of examples of community 
development loans in the revision of Q&A Sec.  __.12(h)-1. A community 
development loan must have a primary purpose of community development 
(see Q&A Sec.  __.12(h)-8). The Agencies do not believe it is clear 
that revitalizing a contaminated property by installing renewable 
energy facilities would always have a primary purpose of community 
development, as defined in 12 CFR __.12(g). Therefore, the Agencies 
have not added this particular example.
    Several renewable energy-related industry commenters discussed the 
job creation and job training aspects of installing renewable energy 
improvements and requested greater CRA consideration of the impact of 
jobs during the construction phase. The agencies note that Q&A Sec.  
__.12(h)-5, in offering guidance on community development activities 
that revitalize or stabilize a low- or moderate-income geography, 
states that some activities provide only indirect or short-term 
benefits to low- or moderate-income individuals and, as such, do not 
receive CRA consideration. Construction jobs are used as an 
illustration of this type of short-term benefit. Consistent with this 
guidance, the Agencies do not believe that additional consideration 
should be given to short-term job creation related to the installation 
of renewable energy improvements benefitting affordable housing or a 
community facility that serves low- or moderate-income individuals and 
are not amending the Q&A as suggested by the commenters.
    A few renewable energy-related industry commenters suggested that 
CRA consideration should be given for loans to low- or moderate-income 
homeowners to install renewable energy facilities or energy-efficient 
improvements. A loan to a homeowner for these purposes would be 
considered as a consumer loan or home mortgage loan. Under the existing 
regulation and guidance, these loans may be considered in an 
institution's CRA evaluation under the lending test relevant to the 
particular institution, so the Agencies have not made any additional 
revisions to the Questions and Answers in response to this comment.
    One environmental organization suggested broadening the proposed 
language in Q&A Sec.  __.12(h)-1 to expressly cover energy efficiency 
improvements in schools. The Agencies believe that inclusion of this 
language in Q&A Sec.  __.12(h)-1 is unnecessary. A school that 
primarily serves low- or moderate- income students could be considered 
as a community facility, and a loan for energy efficiency improvements 
at that school would qualify as a community development loan, 
consistent with the example in the revised Q&A.
    A number of community organization commenters suggested broadening 
the language in Q&A Sec.  __.12(h)-1 to include water conservation 
improvements. The Agencies agree that water conservation improvements 
can promote sustainable affordable housing or community facilities 
serving low- or moderate-income individuals by lowering operating costs 
and, accordingly, have modified the example to include water 
conservation. In addition, activities related to water conservation 
improvements may also qualify as having a different community 
development purpose if an institution were to maintain information 
demonstrating that the activity meets the applicable community 
development definition as explained in new Q&A Sec.  __.12(g)-4.
    Although some commenters also suggested adding flood control 
improvements to the example in Q&A Sec.  __.12(h)-1, the Agencies 
concluded that financing for flood control improvements may more 
appropriately be considered as essential infrastructure addressing the 
need for revitalization and stabilization of underserved 
nonmetropolitan middle-income geographies. See Q&A Sec.  
__.12(g)(4)(iii)-4.
    The final paragraph of existing Q&A Sec.  __.12(h)-1 stated that 
the rehabilitation and construction of affordable housing or community 
facilities may include the abatement or remediation of environmental 
hazards, and provided lead-based paint as an example. The Agencies 
received many comments from community and environmental organizations 
suggesting the inclusion of more explicit enumeration of several 
additional examples of environmental hazards and have added to the 
example ``asbestos, mold, or radon'' as other examples of environmental 
hazards that may be abated or remediated as part of a rehabilitation or 
construction project.
    One renewable energy-related industry commenter noted that the 
discussion in the preamble of the September 2014 Federal Register 
notice addressing the proposed revision to Q&A Sec.  __.12(h)-1 may 
affect certain energy financing programs. The

[[Page 48513]]

Agencies reiterate that 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 Agencies want to make clear that the addition of this example 
does not expand the definition of community development, but rather 
clarifies that consideration will be given for loans financing 
renewable energy facilities or energy-efficient improvements in 
affordable housing or community facilities that otherwise meet the 
existing definition of community development.

B. Lending Test--Innovative or Flexible Lending Practices

    The CRA regulations provide that a financial institution's lending 
performance is evaluated by, among other things, 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). Existing guidance contained in Q&A 
Sec.  __.22(b)(5)-1 provides two examples that illustrate the range of 
practices that examiners may consider when evaluating the 
innovativeness or flexibility of an institution's lending practices. 
The Agencies believed that the current guidance would benefit from 
additional examples of innovative or flexible lending practices and 
therefore, proposed to expand the list of examples.
    First, the Agencies proposed to revise Q&A Sec.  __.22(b)(5)-1 to 
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. Second, the Agencies proposed to 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. Third, the Agencies proposed two new 
examples of innovative or flexible lending practices. The first example 
described small dollar loan programs as an innovative or flexible 
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. A 
small dollar loan program currently receives consideration under the 
lending test and, therefore, the guidance already acknowledges these 
programs 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, the Agencies believed that outreach initiatives 
offered in conjunction with small dollar loan programs improve the 
success of those affiliated lending programs in meeting the credit 
needs of low- and moderate-income individuals and communities and, 
therefore, merit qualitative consideration as an example of an 
innovative or flexible lending practice.
    The second example proposed by the Agencies described mortgage or 
consumer lending programs that utilize alternative credit histories in 
a manner that would benefit low- or moderate-income individuals. The 
Agencies believed that considering alternative credit histories to 
supplement conventional trade line information with additional 
information about the borrower, such as rent and utility payments, 
could provide some additional creditworthy low- or moderate-income 
individuals an opportunity to gain access to credit, consistent with 
safe and sound underwriting practices. The Agencies also solicited 
comment on whether the proposed guidance was sufficient to encourage 
institutions to design more innovative and flexible lending programs 
that are responsive to community needs; whether the benefits of using 
alternative credit histories outweighed any concerns; and if this 
additional guidance would better enable examiners and institutions to 
identify those cases in which alternative credit histories benefit low- 
or moderate-income individuals.
    The Agencies received 87 comments addressing the proposed revisions 
and the three related questions the Agencies posed for comment. Because 
commenters' more general observations also addressed the three 
questions, their responses to the questions are integrated into the 
broader discussion of the comments received by the Agencies.
    Most commenters were supportive of the Agencies' intent to clarify 
how examiners evaluate an institution's innovative or flexible lending 
practices. However, several commenters representing both the banking 
industry and community organizations expressed some concerns about the 
revisions, as discussed more fully below.
    A few industry commenters asked the Agencies to further clarify 
that innovative activities, such as small dollar lending programs and 
alternative credit histories, are not required to obtain a specific CRA 
rating, and had concerns despite the revision proposed by the Agencies 
intended to address this issue. The Agencies have revised the 
introductory paragraph of the final Q&A to make clearer that innovative 
or flexible lending practices are not required to obtain a specific CRA 
rating. In addition, the final Q&A is revised to cross-reference Q&A 
Sec.  __.28-1, which explains how innovativeness is considered in the 
rating process. Current Q&A Sec.  __.28-1 explicitly states, among 
other things, that the lack of innovative lending practices will not 
result in a ``Needs to Improve'' CRA rating. Rather, the guidance notes 
that the use of innovative lending practices may augment the 
consideration given to an institution's performance under the 
quantitative criteria, resulting in a higher performance rating.
    One industry commenter addressed the Agencies' proposed language 
stating that examiners will consider whether, and the extent to which, 
innovative or flexible practices augment the success and effectiveness 
of an institution's lending program. This commenter questioned whether 
the proposed guidance would be sufficient to help examiners or bankers 
understand and identify innovative or flexible lending activities since 
examiner discretion determines what is considered ``innovative'' or 
``flexible.'' The Agencies recognize that the terms ``innovative'' and 
``flexible'' are qualitative in nature and, thus, examiner judgment is 
needed to assess the unique characteristics and differences in an 
institution's lending programs. However, the Agencies believe 
additional guidance concerning what constitutes an innovative activity 
would be helpful to the review process undertaken by examiners. Bankers 
and examiners may also find additional guidance in new Q&A Sec.  
__.21(a)-4, discussed in further detail below, which explains, among 
other things, that ``innovative activities are especially meaningful 
when they emphasize serving, for example, low- or moderate-income 
consumers or distressed or underserved nonmetropolitan middle-income 
geographies in new or more effective ways.'' Although examiner judgment 
and discretion remain in determining what lending practices are deemed 
innovative or flexible, the Agencies believe the additional guidance in 
Q&A Sec.  __.21(a)-4 provides further clarification on when an activity 
should be considered innovative or flexible.
    Most commenters addressing proposed Q&A Sec.  __.22(b)(5)-1 
commented on the two examples proposed by the Agencies. Concerning the 
small dollar loan example, most

[[Page 48514]]

community organization commenters recognized that such programs could 
be a feasible alternative to higher-cost loans offered by payday 
lenders. Industry commenters were also supportive of small dollar 
lending programs. For example, one industry commenter stated that small 
dollar loans are a path for a bank's clients with thin credit files or 
a lack of credit history to build or establish a credit score. 
Nevertheless, some community organization commenters expressed concern 
that the proposed example on small dollar loans did not make reference 
to any consumer protection standards.
    In particular, one state agency expressed concern that the small 
dollar loan example did not sufficiently emphasize consumer protection 
and the safety and soundness aspects of individual small dollar loans. 
This commenter suggested that the Agencies consider adding the phrase 
``based on a borrower's ability to repay'' to the small dollar loan 
example because it would emphasize that small dollar loans made in a 
safe and sound manner are evaluated with respect to individual loans 
and not the entire portfolio. Similarly, several community organization 
commenters asked that the Agencies give CRA consideration for small 
dollar loan programs only if the loans are safe and sound alternatives 
to high-cost predatory programs.
    In response to these comments, the Agencies are adopting the small 
dollar loan program example largely as proposed with a revision to 
ensure consistency with Q&A Sec.  __.22(a)-1.
    Finally, one industry commenter requested that the Agencies clarify 
the term ``reasonable terms'' in the context of small dollar lending 
programs. This commenter expressed concern that ``reasonable terms'' 
was undefined and, thus, would add confusion as to what would receive 
CRA consideration. The Agencies note that whether a lending program has 
``reasonable terms'' would depend on the facts and circumstances and, 
therefore, defining the term would not be practicable.
    Most community organization commenters were supportive of the 
proposed new example addressing consideration of alternative credit 
histories as an innovative or flexible lending practice. Several 
community organization commenters, however, expressed concern over the 
risk of using certain alternative data sources, such as social media, 
checking account history, voter registration records, and criminal 
convictions, to establish credit history. According to these 
commenters, such data sources provide no predictive value, but could 
have a disproportionately negative impact on low- or moderate-income 
individuals and people of color. These commenters suggested that the 
Agencies clarify the types of data sources that should be used in 
alternative credit history reports that could be considered innovative, 
but that would not have a negative impact on low- or moderate-income 
individuals.
    Industry commenters were also supportive of the proposed example 
concerning alternative credit histories. A few industry commenters 
acknowledged that the use of alternative credit histories could be 
effective in expanding access to credit to low- or moderate-income 
individuals. However, these industry commenters believed that access to 
credit should be balanced against safety and soundness considerations. 
These industry commenters urged the Agencies to work closely with each 
other to provide a consistent message regarding the activities that 
could be innovative and flexible while ensuring delivery in a safe and 
sound manner.
    The Agencies are finalizing the example addressing consideration of 
alternative credit histories largely as proposed with clarifying 
revisions based on comments received. The Agencies agree with 
commenters that certain data sources provide little or no predictive 
value. Hence, the Agencies intend to consider an institution's use of 
alternative credit histories that are consistent with safe and sound 
banking practices and that would benefit otherwise creditworthy low- or 
moderate-income individuals who would otherwise be denied credit. 
Individuals that may benefit from such programs are those who may not 
qualify for credit based on the use of conventional credit bureau 
reports because they have little, or no, reportable credit history with 
the national credit bureaus (hence a credit denial due to a low, or no, 
credit score with the national credit bureaus), but have a timely and 
consistent record of paying obligations (such as rent and utility 
bills). The Agencies believe that the use of alternative credit 
histories to supplement (not substitute for) the institution's 
traditional underwriting programs, may open opportunities to some 
creditworthy low- or moderate-income individuals to gain access to 
credit. Accordingly, the Agencies have modified the example to clarify 
that alternative credit histories should be used to evaluate low- or 
moderate-income individuals who lack sufficient conventional credit 
histories and who would be denied credit based on the institution's 
traditional underwriting standards. Further, when such a program is 
used to demonstrate that consumers have a timely and consistent record 
of paying their obligations, the program may be considered an 
innovative or flexible practice that augments the success and 
effectiveness of the lending program. The Agencies note that, similar 
to the small dollar loan program example and the other examples in this 
Q&A, the use of alternative credit histories as an innovative or 
flexible lending practice is not required for the financial institution 
to obtain a specific CRA rating. See Q&A Sec.  __.28-1.
    Finally, the Agencies revised the introductory paragraph of this 
Q&A to make clear that, although many financial institutions have used 
innovative or flexible lending practices, such as a small dollar loan 
program or consideration of alternative credit histories, to customize 
loans to their customers' specific needs in a safe and sound manner and 
consistent with statutes, regulations, and guidance, such practices are 
not required to obtain a specific CRA rating. Further, the CRA 
regulations provide that a financial institution is not required to 
make loans or investments or to provide services that are inconsistent 
with safe and sound operations. Financial institutions are permitted 
and encouraged to develop and apply flexible underwriting standards for 
loans that benefit low- or moderate-income geographies or individuals 
only if consistent with safe and sound operations. See 12 CFR __.21(d).

C. Service Test

i. Availability and Effectiveness of Retail Banking Services
    The CRA regulations provide that the Agencies evaluate the 
availability and effectiveness of a financial institution's systems for 
delivering retail banking services under the service test pursuant to 
four criteria: (1) The current distribution of the institution's 
branches among low-, moderate-, middle-, and upper-income geographies; 
(2) the institution's record of opening and closing branches, 
particularly those 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

[[Page 48515]]

services are tailored to meet the needs of those geographies.
    The Agencies proposed to revise current Q&A Sec.  __.24(d)-1, which 
addresses how examiners should evaluate the availability and 
effectiveness of an institution's systems for delivering retail banking 
services. Specifically, the Agencies proposed to delete the statements 
that ``performance standards place primary emphasis on full-service 
branches'' and that alternative delivery systems are considered ``only 
to the extent'' that they are effective alternatives in providing 
needed services to low- or moderate-income geographies and individuals. 
The proposal was intended to encourage broader availability of 
alternative delivery systems to low- or moderate-income geographies and 
individuals without diminishing the value full-service branches offer 
to communities.
    The Agencies received 41 comments on proposed revisions to Q&A 
Sec.  __.24(d)-1. Nearly all of the industry commenters supported the 
revision, including commenters that stressed the continued importance 
of branches to the communities they serve. Some industry commenters, 
however, voiced concern about how the Agencies would implement the 
revision and asked for further clarification on how examiners would 
weigh branches and alternative delivery systems and utilize performance 
context considerations in rating the different delivery systems' 
performance under the service test. In contrast, almost all community 
organization commenters opposed the proposed revisions, asserting that 
branches continue to be uniquely important to low- and moderate-income 
neighborhoods and individuals, elderly customers, and local businesses. 
Many of these community organization commenters highlighted the 
importance of face-to-face contact in order to overcome language 
barriers and effectively provide essential financial services, such as 
opening accounts, applying for loans, and explaining terms and 
conditions. These commenters believed the proposed changes regarding 
how examiners should weigh branches and alternative delivery systems 
would result in more branches being closed. Moreover, these commenters 
stated that the proposed revisions to Q&A Sec.  __.24(d)-1 would not 
resolve the CRA regulations' outdated definition of assessment area.
    In consideration of the comments received, the Agencies are 
withdrawing the proposed revisions to Q&A Sec.  __.24(d)-1 to avoid the 
unintended inference that branches are less important in providing 
financial services to low- and moderate-income geographies. However, 
the Agencies are making a minor revision to the Q&A to remove 
references to automated teller machines (``ATMs'') as the only example 
of alternative delivery systems to acknowledge that many other 
alternative delivery channels are utilized by financial institutions. 
The Agencies note that other Q&As being finalized in this document 
provide additional guidance on how examiners will evaluate criteria 
under the retail service test to ensure that appropriate consideration 
is given to branches, alternative delivery systems, and financial 
services tailored to meet the needs of low- and moderate-income 
individuals or geographies. See Q&As Sec.  __.24(d)(3)-1 and Sec.  
__.24(d)(4)-1.
ii. Alternative Systems for Delivering Retail Banking Services
    The Agencies proposed to revise Q&A Sec.  __.24(d)(3)-1, which 
addresses how examiners evaluate the availability and effectiveness of 
alternative delivery systems in the context of the retail service test. 
The proposed revisions were responsive to suggestions that the Agencies 
update the guidance to reflect technological advances used to deliver 
retail banking services by: (1) Adding examples of such technologically 
advanced systems, even though the examples were not, and are not, 
intended to limit consideration of new methods as technology evolves; 
and (2) providing additional guidance on how examiners will evaluate 
the availability and effectiveness of alternative delivery systems.
    Proposed Q&A Sec.  __.24(d)(3)-1 identified additional factors that 
examiners may consider when evaluating whether a financial 
institution's alternative delivery systems are available and effective 
in delivering retail banking services in low- and moderate-income 
geographies and to low- and moderate-income individuals. These proposed 
factors included: (1) Ease of access, whether physical or virtual; (2) 
cost to consumers, as compared to other delivery systems; (3) range of 
services delivered; (4) ease of use; (5) rate of adoption; and (6) 
reliability of the system. The proposed Q&A further explained that 
examiners will consider any information an institution maintains and 
provides to examiners to demonstrate that the institution's alternative 
delivery systems are available to, and used by, low- and moderate-
income individuals, such as data on customer usage or transactions.
    The Agencies received 41 comments on the proposed Q&A Sec.  
__.24(d)(3)-1. Commenters generally believed the proposed factors were 
reasonable and sufficiently flexible. Community organization commenters 
emphasized the importance of determining whether alternative services 
and products were not just offered, but adopted and used consistently 
by consumers. These commenters suggested that the cost of products is 
most relevant in the consideration of whether an alternative delivery 
system is available to, and used by, low- and moderate-income 
individuals.
    Some community organization commenters suggested that the Agencies 
refrain from placing too much emphasis on alternative delivery systems 
until usage data can be accessed and used by the public to 
independently monitor the industry's performance. Furthermore, these 
commenters suggested that the Agencies clarify that financial 
institutions will not receive CRA consideration for serving low- or 
moderate-income individuals or areas outside of their assessment areas 
using online or mobile technology. Conversely, industry commenters 
focused on the difficulty of evaluating the availability and 
effectiveness of services based on the income of the recipient because 
such information is collected only in the context of a loan 
application.
    The Agencies specifically sought comment on whether the factors 
proposed were sufficiently flexible to be used by examiners as the 
financial services marketplace evolves, and if other factors should be 
included. Commenters that addressed this question were largely 
supportive. Industry commenters indicated that the factors were 
sufficiently flexible, but noted that additional guidance was needed 
regarding the use of proxies for income and how the criteria would be 
weighted. Community organization commenters were also generally 
supportive of the proposed factors but offered suggestions on how to 
implement them.
    One industry commenter opposed the proposed factor that would 
evaluate the comparative cost of alternative delivery systems to the 
consumer because it would give examiners broad discretion when 
evaluating the pricing of banking services. Other industry commenters 
suggested that the Agencies provide more clarity regarding how the 
factors would be weighted. Yet another industry commenter suggested 
that the Agencies clearly specify that the list of factors is not 
intended to be exhaustive and requested that the guidance clearly state 
that there is no regulatory requirement to provide banking services

[[Page 48516]]

at a reduced cost. Finally, another industry commenter suggested that 
consideration should be given to the continuum of access channels that 
an institution provides, rather than comparing services within delivery 
channels. This commenter further stated that financial institutions 
providing a full range of access channels should receive greater 
consideration than mono-line or limited-channel institutions.
    Community organization commenters focused on the importance of 
evaluating the actual impact of financial services on low- and 
moderate-income communities. These commenters suggested evaluating the 
sustainability of accounts opened, the range of services offered 
through alternative delivery systems, and the degree to which they are 
tailored to meet the needs of low- or moderate-income individuals. In 
addition, some community organization commenters suggested that the 
Agencies provide additional explanation on the ``ease of access'' 
factor to include consideration of language access, disability 
accommodation, and ability to use a system with alternative forms of 
identification.
    One commenter, a public policy organization, supported the proposed 
factors, but suggested that they be applied to determine the 
effectiveness of branches as well as alternative delivery systems. This 
commenter stated that high-cost or inconvenient branches are no more 
beneficial than poorly utilized alternative delivery platforms, and 
asserted that the Agencies' objective should be to encourage high-
quality service delivery through both branches and alternative 
channels. This commenter also stated that the use of intermediaries, 
such as community-based organizations that provide face-to-face 
interaction with customers, should be considered as an effective 
substitute for branch activity.
    In general, the commenters agreed that the factors proposed are 
reasonable and sufficiently flexible. The Agencies are finalizing the 
proposed factors in final Q&A Sec.  __.24(d)(3)-1 largely as proposed, 
but with two modifications. First, to address commenters' concern that 
availability of alternative delivery systems alone does not demonstrate 
a system's responsiveness to community needs, the Agencies have revised 
the factor regarding the rate of adoption to read ``the rate of 
adoption and use'' (emphasis added). Second, the Agencies clarified the 
language regarding the cost to consumers as compared with the bank's 
other delivery systems, as discussed more fully below.
    The Agencies did not include additional explanation to the ``ease 
of access'' factor, as suggested by some commenters, but note that 
evaluation of ``ease of access'' could include consideration of 
language access, disability accommodation, and the ability to use a 
system with alternative forms of identification. Similarly, the 
Agencies did not revise the final Q&A to address how the various 
factors will be weighted since the availability and applicability of 
information regarding each factor will vary depending on the type of 
delivery system under consideration and the performance context of the 
institution. The factors cited in the final Q&A are examples of 
information that is relevant to the evaluation of whether alternative 
delivery systems are available and effective, and they are meant to be 
flexible.
    The Agencies did not revise the guidance to address the comment 
suggesting that the proposed measures of availability and effectiveness 
of alternative delivery systems should be made applicable to branches 
and third-party service providers. The Agencies share the commenter's 
view that financial institutions should provide high-quality service 
delivery overall; however, the measures of availability and 
effectiveness in Q&A Sec.  __.24(d)(3)-1 were designed to evaluate 
alternative delivery systems. As provided in the Interagency CRA 
Examination Procedures, examiners assess the quantity, quality, and 
accessibility of the financial institution's service delivery systems 
provided in low-, moderate-, middle-, and upper-income geographies. 
Examiners also consider the degree to which services are tailored to 
the convenience and needs of each geography (e.g., extended business 
hours, including weekends, evenings, or by appointment, providing 
bilingual services in specific geographies, etc.).
    The second question on which the Agencies requested comment asked 
about the types of information routinely maintained by financial 
institutions that would be useful to demonstrate the availability and 
effectiveness of its alternative delivery systems to low- or moderate-
income individuals. One industry commenter described the data that it 
has begun to collect and retain to comprehensively assess all delivery 
systems, including customer complaint metrics, cost of delivery 
(including third-party costs), new account/product volume, account/
product closure volume, current accounts/product volume, and Service 
Level Agreements metrics (uptime/downtime). Other industry commenters 
stated that financial institutions do not collect income information 
from customers and most suggested that the income level of the census 
tract where the customer resides is the best available proxy for 
income. Another industry commenter counseled against any effort to 
collect income information when opening deposit accounts, asserting 
that opening a bank account needs to be as simple as possible to 
increase access to banking services. This commenter believed that the 
more questions a financial institution asks, the fewer people would 
finish the process and, more importantly, that income information 
collected in this way would quickly become stale and statistically 
invalid.
    One industry commenter suggested that some financial institutions 
may maintain information, such as internal operations reports, industry 
rankings, and customer surveys, that would be helpful in understanding 
their performance context, but, since the types of information that 
institutions maintain vary widely, such information would be difficult 
to use for anything other than context. A community organization 
commenter suggested that examiners evaluate the frequency of 
transactions, adoption and attrition rates, as well as any geographic 
and income data available.
    Two commenters addressed the information available regarding the 
reliability of alternative delivery systems. The first, representing a 
community organization, suggested that examiners evaluate the 
alternative delivery systems' ability to handle peak transaction 
volumes, the frequency of system crashes, the number of service shut 
downs for system maintenance, and the information security of systems. 
The other comment, from a financial institution, suggested that the 
Agencies provide specific guidance on, and examples of, the types of 
information that might be relevant to the evaluation of a system's 
reliability.
    The comment letters indicated that the types of information 
collected and maintained by financial institutions that would be 
relevant to an evaluation of the availability and effectiveness of 
alternative delivery systems vary widely. The Agencies, therefore, are 
retaining the proposed language stating that examiners will consider 
any information that an institution maintains and provides to 
demonstrate the availability and effectiveness of its alternative 
delivery systems to low- or moderate-income individuals.
    Third, the Agencies asked what other sources of data and 
quantitative information examiners could use to

[[Page 48517]]

evaluate the proposed factors and whether financial institutions have 
such data readily available for examiners to review. One industry trade 
association commenter suggested that market studies be used to 
determine alternative delivery systems' usage because income data is 
not available. Another industry commenter suggested that the 
interagency examination procedures be modified to require that 
examiners gather cost data from advertisements, brochures, online 
product lists, and similar sources to compare service costs across 
banks and within broad geographic areas. This commenter also suggested 
that examiners should gather information from the community regarding 
the cost of services locally in the course of examinations.
    A community organization commenter noted the lack of useful data 
regarding the actual geographic location of a person or business 
holding deposits and suggested that the Summary of Deposits \11\ 
information collected by the FDIC be improved to provide better data 
regarding depositor location. Another community organization commenter 
suggested that examiners evaluate punitive fees, prohibitive minimum 
balances, and narrow risk assessments associated with bank products. A 
third community organization commenter suggested that examiners refer 
to online sources to provide cost comparisons of products across 
providers. This commenter also suggested that examiners consider a 
comparison of costs relative to other banks in the assessment area and 
the industry overall. Still another community commenter focused on how 
prepaid cards could be evaluated for effectiveness, suggesting that 
examiners evaluate whether the cardholder's credit score had improved 
as a measure of whether the card helped accountholders save money, 
build credit, and improve financial literacy. This commenter also 
suggested that income could be estimated from direct deposits of 
employment checks.
---------------------------------------------------------------------------

    \11\ The Summary of Deposits (SOD) is the annual survey of 
branch office deposits as of June 30 for all FDIC-insured 
institutions, including insured U.S. branches of foreign banks. This 
survey has been conducted since 1934. Instructions, survey results, 
market share reports, contact information, and survey facsimiles are 
available through the FDIC's Summary of Deposits Web site at https://www2.fdic.gov/sod/.
---------------------------------------------------------------------------

    The Agencies found these comments helpful in thinking about the 
types of information that may be useful in evaluating the availability 
and effectiveness of alternative delivery systems. Moreover, the 
Agencies noted that the comments, particularly those related to 
determining the relative cost of alternative delivery systems, suggest 
that the distinction between delivery systems and financial products is 
not clear. For example, many commenters focused on how the costs of 
financial products tailored to meet the needs of low- and moderate-
income customers, such as prepaid cards and low-cost checking accounts, 
should be evaluated, rather than addressing information that could be 
used to determine the relative costs of delivery systems, such as usage 
or access fees for online accounts and mobile banking platforms.
    In order to more clearly distinguish between delivery systems and 
financial products tailored to meet the needs of low- or moderate-
income individuals, the Agencies have revised Q&A Sec.  __.12(i)-3, 
which lists examples of community development services, to remove from 
that list any examples of retail banking services that are tailored to 
meet the needs of low- or moderate-income individuals. This revised Q&A 
is discussed more fully below under III.A.i. However, these examples of 
retail services will continue to be given consideration under the 
service test as provided pursuant to 12 CFR __.24(d)(4).
    The Agencies have also added a new Q&A Sec.  __.24(d)(4)-1 
addressing how examiners evaluate whether retail services are tailored 
to meet the needs of geographies of different income levels. The 
Agencies are adopting Q&A Sec.  __.24(d)(4)-1 in response to the many 
comments received regarding how examiners evaluate alternative delivery 
systems. Many of these commenters indicated that some confusion exists 
in distinguishing alternative delivery systems from financial products 
that are tailored to meet the needs of low- or moderate-income 
geographies and individuals. The Agencies believe that this new 
guidance makes clear that, in addition to evaluating the range of 
services provided in geographies of different incomes, examiners will 
also review any other information provided by the institution to 
demonstrate that its services are tailored to meet the needs of its 
customers in the various geographies of its assessment area(s). The 
final guidance further explains that this information may include data 
regarding the costs and features of loan and deposit products, account 
usage and retention, geographic location of accountholders, the 
availability of information in languages other than English, and any 
other relevant information maintained by the institution.
    Fourth, the Agencies asked whether examiners should evaluate the 
cost of alternative delivery systems to consumers as compared with 
other delivery systems, as well as the range of services delivered 
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. Two 
industry commenters stated that an evaluation of the cost to consumers 
compared to other delivery systems is best evaluated within the 
specific context of each financial institution. One of these commenters 
suggested that it would be unreasonably burdensome to expect an 
institution to survey and monitor costs related to other institutions' 
delivery systems. One industry commenter suggested that it would be 
preferable to evaluate the cost to consumers within each assessment 
area, recognizing that examiners are required to reach a conclusion on 
a financial institution's performance in each of its assessment areas. 
One community organization commenter stated that the cost to consumers 
of a particular delivery system should not be considered along with 
other factors, such as the rate of adoption and sustained use. Another 
community organization commenter asserted that examiners should 
consider the total cost of products because fees are a primary factor 
preventing households from obtaining bank products and retaining 
banking relationships.
    After reviewing the comments received in response to this question, 
the Agencies agree that it would be most appropriate to compare the 
costs of a financial institution's alternative delivery systems with 
its other delivery systems because of significant differences in size, 
capacity, and business strategy among institutions. As a result, the 
Agencies have revised the final Q&A to clarify that costs of 
alternative delivery systems will be compared to the financial 
institution's other delivery systems.
    Lastly, the Agencies asked whether 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. While most 
commenters noted that the proposed Q&A offered helpful guidance on how 
examiners would evaluate the availability and effectiveness of 
alternative delivery systems, they also observed that the proposed 
guidance did not adequately address the trend in the financial services 
industry toward non-branch delivery systems and its impact on financial 
institutions'

[[Page 48518]]

performance within their branch-based assessment areas. Similarly, one 
industry commenter and one community organization commenter noted that 
the Agencies should clarify that the evaluation of alternative delivery 
systems is conducted strictly within the assessment areas defined by 
branches and emphasize that CRA evaluations do not consider alternative 
delivery systems outside of an institution's assessment area. 
Currently, the regulations provide for consideration of alternative 
delivery systems to the extent that they meet the needs of low- and 
moderate-income individuals within an institution's assessment area.

III. New Questions and Answers Proposed in 2014

A. Community Development Services

i. Evaluating Retail Banking and Community Development Services
    The Agencies proposed a new Q&A Sec.  __.24(a)-1 to clarify how 
examiners evaluate retail and community development services under the 
large institution service test to improve consistency and reduce 
uncertainty regarding the performance criteria in the service test, and 
to encourage additional community development services.
    For retail banking services, the proposed new Q&A stated that 
``examiners consider the availability and effectiveness of an 
institution's systems for delivering 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.'' With regard to 
community development services, the proposed Q&A stated that examiners 
would consider the extent of community development services offered.
    The proposed Q&A sought to differentiate retail services that are 
also considered community development services under existing Q&A Sec.  
__.12(i)-3 (such as low-cost banking accounts targeted to low- or 
moderate-income individuals) from other retail banking services by 
stating that examiners would consider whether these retail banking 
services are responsive and effective in that they ``improve or 
increase access to financial services by low- and moderate-income 
individuals or in low- or moderate-income geographies.'' In addition, 
the proposed Q&A stated that examiners will consider any information 
provided by the institution that demonstrates community development 
services are responsive to those needs in order to address concerns 
that examiners have refused to consider certain types of documentation.
    The Agencies solicited comment on all aspects of this proposed new 
Q&A and specifically requested commenters' views on two questions, as 
discussed below. The Agencies received 26 comments that were generally 
supportive of the intent of the Q&A however, most of these commenters 
did not believe that the proposed Q&A would achieve its stated purpose. 
A number of commenters asserted that the proposal did not elevate the 
relative importance of community development services compared to 
retail banking services as the Agencies had intended.
    The Agencies specifically requested comment on whether the proposed 
guidance provided sufficient clarity regarding how examiners evaluate 
retail and community development services under the large institution 
service test and if not, suggestions that would make the Q&A clearer. 
Community organization and industry commenters responded generally that 
the proposed Q&A did not clarify how retail services that benefit low- 
and moderate-income individuals or geographies and that are described 
as community development services under existing Q&A Sec.  __.12(i)-3 
(such as low-cost transaction accounts and electronic benefit transfer 
accounts) are evaluated. Rather, at least one commenter believed the 
proposed Q&A exacerbated the confusion that currently exists. One 
community organization commenter contended that the Agencies 
incorrectly labelled low-cost transaction and savings accounts as 
community development services, rather than as retail banking services. 
This sentiment was shared by a few other commenters who asserted that 
basic transaction savings and checking accounts should be considered 
retail banking services. Commenters noted that, under existing 
guidance, these services could be classified as either retail banking 
or community development services.
    These commenters and others urged the Agencies to more clearly 
demarcate the boundaries between retail banking services and community 
development services in the Questions and Answers. They requested that 
the Agencies provide specific examples or additional explanation that 
more clearly identifies which products and services will be evaluated 
under the retail banking services criteria and which will be considered 
as community development services.
    In reviewing the comments, the Agencies noted that much of the 
confusion surrounding the distinction between retail banking services 
and community development services can be traced to the inclusion of 
retail services or products that are tailored to meet the needs of low- 
or moderate-income individuals in existing Q&A Sec.  __.12(i)-3, which 
lists examples of community development services. Of the 11 examples of 
community development services listed in Q&A Sec.  __.12(i)-3, five are 
related to branch delivery systems and retail products or services. 
They involve: (i) providing financial services to low- or moderate-
income individuals through branches and other facilities located in 
low- or moderate-income geographies; (ii) increasing access to 
financial services by opening or maintaining branches or other 
facilities that help to revitalize or stabilize a low- or moderate-
income geography, a designated disaster area, or a distressed or 
underserved nonmetropolitan middle-income geography; (iii) providing 
electronic benefits transfer and point of sale terminal systems; (iv) 
providing international remittance services; and (v) providing other 
financial services with the primary purpose of community development, 
such as low-cost savings or checking accounts, including electronic 
transfer accounts, individual development accounts, or free or low-cost 
government, payroll, or other check cashing services.
    The Agencies have revised Q&A Sec.  __.24(a)-1 in response to these 
comments. The final Q&A incorporates, as examples, most of the retail 
banking services currently listed as community development services 
under Q&A Sec.  __.12(i)-3. These examples demonstrate retail banking 
services that improve access to financial services, or decrease costs, 
for low- or moderate-income individuals. The examples include: low-cost 
deposit accounts; electronic benefit transfer accounts and point of 
sale systems; individual development accounts; free or low-cost 
government, payroll, or other check cashing services; and reasonably 
priced international remittance services.
    In turn, as mentioned above, the Agencies have deleted all of the 
retail banking services from the list of examples of community 
development services in Q&A Sec.  __.12(i)-3. This conforming change is 
intended to address commenters' concerns that including examples of 
retail banking services, even when such services increase access by, or 
reduce costs for, low- or moderate-income individuals or geographies, 
in the list of examples for

[[Page 48519]]

community development services leads to confusion and inconsistencies 
regarding how retail services are considered during the evaluation 
process.
    The Agencies are also adopting conforming revisions to existing Q&A 
Sec.  __.26(c)(3)-1 to ensure these activities are appropriately 
evaluated in intermediate small institutions. This Q&A addresses what 
activities examiners consider when evaluating the provision of 
community development services by an intermediate small institution. To 
ensure that intermediate small institutions continue to receive 
consideration under their community development test for retail banking 
services that increase access by, or reduce costs for, low- or 
moderate-income individuals, the Agencies are revising existing Q&A 
Sec.  __.26(c)(3)-1. Although the revised Q&A labels services such as 
electronic benefit transfer accounts, individual development accounts, 
and free or low-cost government, payroll, or other check cashing 
services as retail services, examiners will continue to consider these 
services when evaluating the provision of community development 
services for an intermediate small institution when the services 
increase access by, or reduce costs for, low- or moderate-income 
individuals. This Q&A is revised to clarify also that branches and 
other facilities in low- or moderate-income geographies, designated 
disaster areas, or distressed or underserved nonmetropolitan middle-
income geographies are considered as providing community development 
services under the community development test applicable to 
intermediate small institutions.
    The Agencies made one additional revision based on these comments. 
Because all of the examples of community development services that now 
remain in revised Q&A Sec.  __.12(i)-3 are more direct examples of 
community development services, the Agencies added a cross-reference to 
Q&A Sec.  __.12(i)-3 in the discussion of community development 
services in new Q&A Sec.  __.24(a)-1.
    In addition to addressing the confusion between retail and 
community development services, some commenters asserted that proposed 
Q&A Sec.  __.24(a)-1 did not adequately emphasize the importance of 
community development services or address concerns that community 
development services are not given sufficient consideration in the 
service test relative to retail banking services. A few commenters 
contended that it remained unclear how the Agencies planned to weigh 
the relative importance of retail banking and community development 
services under the service test pursuant to the proposed Q&A. For 
instance, one industry commenter urged the Agencies to state that 
community development services will be reflected in the total ``score'' 
that is attributed to the service test. Other commenters noted that the 
Agencies appear to give more consideration to branches than other 
services when evaluating a large institution's service test 
performance.
    In response to these comments, the Agencies have revised Q&A Sec.  
__.24(a)-1 to stress that both retail banking and community development 
services are important factors under the large institution service 
test. The revision to the Q&A now states: ``Retail banking services and 
community development services are two components of the service test 
and are both important in evaluating a large institution's 
performance.'' The Agencies note that, as with other aspects of the CRA 
evaluation process, the relative weighting of retail banking and 
community development services will depend on the financial 
institution's performance context.
    Several commenters asserted that the proposed Q&A did not 
sufficiently explain how qualitative factors, such as ``effectiveness'' 
and ``availability,'' would be evaluated in the context of retail 
banking and community development services. These commenters urged the 
Agencies to provide more specificity by defining key terms or providing 
concrete examples of the metrics for the key concepts of ``availability 
and effectiveness'' and ``responsiveness.'' The Agencies did not revise 
Q&A Sec.  __.24(a)-1 to address the qualitative factors associated with 
retail banking and community development services because the Agencies 
believe other Q&As adequately discuss what is meant by ``availability 
and effectiveness'' and ``responsiveness.'' See Q&As Sec.  __.24(d)-1 
and Sec.  __.21(a)-3, respectively.
    The proposed Q&A stated that examiners will consider any 
information provided by the institution that demonstrates its community 
development services are responsive to the needs of low- or moderate-
income individuals and low- or moderate-income geographies. Industry 
commenters were particularly supportive of this proposal. These 
commenters opined that examiners often impose excessive and 
unreasonable documentation requirements on institutions to demonstrate 
that particular products and services offered are responsive to 
community needs. A few industry and community organization commenters, 
however, sought further clarification regarding the types of 
information that would be considered to ensure consistency.
    The Agencies specifically requested comment on what types of 
information financial institutions are likely to maintain that may 
demonstrate that an institution's community development services are 
responsive to the needs of low- or moderate-income individuals or in 
low- or moderate-income geographies. In response to this question, both 
community organization and industry commenters provided several 
examples of the types of information that are or should be maintained 
to demonstrate such responsiveness, including: (i) Documentation 
evidencing attendance at and involvement in applicable community 
events; (ii) surveys completed by the financial institution to 
ascertain community needs; (iii) an institution's records of 
discussions with community contacts; and (iv) publicly available market 
research data that support the importance to low- or moderate-income 
families for a particular type of service, such as financial literacy 
education services or Volunteer Income Tax Assistance (VITA) tax 
preparation. Some commenters suggested that the examples would be 
useful and effective additions to the final Q&A.
    The examples offered by commenters are practical suggestions of the 
types of information institutions could collect or maintain to 
demonstrate the responsiveness of a community development service. 
However, the Agencies have chosen not to include the above suggested 
examples in the final Q&A because some examiners and bankers may view 
examples as requirements, which could lead to unintended burden on 
financial institutions. The Agencies remind institutions that they can 
provide any information to examiners that demonstrates responsiveness.
    One community organization commenter opined that community 
development services are currently defined too narrowly and urged the 
Agencies to broaden the definition of community development services to 
include access for small businesses. This commenter contended that 
financial institutions should receive CRA consideration when loan 
officers refer a small business applicant to an intermediary when the 
applicant does not qualify for a bank loan. The Agencies note that Q&A 
Sec.  __.12(i)-3

[[Page 48520]]

already addresses bank referral programs for small businesses and 
provides that they may qualify for community development service 
consideration when the financial institution ``[provides] 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.''
    Finally, to reflect more closely the regulatory factors used to 
evaluate community development services, the Agencies have revised 
final Q&A Sec.  __.24(a)-1 to state clearly that examiners evaluate the 
extent of community development services and their innovativeness and 
responsiveness to community needs.
ii. Quantitative and Qualitative Measures of Community Development 
Services
    The Agencies proposed new Q&A Sec.  __.24(e)-2 to clarify how 
community development services are quantitatively and qualitatively 
evaluated. The new Q&A is meant to address inconsistencies in how 
community development services have been evaluated quantitatively and 
to respond to concerns that qualitative factors, such as whether 
community development services are effective or responsive to community 
needs, receive inadequate consideration. Thus, the proposed Q&A noted 
that both quantitative and qualitative aspects of community development 
services are considered during an institution's evaluation.
    With regard to quantitative factors, the proposed Q&A stated that 
examiners assess the extent to which community development services are 
offered and used by the community. This review is not limited to a 
single quantitative factor, such as the number of hours that financial 
institution staff devotes to a particular community development 
service. Rather, an evaluation of community development services 
assesses the degree to which those services are responsive to community 
needs. Finally, the proposed Q&A stated that examiners would consider 
any relevant information provided by the institution and from third 
parties to quantify the extent and responsiveness of community 
development services.
    Overall, the Agencies received 19 comments addressing this proposed 
Q&A. Commenters unanimously supported the Agencies' intent to clarify 
the quantitative and qualitative factors that examiners review when 
evaluating community development services to determine whether these 
services are effective and responsive. However, commenters disagreed on 
whether the proposed Q&A fully achieved its stated goal of clarifying 
the assessment of qualitative and quantitative factors or explaining 
the importance of qualitative factors.
    The Agencies specifically requested feedback on whether the 
proposed guidance sufficiently explained the importance of the 
qualitative factors related to community development services. 
Commenters addressing this question were divided, with a slight 
majority stating the proposed Q&A sufficiently explained the importance 
of the qualitative factors related to community development services. 
For example, one community organization commenter found the guidance on 
examiners taking into consideration the degree to which community 
development services are responsive to community needs helpful. Other 
commenters, representing both the industry and community organizations, 
noted that clarifying that examiners should not rely solely on 
quantitative factors, such as hours spent by employees conducting 
financial literacy workshops, was adequate guidance and would help give 
examiners needed direction to consider other factors besides hours 
worked when making evaluations of community development services. Other 
commenters viewed that statement as inadequate. These commenters noted 
the proposed Q&A mentioned only that the review ``is not limited to a 
single quantitative factor'' rather than listing examples of the 
qualitative factors that examiners could consider. Commenters further 
noted that the proposed Q&A did not adequately explain qualitative 
factors, such as responsiveness, and asserted that the proposal could 
benefit from the inclusion of specific examples of how examiners assess 
the degree to which services are responsive to community needs.
    The Agencies have revised Q&A Sec.  __.24(e)-2 to address some of 
these comments. The final Q&A incorporates language that, consistent 
with regulatory factors, more explicitly states that examiners will 
consider community development services qualitatively by assessing the 
degree to which those services are innovative or responsive to 
community needs. The proposed Q&A did not include a reference to 
``innovativeness,'' although it is a qualitative factor included in the 
regulation. See 12 CFR __.24(e). In addition, the Agencies added cross-
references to Q&As Sec.  __.21(a)-4 and Sec.  __.21(a)-3, which discuss 
the qualitative factors ``innovativeness'' and ``responsiveness,'' 
respectively, to direct readers to additional guidance regarding these 
criteria.
    Further, the final Q&A discusses how qualitative performance 
criteria augment the consideration given to community development 
services by recognizing that community development services sometimes 
require special expertise and effort on the part of the financial 
institution and provide benefit to the community that would not 
otherwise be possible. The final Q&A states that these assessments will 
depend on the impact of a particular activity on community needs and 
the benefits received by a community and illustrates this point with an 
example of a community development service that would be considered 
responsive to credit and community needs.
    In addition, some commenters, representing both the industry and 
community organizations, asserted that the proposed Q&A did not provide 
sufficient guidance regarding how the quantitative and qualitative 
factors would be comparatively weighted under the service test. Some 
commenters expressed support for a balanced approach to how qualitative 
and quantitative factors are evaluated in assessing community 
development service performance, while others indicated a preference 
for weighting one factor over the other. For instance, one industry 
commenter preferred using the hours spent by employees performing 
community development services as the baseline measure, augmented with 
a review of responsiveness, innovation, leadership, complexity, and 
flexibility, to the extent that the institution chooses to provide such 
information. State financial regulator commenters took an opposing 
position, suggesting that qualitative aspects of community development 
services should serve as the primary driver in determining whether 
services are effective and responsive.
    The Agencies do not believe it is necessary to revise the Q&A to 
address these comments. First, the Agencies note that examiners do not 
use a specific formula when quantitatively and qualitatively evaluating 
community development services. As with all aspects of an institution's 
CRA performance evaluation, the performance context of the institution 
will affect how the qualitative and quantitative factors are considered 
under the service test. Similarly, some industry commenters asserted 
that the Q&A should specify how many community development services 
would be needed in order to obtain a rating of ``outstanding'' or

[[Page 48521]]

``satisfactory.'' However, examiners do not utilize specific 
benchmarks. Instead, the nature of each community development service 
and the performance context of the institution are considered.
    The proposed Q&A stated that examiners will consider any relevant 
information provided by the institution or from a third party to 
quantify the extent and responsiveness of community development 
services. Industry commenters were particularly supportive of this 
aspect of the proposal because they viewed it as a flexible policy.
    With regard to relevant information, the Agencies specifically 
asked what types of information financial institutions and third 
parties would be likely to maintain that may be used to demonstrate the 
extent to which community development services are offered and used. In 
response, commenters provided several examples of relevant information 
that may be available, including: (i) data on the number of low- and 
moderate-income individuals attending counseling sessions; (ii) 
demographic information on clients or customers benefitting from a 
service; (iii) records of the number and types of community development 
service provided; and (iv) attestations collected via a survey of 
employees, directors, and officers that tracks hourly involvement in 
community development services.
    Rather than referring to only a single quantitative factor as an 
example, final Q&A Sec.  __.24(e)-2 includes a list of examples of 
quantitative factors that examiners may assess to determine the extent 
to which community development services are offered and used. The 
expanded list should provide additional clarity and address concerns 
that examiners and institutions may default to ``the number of hours 
financial institution staff devotes to a particular community 
development service'' as the only quantitative measure of community 
development services. The final Q&A includes the following additional 
examples of quantitative factors: (i) The number of low- and moderate-
income individuals participating in a community development activity; 
(ii) the number of organizations served by a community development 
activity; and (iii) the number of sessions of a community development 
service activity.
    Finally, a community organization commenter suggested that the 
Agencies revise the proposed Q&A to explicitly state that institutions' 
funding of community organizations to enable them to collect 
quantitative data will receive favorable CRA consideration. The 
commenter asserted that, while quantitative information is necessary in 
assessing whether a community development service is effective in 
assisting low- or moderate-income individuals and families to access 
the financial system, obtaining this information can be very expensive 
and resource intensive. The commenter maintained that providing an 
incentive to finance data collection systems in nonprofit organizations 
would increase the availability and quality of this much needed 
information. The Agencies note that the CRA regulations allow for the 
consideration of grants or other funding to nonprofit organizations 
with a community development purpose as qualified investments or 
community development loans. Such funding could be used by these 
recipients for a variety of purposes, including data collection.

B. Responsiveness and Innovativeness

i. Responsiveness
    The term ``responsiveness'' 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. See, e.g., 12 CFR __, appendix A, section 
(b)(2)(i). Responsiveness is generally a consideration in all of the 
ratings that the Agencies assign.
    The Agencies' Questions and Answers address responsiveness in 
various contexts. 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 state that examiners should give greater weight to 
those activities that are most responsive to community needs, including 
the needs of low- or moderate-income individuals and geographies. See, 
e.g., Q&A Sec.  __.12(g)(4)(ii)-2.
    Because the concept of ``responsiveness'' is utilized in the CRA 
regulations and Questions and Answers applicable to all covered 
institutions, the Agencies proposed a new Q&A Sec.  __.21(a)-3 to set 
forth general guidance on how examiners evaluate whether a financial 
institution has been responsive to credit and community development 
needs. The Agencies intended the proposed Q&A to encourage institutions 
to think strategically about how to best meet the needs of their 
communities based on their performance context. The proposed new Q&A 
indicated that examiners would look at not only the volume and types of 
an institution's activities, but also how effective those activities 
have been. The proposed Q&A noted that examiners always evaluate 
responsiveness in light of an institution's performance context. The 
proposed new Q&A also suggested several information sources that could 
inform examiners' evaluations of performance context and 
responsiveness.
    The Agencies received 28 public comments addressing the proposed 
new Q&A. With few exceptions, the commenters were supportive of the 
Agencies' intent to clarify how examiners evaluate an institution's 
responsiveness to credit and community development needs. However, a 
number of commenters, representing both the industry and community 
organizations, questioned whether the proposed new Q&A would help 
examiners or bankers understand that a project or program has been 
responsive to credit and community development needs.
    The Agencies requested comment on three questions relating to 
proposed new Q&A Sec.  __.21(a)-3. First, the Agencies asked whether 
the proposed new Q&A appropriately highlighted the importance of 
responsiveness to credit and community development needs and provided a 
flexible, yet clear, standard for determining how financial 
institutions would receive consideration. An industry commenter and a 
community organization commenter agreed that the importance of 
responsiveness to credit and community development needs was 
highlighted, but that there was also an increase in subjectivity in the 
evaluation process and burden to institutions, as well as a shortage of 
detail. To help clarify how the Agencies review responsiveness and the 
flexible approach taken, a new sentence was added at the beginning of 
the answer to provide a road map of the three factors that examiners 
consider when evaluating responsiveness: quantity, quality, and 
performance context. The answer then describes each of the three 
factors.
    The Agencies also asked whether there were other sources of 
information that examiners should consider when evaluating an 
institution's responsiveness to credit and community development needs. 
Commenters representing both the industry and community organizations 
suggested a number of information sources, including targeted outreach 
to local

[[Page 48522]]

organizations; local, state, and Federal information compilations; 
reports and studies by academic institutions; and the Consumer 
Financial Protection Bureau's (CFPB) complaint database. Two community 
organization commenters asserted that examiners should be required to 
review information from all of the sources cited in the proposed Q&A. 
An industry commenter stated that, although the Agencies should accept 
information from financial institutions, care must be taken not to 
require institutions to perform needs assessments or evaluate the 
institutions on the quality of information they provide, consistent 
with Q&A Sec.  __.21(b)(2)-1. Another industry commenter suggested that 
the Agencies should ensure that regulatory requirements, guidelines, 
and actions by examiners are flexible and do not create unnecessary 
burden. Two other commenters, one representing the industry and the 
other a community organization, stated that they appreciated the 
clarification that examiners should not rely so heavily on quantitative 
factors. They noted that the unique needs and opportunities in an 
institution's local community should be the basis for evaluating the 
institution's performance.
    In response to these comments, the Agencies expanded the list of 
sources of information about credit and community development needs and 
opportunities that examiners may consider by adding ``consumer 
complaint information.'' To address commenters' concern that a formal 
needs assessment will be expected from financial institutions, the 
Agencies have deleted the reference to an assessment prepared by the 
institution and have clarified that examiners will consider any 
relevant information provided to examiners by the financial institution 
that is maintained by the institution in its ordinary course of 
business.
    Finally, the Agencies asked whether the new Q&A would help a 
financial institution in making decisions about the community 
development activities in which it will participate, particularly if 
those activities benefit individuals or geographies located somewhere 
in the broader statewide or regional area that includes the 
institution's assessment area(s), but that may not benefit the 
institution's assessment area(s). See Q&A Sec.  __.12(h)-6. Of the six 
commenters who addressed this question, five commenters (two 
representing the industry and three representing community development 
funds) believed that proposed Q&A Sec.  __.21(a)-3 would not help 
bankers to determine which community development activities to support. 
In support of their views, commenters asserted that (i) the requirement 
to first demonstrate responsiveness to assessment area needs is too 
vague to cause a change in institutions' investment strategies; (ii) 
due to increased subjectivity and additional burden of proof in the 
evaluation process, institutions will likely maintain their focus on 
assessment area activities; (iii) the proposed Q&A does not provide 
insight to help institutions make determinations on which community 
development activities to support; and (iv) a bright line test would be 
preferable to an evaluation of whether the financial institution has 
been responsive to credit and community development needs and 
opportunities. On the other hand, the sixth commenter, representing the 
industry, stated that the proposed Q&A may encourage financial 
institutions to focus on community development activities that benefit 
low- and moderate-income individuals or geographies, disaster areas, 
and distressed or underserved nonmetropolitan middle-income 
geographies. This commenter believed that recognizing responsiveness 
rather than placing all the emphasis on quantitative benchmarks will 
encourage financial institutions to engage in various community 
development activities.
    To respond to commenters' assertion that new Q&A Sec.  __.21(a)-3, 
as proposed, would not assist a financial institution in determining 
whether a community development activity in the broader statewide or 
regional area that includes the institution's assessment area(s) would 
receive CRA consideration, the Agencies have added to the final Q&A a 
new paragraph discussing how examiners will determine whether an 
institution has been responsive to the credit and community development 
needs of its assessment area(s). First, examiners will consider as 
responsive all of the institution's community development activities in 
its assessment area(s). Examiners will also consider as responsive to 
assessment area needs any community development activities that support 
an organization or activity that covers an area that is larger than, 
but includes, the institution's assessment area(s). If the purpose, 
mandate, or function of the organization or activity includes serving 
the institution's assessment area(s), it will be considered responsive 
to assessment area needs even if the institution's assessment area(s) 
did not receive an immediate or direct benefit from the institution's 
participation in the organization or activity. New Q&A Sec.  __.21(a)-
3, as adopted, also includes an example of such an investment.
    Finally, several industry commenters noted that the proposed new 
Q&A stated that ``activities are particularly responsive to community 
development needs if they benefit low- or moderate-income individuals, 
low- or moderate-income geographies, designated disaster areas, or 
distressed or underserved nonmetropolitan middle-income geographies.'' 
They asked whether any activity that has a community development 
purpose, as defined in the CRA regulations, would be ``particularly'' 
responsive. If so, they noted that financing for small businesses or 
small farms should also be included. And, if not, the Agencies should 
clarify what is meant by that statement. In addition, two community 
organization commenters addressed the importance of the ``impact'' of 
responsive activities. These commenters asserted that responsiveness 
must be demonstrated through impact and outcomes in meeting a 
documented community need. To address these related comments, the 
Agencies have deleted the statement addressing activities that would be 
``particularly responsive'' that caused the confusion. In its place, 
the final Q&A explains that, when evaluated qualitatively, some 
activities are more responsive than others, and that activities are 
more responsive if they are successful in meeting identified credit and 
community development needs. The final Q&A also includes an example of 
two community development activities, one of which would be considered 
more responsive than the other, to describe this concept.
ii. Innovativeness
    The Agencies proposed a new Q&A Sec.  __.21(a)-4 in response to 
reports about inconsistencies in the types of activities considered 
innovative and requests from financial institutions that the Agencies 
provide clarification of the ``innovativeness'' standard found 
throughout the CRA regulations. For example, the large institution 
lending test evaluates the complexity and innovativeness of community 
development lending and the 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)(4) and (5). The large institution investment test evaluates 
the innovativeness or complexity of qualified investments. See 12 CFR 
__.23(e)(2). Similarly, the

[[Page 48523]]

large institution service test evaluates the innovativeness and 
responsiveness of community development services. See 12 CFR 
__.24(e)(2). The performance criteria in the community development test 
for wholesale or limited purpose banks include 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).
    The proposed new Q&A stated 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 to the 
needs of those segments enumerated in the definition of community 
development. Then, the proposed Q&A addressed 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 stressed 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. 
The proposed Q&A also indicated that practices that cease to be 
innovative may still receive qualitative consideration for being 
flexible, complex, or responsive.
    The majority of commenters addressing Q&A Sec.  __.21(a)-4 were 
largely supportive of the Agencies' intent to clarify how examiners 
evaluate an institution's innovativeness. Nevertheless, several of the 
commenters posed questions about the import of ``innovativeness'' 
generally, notwithstanding the specific references to that term in the 
various CRA performance tests.
    Rather than focusing on innovativeness, several of the community 
organization commenters urged the Agencies to address strengthening 
performance context when evaluating whether the subject CRA activities 
were responsive to local needs and had a positive demonstrable impact 
on the communities they were meant to serve. Industry commenters sought 
language stating that innovativeness is not required, lack of it will 
not have a negative impact, and, when present, innovativeness will 
result in positive consideration. These commenters also sought language 
specifically tying ``innovativeness'' to the requirement that CRA 
activities must be consistent with safe and sound banking practices.
    With regard to the proposed Q&A statement addressing consideration 
for entities that do not have the ``capacity to be market leaders,'' 
commenters had differing points of view. One industry commenter found 
that statement to be overly broad, open to wide interpretation, and 
contrary to the intent of the Q&A. This general view was also shared by 
two other commenters. On the other hand, one community organization 
commenter was expressly in favor of that statement, although another 
community organization commenter stated that a financial institution 
should not receive consideration for innovativeness when bringing 
another institution's innovative product to its assessment area(s) 
unless it is doing so in a way that could not have been, or was not 
otherwise, done.
    In response to comments, the Agencies are adopting Q&A Sec.  
__.21(a)-4 with revisions to provide additional clarification. As 
stated above, the Agencies note that ``innovativeness'' is a regulatory 
consideration in a variety of performance tests. The Agencies continue 
to believe that there is a benefit in clarifying the term, while not 
overemphasizing its importance. The final Q&A continues to make the 
point that ``innovative'' practices need to be responsive to community 
needs but are not required if existing products, services, or delivery 
systems effectively address the needs of all segments of the community. 
The final Q&A also adds a cross-reference to Q&A Sec.  __.28-1, which 
explains how innovativeness is considered in the rating process and 
states, in part: ``The lack of innovative lending practices, innovative 
or complex qualified investments, or innovative community development 
services alone will not result in a `needs to improve' CRA rating. 
However, under these tests, the use of innovative lending practices, 
innovative or complex qualified investments, and innovative community 
development services may augment the consideration given to an 
institution's performance under the quantitative criteria of the 
regulations, resulting in a higher performance rating.''
    With regard to comments we received about innovative products and 
services already in the market, the Agencies continue to believe that 
innovativeness could include a financial institution's adoption of 
products, services, or delivery systems already in the market under 
certain circumstances. This is especially true for smaller institutions 
and institutions that have, to date, offered only traditional products, 
services, or delivery systems. For sake of clarity, the Agencies 
amended the final Q&A by removing the potentially ambiguous terms 
``capacity'' and ``market leader.'' Specifically, the Agencies replaced 
the reference to ``market leader'' with ``leaders in innovation'' and 
explained that some financial institutions may not be leaders in 
innovation ``due to, for example, available financial resources or 
technological expertise.''

IV. Technical Corrections

    The Agencies also have revised the Questions and Answers to address 
a number of events that have occurred since the 2010 Questions and 
Answers were published, including, for example, the elimination of the 
OTS and the Thrift Financial Report (TFR), changes in data sources for 
income-level information, and the transfer to the CFPB of rulemaking 
authority for certain consumer financial laws. The Agencies have made 
technical changes to a number of Q&As to provide this updated 
information.

A. Elimination of the OTS

    The Dodd-Frank Wall Street Reform and Consumer Protection Act of 
2010, Public Law 111-203 (July 21, 2010) (Dodd-Frank Act), transferred 
powers of the OTS to the OCC, the FDIC, and the Board, and eliminated 
the OTS. Specifically, among other changes, the Dodd-Frank Act 
transferred rulemaking and supervisory authority over savings and loan 
holding companies and supervisory authority over their non-depository 
subsidiaries to the Board; transferred rulemaking authority over 
Federal savings associations and state savings associations, and 
supervisory authority over Federal savings associations, to the OCC; 
and transferred supervisory authority over state savings associations 
to the FDIC. See 12 U.S.C. 5412-5413; see also 12 U.S.C. 2905. The OCC 
transferred the CRA rules applicable to savings associations from 12 
CFR part 563e to 12 CFR part 195. The Agencies' rules are substantially 
similar throughout so that a general reference to the section and 
paragraph of the rule (e.g., 12 CFR __.12(a)) continues to describe the 
same

[[Page 48524]]

provision in all four of the rules. However, 12 CFR 195.11(c), which is 
applicable to savings associations, includes one less paragraph than 
the rules applicable to national and state banks. As a result, the 
citation to section 11 of the rule in the related Q&As must separately 
mention the rule applicable to savings associations. Therefore, the 
Agencies have changed the references in the two Q&As addressing 
Sec. Sec.  __.11(c)(3) & 563e.11(c)(2) to Sec. Sec.  __.11(c)(3) & 
195.11(c)(2), respectively.

B. Elimination of the Thrift Financial Report

    In 2010, when the Questions and Answers were last updated, banks 
filed Call Reports and savings associations filed TFRs. Beginning with 
the first quarterly filing in 2012, all savings associations began 
filing Call Reports. The Agencies are removing the references to the 
TFR in 12 Q&As. One additional Q&A refers to the Uniform Thrift 
Performance Report (UTPR), which was phased out when savings 
associations began filing Call Reports. Uniform Bank Performance 
Reports are now produced for savings associations, so the Agencies have 
removed the reference to the UTPR in Q&A Sec.  __.26(b)(1)-1. The 
Agencies have also adopted a consistent citation to the relevant 
sections of the Call Report and have made revisions to effect those 
changes where necessary throughout the Questions and Answers.

C. Home Mortgage Disclosure Act (HMDA) Regulation

    The Dodd-Frank Act transferred exclusive rulemaking authority to 
the CFPB for certain consumer financial laws, including the HMDA. The 
CFPB subsequently published its own rule to implement HMDA, 12 CFR part 
1003.\12\ Four Q&As referred to home mortgage data collected under the 
HMDA and provided a citation to the Board's HMDA rule at 12 CFR part 
203. The Agencies have updated those citations to refer to the CFPB's 
HMDA rule at 12 CFR part 1003.
---------------------------------------------------------------------------

    \12\ See 80 FR 66127 (Oct. 28, 2015).
---------------------------------------------------------------------------

D. Income Level Data Sources

    Q&A Sec.  __.12(m)-1 discusses the sources of income level data for 
geographies and individuals. Beginning with the FFIEC's geographic 
income data published in 2012, the FFIEC discontinued using decennial 
census data to calculate geographic income levels and began using the 
U.S. Census Bureau's American Community Survey (ACS) five-year estimate 
data. At the same time, the FFIEC announced that it would begin using 
ACS data to update geographic incomes every five years. Q&A Sec.  
__.12(m)-1 has been revised to reflect the current data sources used to 
calculate income level data for geographies and individuals.

E. Data Reporting

    Q&As Sec.  __.42-1, Sec.  __.42-2, and Sec.  __.42-6 address data 
submission, validation, and software, respectively. The Agencies have 
revised these Q&As to include updated data submission instructions and 
the correct Board contact information for submitting questions about 
CRA data submission, validation, and software.

F. Outdated Reference

    Q&A Sec.  __.12(g)(4)-1 advises that the revised definition of 
``community development,'' which became effective in 2005 for banks and 
2006 for savings associations, is applicable to all institutions. 
Because this revised definition has been in effect for around 10 years, 
it has been shortened to omit the historical information about its 
effective dates. The revised version merely affirms that the definition 
of ``community development'' is applicable to all institutions.

G. OCC Address Changes

    Q&A Appendix B to Part __-1 includes OCC-specific contact 
information. The OCC's headquarters moved in December 2012; thus, the 
Q&A has been revised to reflect the OCC's new street address, which is 
to be included in national banks' and Federal savings associations' 
public notices. In addition, a Web site URL has been added that 
national banks and Federal savings associations may include in their 
public notices that will allow interested parties to find information 
about planned OCC CRA evaluations in upcoming quarters. Similarly, an 
email address has been added that national banks and Federal savings 
associations may include in their public notices to which commenters 
may submit electronic comments about institutions' performance in 
helping to meet community credit needs.
    The text of the final Interagency Questions and Answers follows:

Interagency Questions and Answers Regarding Community Reinvestment

Sec.  __.11--Authority, Purposes, and Scope

Sec.  __.11(c) Scope

Sec. Sec.  __.11(c)(3) & 195.11(c)(2) Certain Special Purpose 
Institutions
    Sec. Sec.  __.11(c)(3) & 195.11(c)(2)--1: Is the list of special 
purpose institutions exclusive?
    A1. No, there may be other examples of special purpose 
institutions. These institutions engage in specialized activities that 
do not involve granting credit to the public in the ordinary course of 
business. Special purpose institutions typically serve as correspondent 
banks, trust companies, or clearing agents or engage only in 
specialized services, such as cash management controlled disbursement 
services. A financial institution, however, does not become a special 
purpose institution merely by ceasing to make loans and, instead, 
making investments and providing other retail banking services.
    Sec. Sec.  __.11(c)(3) & 195.11(c)(2)--2: To be a special purpose 
institution, must an institution limit its activities in its charter?
    A2. No. A special purpose institution may, but is not required to, 
limit the scope of its activities in its charter, articles of 
association, or other corporate organizational documents. An 
institution that does not have legal limitations on its activities, but 
has voluntarily limited its activities, however, would no longer be 
exempt from Community Reinvestment Act (CRA) requirements if it 
subsequently engaged in activities that involve granting credit to the 
public in the ordinary course of business. An institution that believes 
it is exempt from CRA as a special purpose institution should seek 
confirmation of this status from its supervisory Agency.

Sec.  __.12--Definitions

Sec.  __.12(a) Affiliate

    Sec.  __.12(a)--1: Does the definition of ``affiliate'' include 
subsidiaries of an institution?
    A1. Yes, ``affiliate'' includes any company that controls, is 
controlled by, or is under common control with another company. An 
institution's subsidiary is controlled by the institution and is, 
therefore, an affiliate.

Sec.  __.12(f) Branch

    Sec.  __.12(f)--1: Do the definitions of ``branch,'' ``automated 
teller machine (ATM),'' and ``remote service facility

[[Page 48525]]

(RSF)'' include mobile branches, ATMs, and RSFs?
    A1. Yes. Staffed mobile offices that are authorized as branches are 
considered ``branches,'' and mobile ATMs and RSFs are considered 
``ATMs'' and ``RSFs.''
    Sec.  __.12(f)--2: Are loan production offices (LPO) branches for 
purposes of the CRA?
    A2. LPOs and other offices are not ``branches'' unless they are 
authorized as branches of the institution through the regulatory 
approval process of the institution's supervisory Agency.

Sec.  __.12(g) Community Development

    Sec.  __.12(g)--1: Are community development activities limited to 
those that promote economic development?
    A1. No. Although the definition of ``community development'' 
includes activities that promote economic development by financing 
small businesses or farms, the rule does not limit community 
development loans and services and qualified investments to those 
activities. Community development also includes community- or tribal-
based child care, educational, health, social services, or workforce 
development or job training programs targeted to low- or moderate-
income persons, affordable housing for low- or moderate-income 
individuals, and activities that revitalize or stabilize low- or 
moderate-income areas, designated disaster areas, or underserved or 
distressed nonmetropolitan middle-income geographies.
    Sec.  __.12(g)--2: Must a community development activity occur 
inside a low- or moderate-income area, designated disaster area, or 
underserved or distressed nonmetropolitan middle-income area in order 
for an institution to receive CRA consideration for the activity?
    A2. No. Community development includes activities, regardless of 
their location, that provide affordable housing for, or community 
services targeted to, low- or moderate-income individuals and 
activities that promote economic development by financing small 
businesses and farms. Activities that stabilize or revitalize 
particular low- or moderate-income areas, designated disaster areas, or 
underserved or distressed nonmetropolitan middle-income areas 
(including by creating, retaining, or improving jobs for low- or 
moderate-income persons) also qualify as community development, even if 
the activities are not located in these areas. One example is financing 
a supermarket that serves as an anchor store in a small strip mall 
located at the edge of a middle-income area, if the mall stabilizes the 
adjacent low-income community by providing needed shopping services 
that are not otherwise available in the low-income community.
    Sec.  __.12(g)--3: Does the regulation provide flexibility in 
considering performance in high-cost areas?
    A3. Yes, the flexibility of the performance standards allows 
examiners to account in their evaluations for conditions in high-cost 
areas. Examiners consider lending and services to individuals and 
geographies of all income levels and businesses of all sizes and 
revenues. In addition, the flexibility in the requirement that 
community development loans, community development services, and 
qualified investments have as their ``primary'' purpose community 
development allows examiners to account for conditions in high-cost 
areas. For example, examiners could take into account the fact that 
activities address a credit shortage among middle-income people or 
areas caused by the disproportionately high cost of building, 
maintaining or acquiring a house when determining whether an 
institution's loan to or investment in an organization that funds 
affordable housing for middle-income people or areas, as well as low- 
and moderate-income people or areas, has as its primary purpose 
community development. See also Q&A Sec.  __.12(h)-8 for more 
information on ``primary purpose.''
    Sec.  __.12(g)--4: Can examples of community development activities 
discussed in a particular Q&A also apply to other types of community 
development activities not specifically discussed in that Q&A if they 
have a similar community development purpose?
    A4. Yes. The Interagency Questions and Answers Regarding Community 
Reinvestment (Questions and Answers) provide examples of particular 
activities that may receive consideration as community development 
activities. Because a particular Q&A often describes a single type of 
community development activity, such as a community development loan, 
the corresponding examples are of community development loans. However, 
because community development loans, qualified investments, and 
community development services all must have a primary purpose of 
community development, a qualified investment or community development 
service that supports a community development purpose similar to the 
activity described in the context of the community development loan 
would likely receive consideration under the applicable test. The same 
would be true if the community development activity described in a 
particular Q&A were a qualified investment or community development 
service. For example, Q&A Sec.  __.12(h)-1 provides an example of a 
community development loan to a not-for-profit organization supporting 
primarily low- or moderate-income housing needs. Similarly, a grant to 
the same not-for-profit organization would be considered a qualified 
investment or technical assistance, such as writing a grant proposal 
for the not-for-profit organization, would be considered as a community 
development service. Further if a financial institution engaged in all 
of these activities, each would be considered under the applicable 
test. See Q&A Sec.  __.23(b)-1.
    Moreover, lists of examples included throughout the Questions and 
Answers are not exhaustive. A Q&A may include examples to demonstrate 
activities that may qualify under that Q&A, but the examples are not 
the only activities that might qualify. Financial institutions may 
submit information about activities they believe meet the definition of 
community development loan, qualified investment, or community 
development service to examiners for consideration.
Sec.  __.12(g)(1) Affordable Housing (Including Multifamily Rental 
Housing) for Low- or Moderate-Income individuals
    Sec.  __.12(g)(1)--1: When determining whether a project is 
``affordable housing for low- or moderate-income individuals,'' thereby 
meeting the definition of ``community development,'' will it be 
sufficient to use a formula that relates the cost of ownership, rental, 
or borrowing to the income levels in the area as the only factor, 
regardless of whether the users, likely users, or beneficiaries of that 
affordable housing are low- or moderate-income individuals?
    A1. The concept of ``affordable housing'' for low- or moderate-
income individuals does hinge on whether low- or moderate-income 
individuals benefit, or are likely to benefit, from the housing. It 
would be inappropriate to give consideration to a project that 
exclusively or predominately houses families that are not low- or 
moderate-income simply because the rents or housing prices are set 
according to a particular formula.
    For projects that do not yet have occupants, and for which the 
income of the potential occupants cannot be determined in advance, or 
in other projects where the income of occupants cannot be verified, 
examiners will

[[Page 48526]]

review factors such as demographic, economic, and market data to 
determine the likelihood that the housing will ``primarily'' 
accommodate low- or moderate-income individuals. For example, examiners 
may look at median rents of the assessment area and the project; the 
median home value of either the assessment area, low- or moderate-
income geographies or the project; the low- or moderate-income 
population in the area of the project; or the past performance record 
of the organization(s) undertaking the project. Further, such a project 
could receive consideration if its express, bona fide intent, as 
stated, for example, in a prospectus, loan proposal, or community 
action plan, is community development.
Sec.  __.12(g)(2) Community Services Targeted to Low- or Moderate-
Income Individuals
    Sec.  __.12(g)(2)--1: Community development includes community 
services targeted to low- or moderate-income individuals. What are 
examples of ways that an institution could determine that community 
services are offered to low- or moderate-income individuals?
    A1. Examples of ways in which an institution could determine that 
community services are targeted to low- or moderate-income persons 
include, but are not limited to:
     The community service is targeted to the clients of a 
nonprofit organization that has a defined mission of serving low- and 
moderate-income persons, or, because of government grants, for example, 
is limited to offering services only to low- or moderate-income 
persons.
     The community service is offered by a nonprofit 
organization that is located in and serves a low- or moderate-income 
geography.
     The community service is conducted in a low- or moderate-
income area and targeted to the residents of the area.
     The community service is a clearly defined program that 
benefits primarily low- or moderate-income persons, even if it is 
provided by an entity that offers other programs that serve individuals 
of all income levels.
     The community service is offered at a workplace to workers 
who are low- and moderate-income, based on readily available data for 
the average wage for workers in that particular occupation or industry 
(see, e.g., http://www.bls.gov/bls/blswage.htm (Bureau of Labor 
Statistics)).
     The community service is provided to students or their 
families from a school at which the majority of students qualify for 
free or reduced-price meals under the U.S. Department of Agriculture's 
National School Lunch Program.
     The community service is targeted to individuals who 
receive or are eligible to receive Medicaid.
     The community service is provided to recipients of 
government assistance programs that have income qualifications 
equivalent to, or stricter than, the definitions of low- and moderate-
income as defined by the CRA Regulations. Examples include U.S. 
Department of Housing and Urban Development's section 8, 202, 515, and 
811 programs or U.S. Department of Agriculture's section 514, 516, and 
Supplemental Nutrition Assistance programs.
Sec.  __.12(g)(3) Activities That Promote Economic Development by 
Financing Businesses or Farms That Meet Certain Size Eligibility 
Standards
    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. For consideration under the ``size test,'' the term 
financing is considered broadly and includes technical assistance that 
readies a business that meets the size eligibility standards to obtain 
financing. To meet the ``purpose test,'' the institution's loan, 
investment, or service must promote economic development. These 
activities are 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] by financing intermediaries that lend to, invest in, or 
provide technical assistance to start-ups or recently formed small 
businesses or small 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 or to job training or workforce 
development programs.
    The agencies will presume that any loan or service 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.)
    Examiners will employ appropriate flexibility in reviewing any 
information provided by a financial institution that reasonably 
demonstrates that the purpose, mandate, or function of the activity 
meets the ``purpose test.'' Examiners will also consider the 
qualitative aspects of performance. For example, activities will be 
considered more responsive to community needs if a majority of jobs 
created, retained, and/or improved benefit low- or moderate-income 
individuals.
Sec.  __.12(g)(4) Activities That Revitalize or Stabilize Certain 
Geographies
    Sec.  __.12(g)(4)--1: Is the definition of ``community 
development'' applicable to all institutions?
    A1. The definition of ``community development'' is applicable to 
all institutions, regardless of a particular institution's size or the 
performance criteria under which it is evaluated.
    Sec.  __.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?
    A2. An activity that provides housing for middle- or upper-income 
individuals qualifies as an activity that revitalizes or

[[Page 48527]]

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. The Agencies 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. Thus, 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. (Except in connection with intermediate small 
institutions, 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 __.12(h)(2)(i) and Q&As Sec.  
__.12(h)-2 and Sec.  __.12(h)-3.) An activity will be presumed to 
revitalize or stabilize 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&As Sec.  __.12(g)(4)(i)-1 and 
Sec.  __.12(h)-5.
    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.
Sec.  __.12(g)(4)(i) Activities That Revitalize or Stabilize Low- or 
Moderate-Income Geographies
    Sec.  __.12(g)(4)(i)--1: What activities are considered to 
``revitalize or stabilize'' a low- or moderate-income geography, and 
how are those activities considered?
    A1. Activities that revitalize or stabilize a low- or moderate-
income geography are activities that help to attract new, or retain 
existing, businesses or residents. Examiners will presume that an 
activity revitalizes or stabilizes a low- or moderate-income geography 
if the activity has been approved by the governing board of an 
Enterprise Community or Empowerment Zone (designated pursuant to 26 
U.S.C. 1391) and is consistent with the board's strategic plan. They 
will make the same presumption if the activity has received similar 
official designation as consistent with a Federal, state, local, or 
tribal government plan for the revitalization or stabilization of the 
low- or moderate-income geography. For example, foreclosure prevention 
programs with the objective of providing affordable, sustainable, long-
term loan restructurings or modifications to homeowners in low- or 
moderate-income geographies, consistent with safe and sound banking 
practices, may help to revitalize or stabilize those geographies.
    To determine whether other activities revitalize or stabilize a 
low- or moderate-income geography, examiners will evaluate the 
activity's actual impact on the geography, if information about this is 
available. If not, examiners will determine whether the activity is 
consistent with the community's formal or informal plans for the 
revitalization and stabilization of the low- or moderate-income 
geography. For more information on what activities revitalize or 
stabilize a low- or moderate-income geography, see Q&As Sec.  __.12(g)-
2 and Sec.  __.12(h)-5.
Sec.  __.12(g)(4)(ii) Activities That Revitalize or Stabilize 
Designated Disaster Areas
    Sec.  __.12(g)(4)(ii)--1: What is a ``designated disaster area'' 
and how long does it last?
    A1. 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 
excludes counties designated to receive only FEMA Public Assistance 
Emergency Work Category A (Debris Removal) and/or Category B (Emergency 
Protective Measures).
    Examiners will consider institution 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 time period may be extended.
    Sec.  __.12(g)(4)(ii)--2: What activities are considered to 
``revitalize or stabilize'' a designated disaster area, and how are 
those activities considered?
    A2. The Agencies 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. The 
Agencies 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 
employ 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&As Sec.  __.12(i)-3; Sec.  __.12(t)-4; 
Sec.  __.22(b)(2) & (3)-4; Sec.  __.22(b)(2) & (3)-5; and Sec.  
__.24(d)(3)-1).
Sec.  __.12(g)(4)(iii) Activities That Revitalize or Stabilize 
Distressed or Underserved Nonmetropolitan Middle-Income Geographies
    Sec.  __.12(g)(4)(iii)--1: What criteria are used to identify 
distressed or underserved nonmetropolitan, middle-income geographies?
    A1. Eligible nonmetropolitan middle-income geographies are those 
designated by the Agencies 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 __.12(k), a geography is a census 
tract delineated by the U.S. Bureau of the Census.

[[Page 48528]]

    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 10 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 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. The Agencies 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 
U.S. Department of Agriculture.
    The Agencies publish data source information along with the list of 
eligible nonmetropolitan census tracts on the Federal Financial 
Institutions Examination Council (FFIEC) Web site (http://www.ffiec.gov).
    Sec.  __.12(g)(4)(iii)--2: How often will the Agencies update the 
list of designated distressed and underserved nonmetropolitan middle-
income geographies?
    A2. The Agencies will review and update the list annually. The list 
is published on the FFIEC Web site (http://www.ffiec.gov).
    To the extent that changes to the designated census tracts occur, 
the Agencies have determined to adopt a one-year ``lag period.'' This 
lag period will be in effect for the 12 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.
    Sec.  __.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?
    A3. 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. The 
Agencies 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&As Sec.  
__.12(g)(4)(i)-1 and Sec.  __.12(h)-5.
    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;
     a new or rehabilitated communications infrastructure, such 
as broadband internet service, that serves the community, including 
low- and moderate-income residents; or
     a new or rehabilitated flood control measure, such as a 
levee or storm drain, 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. If an underserved geography is 
also designated as a 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.

Sec.  __.12(h) Community Development Loan

    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 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 (CDFI), New Markets Tax Credit-eligible 
Community Development Entities, Community Development Corporations 
(CDC), 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

[[Page 48529]]

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, energy-efficient, 
or water conservation equipment or projects that support the 
development, rehabilitation, improvement, or maintenance of affordable 
housing or community facilities, such as a health clinic that provides 
services for low- or moderate-income individuals. For example, the 
benefit to low- or moderate-income individuals may result in either a 
reduction in a tenant's utility cost or the cost of providing utilities 
to common areas in an affordable housing development. Further, a 
renewable energy facility may be located on-site or off-site, so long 
as the benefit from the energy generated is provided to an affordable 
housing project or a community facility that has a community 
development purpose.
    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, asbestos, mold, or radon that are present in 
the housing, facilities, or site.
    Sec.  __.12(h)--2: If a retail institution that is not required to 
report under the Home Mortgage Disclosure Act (HMDA) makes affordable 
home mortgage loans that would be HMDA-reportable home mortgage loans 
if it were a reporting institution, or if a small institution that is 
not required to collect and report loan data under the CRA makes small 
business and small farm loans and consumer loans that would be 
collected and/or reported if the institution were a large institution, 
may the institution have these loans considered as community 
development loans?
    A2. No. Although small institutions are not required to report or 
collect information on small business and small farm loans and consumer 
loans, and some institutions are not required to report information 
about their home mortgage loans under HMDA, if these institutions are 
retail institutions, the Agencies will consider in their CRA 
evaluations the institutions' originations and purchases of loans that 
would have been collected or reported as small business, small farm, 
consumer or home mortgage loans, had the institution been a collecting 
and reporting institution under the CRA or the HMDA. Therefore, these 
loans will not be considered as community development loans, unless the 
small institution is an intermediate small institution (see Q&A Sec.  
__.12(h)-3). Multifamily dwelling loans, however, may be considered as 
community development loans as well as home mortgage loans. See also 
Q&A Sec.  __.42(b)(2)-2.
    Sec.  __.12(h)--3: May an intermediate small institution that is 
not subject to HMDA reporting have home mortgage loans considered as 
community development loans? Similarly, may an intermediate small 
institution have small business and small farm loans and consumer loans 
considered as community development loans?
    A3. Yes. In instances where intermediate small institutions are not 
required to report HMDA or small business or small farm loans, these 
loans may be considered, at the institution's option, as community 
development loans, provided they meet the regulatory definition of 
``community development.'' If small business or small farm loan data 
have been reported to the Agencies to preserve the option to be 
evaluated as a large institution, but the institution ultimately 
chooses to be evaluated under the intermediate small institution 
examination standards, then the institution would continue to have the 
option to have such loans considered as community development loans. 
However, if the institution opts to be evaluated under the lending, 
investment, and service tests applicable to large institutions, it may 
not choose to have home mortgage, small business, small farm, or 
consumer loans considered as community development loans.
    Loans other than multifamily dwelling loans may not be considered 
under both the lending test and the community development test for 
intermediate small institutions. Thus, if an institution elects to have 
certain loans considered under the community development test, those 
loans may not also be considered under the lending test, and would be 
excluded from the lending test analysis.
    Intermediate small institutions may choose individual loans within 
their portfolio for community development consideration. Examiners will 
evaluate an intermediate small institution's community development 
activities within the context of the responsiveness of the activity to 
the community development needs of the institution's assessment 
area(s).
    Sec.  __.12(h)--4: Do secured credit cards or other credit card 
programs targeted to low- or moderate-income individuals qualify as 
community development loans?
    A4. No. Credit cards issued to low- or moderate-income individuals 
for household, family, or other personal expenditures, whether as part 
of a program targeted to such individuals or otherwise, do not qualify 
as community development loans because they do not have as their 
primary purpose any of the activities included in the definition of 
``community development.''
    Sec.  __.12(h)--5: The regulation indicates that community 
development includes ``activities that revitalize or stabilize low- or 
moderate-income geographies.'' Do all loans in a low- to moderate-
income geography have a stabilizing effect?
    A5. No. Some loans may provide only indirect or short-term benefits 
to low- or moderate-income individuals in a low- or moderate-income 
geography. These loans are not considered to have a community 
development purpose. For example, a loan for upper-income housing in a 
low- or moderate-income area is not considered to have a community 
development purpose simply because of the indirect benefit to low- or 
moderate-income persons from construction jobs or the increase in the 
local tax base that supports enhanced services to low- and moderate-
income area residents. On the other hand, a loan for an anchor business 
in a low- or moderate-income area (or a nearby area) that employs or 
serves residents of the area and, thus, stabilizes the area, may be 
considered to have a community development purpose. For example, in a 
low-income area, a loan for a pharmacy that employs and serves 
residents of the area promotes community development.
    Sec.  __.12(h)--6: Must there be some immediate or direct benefit 
to the institution's assessment area(s) to satisfy the regulations' 
requirement that qualified investments and community development loans 
or services benefit an institution's assessment area(s) or a broader 
statewide or regional area that includes the institution's assessment 
area(s)?
    A6. No. The regulations recognize that community development 
organizations and programs are efficient and effective ways for 
institutions to promote community development. These organizations and 
programs often operate on a statewide or even multistate basis. 
Therefore, an institution's activity is considered a community 
development loan or service or a qualified investment if it supports an 
organization or activity that covers an area that is larger than, but 
includes, the institution's assessment area(s). The institution's 
assessment area(s) need not receive an immediate or direct benefit from 
the institution's participation in

[[Page 48530]]

the organization or activity, provided that the purpose, mandate, or 
function of the organization or activity includes serving geographies 
or individuals located within the institution's assessment area(s).
    In addition, a retail institution will receive consideration for 
certain other community development activities. These activities must 
benefit geographies or individuals located somewhere within a broader 
statewide or regional area that includes the institution's assessment 
area(s). Examiners will consider these activities even if they will not 
benefit the institution's assessment area(s), as long as the 
institution has been responsive to community development needs and 
opportunities in its assessment area(s).
    Sec.  __.12(h)--7: What is meant by the term ``regional area''?
    A7. A ``regional area'' may be an intrastate area or a multistate 
area that includes the financial institution's assessment area(s). 
Regional areas typically have some geographic, demographic, and/or 
economic interdependencies and may conform to commonly accepted 
delineations, such as ``the tri-county area'' or the ``mid-Atlantic 
states.'' Regions are often defined by the geographic scope and 
specific purpose of a community development organization or initiative.
    Sec.  __.12(h)--8: What is meant by the term ``primary purpose'' as 
that term is used to define what constitutes a community development 
loan, a qualified investment, or a community development service?
    A8. A loan, investment, or service has as its primary purpose 
community development when it is designed for the express purpose of 
revitalizing or stabilizing low- or moderate-income areas, designated 
disaster areas, or underserved or distressed nonmetropolitan middle-
income areas, providing affordable housing for, or community services 
targeted to, low- or moderate-income persons, or promoting economic 
development by financing small businesses or farms that meet the 
requirements set forth in 12 CFR __.12(g). To determine whether an 
activity is designed for an express community development purpose, the 
agencies apply one of two approaches. First, if a majority of the 
dollars or beneficiaries of the activity are identifiable to one or 
more of the enumerated community development purposes, then the 
activity will be considered to possess the requisite primary purpose. 
Alternatively, where the measurable portion of any benefit bestowed or 
dollars applied to the community development purpose is less than a 
majority of the entire activity's benefits or dollar value, then the 
activity may still be considered to possess the requisite primary 
purpose, and the institution may receive CRA consideration for the 
entire activity, if (1) the express, bona fide intent of the activity, 
as stated, for example, in a prospectus, loan proposal, or community 
action plan, is primarily one or more of the enumerated community 
development purposes; (2) the activity is specifically structured 
(given any relevant market or legal constraints or performance context 
factors) to achieve the expressed community development purpose; and 
(3) the activity accomplishes, or is reasonably certain to accomplish, 
the community development purpose involved.
    Generally, a loan, investment, or service will be determined to 
have a ``primary purpose'' of community development only if it meets 
the criteria described above. However, an activity involving the 
provision of affordable housing also may be deemed to have a ``primary 
purpose'' of community development in certain other limited 
circumstances in which these criteria have not been met. Specifically, 
activities related to the provision of mixed-income housing, such as in 
connection with a development that has a mixed-income housing component 
or an affordable housing set-aside required by Federal, state, or local 
government, also would be eligible for consideration as an activity 
that has a ``primary purpose'' of community development at the election 
of the institution. In such cases, an institution may receive pro rata 
consideration for the portion of such activities that helps to provide 
affordable housing to low- or moderate-income individuals. For example, 
if an institution makes a $10 million loan to finance a mixed-income 
housing development in which 10 percent of the units will be set aside 
as affordable housing for low- and moderate-income individuals, the 
institution may elect to treat $1 million of such loan as a community 
development loan. In other words, the pro rata dollar amount of the 
total activity will be based on the percentage of units set-aside for 
affordable housing for low- or moderate-income individuals.
    The fact that an activity provides indirect or short-term benefits 
to low- or moderate-income persons does not make the activity community 
development, nor does the mere presence of such indirect or short-term 
benefits constitute a primary purpose of community development. 
Financial institutions that want examiners to consider certain 
activities should be prepared to demonstrate the activities' 
qualifications.

Sec.  __.12(i) Community Development Service

    Sec.  __.12(i)--1: In addition to meeting the definition of 
``community development'' in the regulation, community development 
services must also be related to the provision of financial services. 
What is meant by ``provision of financial services''?
    A1. Providing financial services means providing services of the 
type generally provided by the financial services industry. Providing 
financial services often involves informing community members about how 
to get or use credit or otherwise providing credit services or 
information to the community. For example, service on the board of 
directors of an organization that promotes credit availability or 
finances affordable housing is related to the provision of financial 
services. Providing technical assistance about financial services to 
community-based groups, local or tribal government agencies, or 
intermediaries that help to meet the credit needs of low- and moderate-
income individuals or small businesses and farms is also providing 
financial services. By contrast, activities that do not take advantage 
of the employees' financial expertise, such as neighborhood cleanups, 
do not involve the provision of financial services.
    Sec.  __.12(i)--2: Are personal charitable activities provided by 
an institution's employees or directors outside the ordinary course of 
their employment considered community development services?
    A2. No. Services must be provided as a representative of the 
institution. For example, if a financial institution's director, on her 
own time and not as a representative of the institution, volunteers one 
evening a week at a local community development corporation's financial 
counseling program, the institution may not consider this activity a 
community development service.
    Sec.  __.12(i)--3: What are examples of community development 
services?
    A3. Examples of community development services include, but are not 
limited to, the following:
     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

[[Page 48531]]

who apply for loans or grants under the Federal Home Loan Banks' (FHLB) 
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, 
including credit counseling to assist low- or moderate-income borrowers 
in avoiding foreclosure on their homes;
     Establishing school savings programs or developing or 
teaching financial education or literacy curricula for low- or 
moderate-income individuals; and
     Providing foreclosure prevention programs to low- or 
moderate-income homeowners who are facing foreclosure on their primary 
residence with the objective of providing affordable, sustainable, 
long-term loan modifications and restructurings.
    Examples of technical assistance activities that are related to the 
provision of financial services and that might be provided to community 
development organizations include
     serving on the board of directors;
     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;
     assisting in fund raising, including soliciting or 
arranging investments; and
     providing services reflecting a financial institution's 
employees' areas of expertise at the institution, such as human 
resources, information technology, and legal services.
    Refer to Q&A Sec.  __.24(a)--1 for information about how retail 
services are evaluated under the large institution service test.

Sec.  __.12(j) Consumer Loan

    Sec.  __.12(j)--1: Are home equity loans considered ``consumer 
loans''?
    A1. Home equity loans made for purposes other than home purchase, 
home improvement, or refinancing home purchase or home improvement 
loans are consumer loans if they are extended to one or more 
individuals for household, family, or other personal expenditures.
    Sec.  __.12(j)--2: May a home equity line of credit be considered a 
``consumer loan'' even if part of the line is for home improvement 
purposes?
    A2. If the predominant purpose of the line is home improvement, the 
line may only be reported under HMDA and may not be considered a 
consumer loan. However, the full amount of the line may be considered a 
``consumer loan'' if its predominant purpose is for household, family, 
or other personal expenditures, and to a lesser extent home 
improvement, and the full amount of the line has not been reported 
under HMDA. This is the case even though there may be ``double 
counting'' because part of the line may also have been reported under 
HMDA.
    Sec.  __.12(j)--3: How should an institution collect or report 
information on loans the proceeds of which will be used for multiple 
purposes?
    A3. If an institution makes a single loan or provides a line of 
credit to a customer to be used for both consumer and small business 
purposes, consistent with the instructions for the Consolidated Reports 
of Condition and Income (Call Report), the institution should determine 
the major (predominant) component of the loan or the credit line and 
collect or report the entire loan or credit line in accordance with the 
regulation's specifications for that loan type.

Sec.  __.12(l) Home Mortgage Loan

    Sec.  __.12(l)--1: Does the term ``home mortgage loan'' include 
loans other than ``home purchase loans''?
    A1. Yes. ``Home mortgage loan'' includes ``home improvement loan,'' 
``home purchase loan,'' and ``refinancing,'' as defined in the HMDA 
regulation, Regulation C, 12 CFR part 1003. This definition also 
includes multifamily (five-or-more families) dwelling loans, and loans 
for the purchase of manufactured homes. See also Q&A Sec.  __.22(a)(2)-
7.
    Sec.  __.12(l)--2: Some financial institutions broker home mortgage 
loans. They typically take the borrower's application and perform other 
settlement activities; however, they do not make the credit decision. 
The broker institutions may also initially fund these mortgage loans, 
then immediately assign them to another lender. Because the broker 
institution does not make the credit decision, under Regulation C 
(HMDA), they do not record the loans on their HMDA loan application 
registers (HMDA-LAR), even if they fund the loans. May an institution 
receive any consideration under CRA for its home mortgage loan 
brokerage activities?
    A2. Yes. A financial institution that funds home mortgage loans but 
immediately assigns the loans to the lender that made the credit 
decisions may present information about these loans to examiners for 
consideration under the lending test as ``other loan data.'' Under 
Regulation C, the broker institution does not record the loans on its 
HMDA-LAR because it does not make the credit decisions, even if it 
funds the loans. An institution electing to have these home mortgage 
loans considered must maintain information about all of the home 
mortgage loans that it has funded in this way. Examiners will consider 
these other loan data using the same criteria by which home mortgage 
loans originated or purchased by an institution are evaluated.
    Institutions that do not provide funding but merely take 
applications and provide settlement services for another lender that 
makes the credit decisions will receive consideration for this service 
as a retail banking service. Examiners will consider an institution's 
mortgage brokerage services when evaluating the range of services 
provided to low-, moderate-, middle- and upper-income geographies and 
the degree to which the services are tailored to meet the needs of 
those geographies. Alternatively, an institution's mortgage brokerage 
service may be considered a community development service if the 
primary purpose of the service is community development. An institution 
wishing to have its mortgage brokerage service considered as a 
community development service must provide sufficient information to 
substantiate that its primary purpose is community development and to 
establish the extent of the services provided.

Sec.  __.12(m) Income Level

    Sec.  __.12(m)--1: Where do institutions find income level data for 
geographies and individuals?
    A1. The median family income (MFI) levels for geographies, i.e., 
census tracts, are calculated using income data from the U.S. Census 
Bureau's American Community Survey (ACS) and geographic definitions 
from the Office of Management and Budget (OMB), and are updated 
approximately every five years. Geographic income data, along with 
detailed information about the FFIEC's calculation of geographic MFI 
data, are available on the FFIEC Web site at http://www.ffiec.gov/cra.htm.

[[Page 48532]]

    The income levels for individuals are calculated annually by the 
FFIEC using geographic definitions from the OMB, income data from the 
ACS, and the Consumer Price Index from the Congressional Budget Office. 
Individual MFI data for metropolitan statistical areas (MSA) and 
statewide nonmetropolitan areas, along with detailed information about 
the FFIEC's calculation of individual MFI data, are available on the 
FFIEC Web site at http://www.ffiec.gov/cra.htm.

Sec.  __.12(n) Limited Purpose Institution

    Sec.  __.12(n)--1: What constitutes a ``narrow product line'' in 
the definition of ``limited purpose institution''?
    A1. An institution offers a narrow product line by limiting its 
lending activities to a product line other than a traditional retail 
product line required to be evaluated under the lending test (i.e., 
home mortgage, small business, and small farm loans). Thus, an 
institution engaged only in making credit card or motor vehicle loans 
offers a narrow product line, while an institution limiting its lending 
activities to home mortgages is not offering a narrow product line.
    Sec.  __.12(n)--2: What factors will the Agencies consider to 
determine whether an institution that, if limited purpose, makes loans 
outside a narrow product line, or, if wholesale, engages in retail 
lending, will lose its limited purpose or wholesale designation because 
of too much other lending?
    A2. Wholesale institutions may engage in some retail lending 
without losing their designation if this activity is incidental and 
done on an accommodation basis. Similarly, limited purpose institutions 
continue to meet the narrow product line requirement if they provide 
other types of loans on an infrequent basis. In reviewing other lending 
activities by these institutions, the Agencies will consider the 
following factors:
     Is the retail lending provided as an incident to the 
institution's wholesale lending?
     Are the retail loans provided as an accommodation to the 
institution's wholesale customers?
     Are the other types of loans made only infrequently to the 
limited purpose institution's customers?
     Does only an insignificant portion of the institution's 
total assets and income result from the other lending?
     How significant a role does the institution play in 
providing that type(s) of loan(s) in the institution's assessment 
area(s)?
     Does the institution hold itself out as offering that 
type(s) of loan(s)?
     Does the lending test or the community development test 
present a more accurate picture of the institution's CRA performance?
    Sec.  __.12(n)--3: Do ``niche institutions'' qualify as limited 
purpose (or wholesale) institutions?
    A3. Generally, no. Institutions that are in the business of lending 
to the public, but specialize in certain types of retail loans (for 
example, home mortgage or small business loans) to certain types of 
borrowers (for example, to high-end income level customers or to 
corporations or partnerships of licensed professional practitioners) 
(``niche institutions'') generally would not qualify as limited purpose 
(or wholesale) institutions.

Sec.  __.12(t) Qualified Investment

    Sec.  __.12(t)--1: Does the CRA regulation provide authority for 
institutions to make investments?
    A1. No. The CRA regulation does not provide authority for 
institutions to make investments that are not otherwise allowed by 
Federal law.
    Sec.  __.12(t)--2: Are mortgage-backed securities or municipal 
bonds ``qualified investments''?
    A2. As a general rule, mortgage-backed securities and municipal 
bonds are not qualified investments because they do not have as their 
primary purpose community development, as defined in the CRA 
regulations. Nonetheless, mortgage-backed securities or municipal bonds 
designed primarily to finance community development generally are 
qualified investments. Municipal bonds or other securities with a 
primary purpose of community development need not be housing-related. 
For example, a bond to fund a community facility or park or to provide 
sewage services as part of a plan to redevelop a low-income 
neighborhood is a qualified investment. Certain municipal bonds in 
underserved nonmetropolitan middle-income geographies may also be 
qualified investments. See Q&A Sec.  __.12(g)(4)(iii)-4. Housing-
related bonds or securities must primarily address affordable housing 
(including multifamily rental housing) needs of low- or moderate-income 
individuals in order to qualify. See also Q&A Sec.  __.23(b)-2.
    Sec.  __.12(t)--3: Are FHLB stocks or unpaid dividends and 
membership reserves with the Federal Reserve Banks ``qualified 
investments''?
    A3. No. FHLB stocks or unpaid dividends, and membership reserves 
with the Federal Reserve Banks do not have a sufficient connection to 
community development to be qualified investments. However, FHLB member 
institutions may receive CRA consideration as a community development 
service for technical assistance they provide on behalf of applicants 
and recipients of funding from the FHLB's Affordable Housing Program. 
See Q&A Sec.  __.12(i)-3.
    Sec.  __.12(t)--4: What are examples of qualified investments?
    A4. Examples of qualified investments include, but are not limited 
to, investments, grants, deposits, or shares in or to:
     Financial intermediaries (including CDFIs, New Markets Tax 
Credit-eligible Community Development Entities, 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- and 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, SBICs, specialized 
SBICs, and Rural Business Investment Companies (RBIC) that promote 
economic development by financing small businesses;
     Community development venture capital companies that 
promote economic development by financing small businesses;
     Facilities that promote community development by providing 
community services 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 
literacy programs; 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 or workforce 
development programs that enable low-

[[Page 48533]]

or moderate-income individuals to work.
    See also Q&As Sec.  __.12(g)(4)(ii)--2; Sec.  __.12(g)(4)(iii)-3; 
Sec.  __.12(g)(4)(iii)-4.
    Sec.  __.12(t)--5: Will an institution receive consideration for 
charitable contributions as ``qualified investments''?
    A5. Yes, provided they have as their primary purpose community 
development as defined in the regulations. A charitable contribution, 
whether in cash or an in-kind contribution of property, is included in 
the term ``grant.'' A qualified investment is not disqualified because 
an institution receives favorable treatment for it (for example, as a 
tax deduction or credit) under the Internal Revenue Code.
    Sec.  __.12(t)--6: An institution makes or participates in a 
community development loan. The institution provided the loan at below-
market interest rates or ``bought down'' the interest rate to the 
borrower. Is the lost income resulting from the lower interest rate or 
buy-down a qualified investment?
    A6. No. The Agencies will, however, consider the responsiveness, 
innovativeness, and complexity of the community development loan within 
the bounds of safe and sound banking practices.
    Sec.  __.12(t)--7: Will the Agencies consider as a qualified 
investment the wages or other compensation of an employee or director 
who provides assistance to a community development organization on 
behalf of the institution?
    A7. No. However, the Agencies will consider donated labor of 
employees or directors of a financial institution as a community 
development service if the activity meets the regulatory definition of 
``community development service.''
    Sec.  __.12(t)--8: When evaluating a qualified investment, what 
consideration will be given for prior-period investments?
    A8. When evaluating an institution'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 weight 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.
    Sec.  __.12(t)--9: How do examiners evaluate loans or investments 
to organizations that, in turn, invest in instruments that do not have 
a community development purpose, and use only the income, or a portion 
of the income, from those investments to support their community 
development purpose?
    A9. Examiners will give quantitative consideration for the dollar 
amount of funds that benefit an organization or activity that has a 
primary purpose of community development. If an institution invests in 
(or lends to) an organization that, in turn, invests those funds in 
instruments that do not have as their primary purpose community 
development, such as Treasury securities, and uses only the income, or 
a portion of the income, from those investments to support the 
organization's community development purposes, the Agencies will 
consider only the amount of the investment income used to benefit the 
organization or activity that has a community development purpose for 
CRA purposes. Examiners will, however, provide consideration for such 
instruments when the organization invests solely as a means of securing 
capital for leveraging purposes, securing additional financing, or in 
order to generate a return with minimal risk until funds can be 
deployed toward the originally intended community development activity. 
The organization must express a bona fide intent to deploy the funds 
from investments and loans in a manner that primarily serves a 
community development purpose in order for the institution to receive 
consideration under the applicable test.

Sec.  __.12(u) Small Institution

    Sec.  __.12(u)--1: How are Federal and state branch assets of a 
foreign bank calculated for purposes of the CRA?
    A1. A Federal or state branch of a foreign bank is considered a 
small institution if the Federal or state branch has assets less than 
the asset threshold delineated in 12 CFR __.12(u)(1) for small 
institutions.
Sec.  __.12(u)(2) Small Institution Adjustment
    Sec.  __.12(u)(2)--1: How often will the asset size thresholds for 
small institutions and intermediate small institutions be changed, and 
how will these adjustments be communicated?
    A1. The asset size thresholds for ``small institutions'' and 
``intermediate small institutions'' will be adjusted annually based on 
changes to the Consumer Price Index. More specifically, the dollar 
thresholds will be adjusted annually based on the year-to-year change 
in the average of the Consumer Price Index for Urban Wage Earners and 
Clerical Workers, not seasonally adjusted for each 12-month period 
ending in November, with rounding to the nearest million. Any changes 
in the asset size thresholds will be published in the Federal Register. 
Historical and current asset-size threshold information may be found on 
the FFIEC's Web site at http://www.ffiec.gov/cra.

Sec.  __.12(v) Small Business Loan

    Sec.  __.12(v)--1: Are loans to nonprofit organizations considered 
small business loans or are they considered community development 
loans?
    A1. To be considered a small business loan, a loan must meet the 
definition of ``loans to small businesses'' in the instructions in the 
Call Report. In general, a loan to a nonprofit organization, for 
business or farm purposes, where the loan is secured by nonfarm 
nonresidential property and the original amount of the loan is $1 
million or less, if a business loan, or $500,000 or less, if a farm 
loan, would be reported in the Call Report as a small business or small 
farm loan. If a loan to a nonprofit organization is reportable as a 
small business or small farm loan, it cannot also be considered as a 
community development loan, except by a wholesale or limited purpose 
institution. Loans to nonprofit organizations that are not small 
business or small farm loans for Call Report purposes may be considered 
as community development loans if they meet the regulatory definition 
of ``community development.''
    Sec.  __.12(v)--2: Are loans secured by commercial real estate 
considered small business loans?
    A2. Yes, depending on their principal amount. Small business loans 
include loans secured by ``nonfarm nonresidential properties,'' as 
defined in the Call Report, in amounts of $1 million or less.
    Sec.  __.12(v)--3: Are loans secured by nonfarm residential real 
estate to finance small businesses ``small business loans''?
    A3. Typically not. Loans secured by nonfarm residential real estate 
that are used to finance small businesses are not included as ``small 
business'' loans for Call Report purposes unless the security interest 
in the nonfarm residential real estate is taken only as an abundance of 
caution. (See Call Report Glossary definition of ``Loan Secured by Real 
Estate.'') The Agencies recognize that

[[Page 48534]]

many small businesses are financed by loans that would not have been 
made or would have been made on less favorable terms had they not been 
secured by residential real estate. If these loans promote community 
development, as defined in the regulation, they may be considered as 
community development loans. Otherwise, at an institution's option, the 
institution may collect and maintain data separately concerning these 
loans and request that the data be considered in its CRA evaluation as 
``Other Secured Lines/Loans for Purposes of Small Business.'' See also 
Q&A Sec.  __.22(a)(2)-7.
    Sec.  __.12(v)--4: Are credit cards issued to small businesses 
considered ``small business loans''?
    A4. Credit cards issued to a small business or to individuals to be 
used, with the institution's knowledge, as business accounts are small 
business loans if they meet the definitional requirements in the Call 
Report instructions.

Sec.  __.12(x) Wholesale Institution

    Sec.  __.12(x)--1: What factors will the Agencies consider in 
determining whether an institution is in the business of extending home 
mortgage, small business, small farm, or consumer loans to retail 
customers?
    A1. The Agencies will consider whether:
     The institution holds itself out to the retail public as 
providing such loans.
     the institution's revenues from extending such loans are 
significant when compared to its overall operations, including off-
balance sheet activities.
    A wholesale institution may make some retail loans without losing 
its wholesale designation as described above in Q&A Sec.  __.12(n)-2.

Sec.  __.21--Performance Tests, Standards, and Ratings, in General

Sec.  __.21(a) Performance Tests and Standards

    Sec.  __.21(a)--1: How will examiners apply the performance 
criteria?
    A1. Examiners will apply the performance criteria reasonably and 
fairly, in accord with the regulations, the examination procedures, and 
this guidance. In doing so, examiners will disregard efforts by an 
institution to manipulate business operations or present information in 
an artificial light that does not accurately reflect an institution's 
overall record of lending performance.
    Sec.  __.21(a)--2: Are all community development activities 
weighted equally by examiners?
    A2. No. Examiners will consider the responsiveness to credit and 
community development needs, as well as the innovativeness and 
complexity, if applicable, of an institution's community development 
lending, qualified investments, and community development services. 
These criteria include consideration of the degree to which they serve 
as a catalyst for other community development activities. The criteria 
are designed to add a qualitative element to the evaluation of an 
institution's performance. (``Innovativeness'' and ``complexity'' are 
not factors in the community development test applicable to 
intermediate small institutions.)
    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?
    A3. There are three important factors that examiners consider when 
evaluating responsiveness: quantity, quality, and performance context. 
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 credit and community development 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. In other words, when evaluated qualitatively, some 
activities are more responsive than others. Activities are more 
responsive if they are successful in meeting identified credit and 
community development needs. For example, investing in a community 
development organization that specializes in originating home mortgage 
loans to low- or moderate-income individuals would be considered more 
responsive than an investment of the same amount in a single-family 
mortgage-backed security in which the majority of the loans are to low- 
or moderate-income borrowers. Although both of these activities may 
receive consideration as a qualified investment, the former example 
would be considered to be more responsive than the latter.
    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 assessment, examiners may consider 
information about credit and community development needs and 
opportunities 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;
     studies and reports from academic institutions and other 
research bodies;
     consumer complaint information; and
     any relevant information provided to examiners by the 
financial institution that is maintained by the institution in its 
ordinary course of business.
    Responsiveness to community development needs and opportunities in 
an institution's assessment area(s) is also a key consideration when an 
institution plans to engage in community development activities that 
benefit areas outside of its assessment area(s). Q&A Sec.  __.12(h)-6 
states that an institution will receive consideration for activities 
that benefit geographies or individuals located somewhere within a 
broader statewide or regional area that includes the institution's 
assessment area(s) even if they will not benefit the institution's 
assessment area(s), as long as the institution has been responsive to 
community development needs and opportunities in its assessment 
area(s). When considering whether an institution has been responsive to 
community development needs and opportunities in its assessment 
area(s), examiners will consider all of the institution's community 
development activities in its assessment area(s). Examiners will also 
consider as responsive to assessment area needs community development 
activities that support an organization or activity that covers an area 
that is larger than, but includes, the institution's assessment 
area(s). This is true if the purpose, mandate, or function of the 
organization or activity includes serving geographies or individuals 
located within the institution's assessment area(s), even though the 
institution's assessment

[[Page 48535]]

area(s) did not receive an immediate or direct benefit from the 
institution's participation in the organization or activity. For 
example, suppose an institution were to invest in a statewide community 
development fund that was organized with the purpose of providing 
community development loans throughout the state in which the 
institution is located. Examiners would consider this investment when 
evaluating the institution's responsiveness to community development 
needs and opportunities in its assessment area(s) even if the fund had 
not provided a loan within the institution's assessment area(s).
    Sec.  __.21(a)--4: What is meant by ``innovativeness''?
    A4. ``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, all 
innovative practices or activities 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.
    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. See Q&A Sec.  __.28-1. Innovative activities 
are especially meaningful when they emphasize serving, for example, 
low- or moderate-income consumers or distressed or underserved 
nonmetropolitan middle-income geographies in new or more effective 
ways. Innovativeness may also include products, services, or delivery 
systems already present in the assessment area by institutions that are 
not leaders in innovation--due, for example, to the lack of available 
financial resources or technological expertise--when they subsequently 
introduce those products, services, or delivery systems 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.

Sec.  __.21(b) Performance Context

    Sec.  __.21(b)--1: What is the performance context?
    A1. The performance context is a broad range of economic, 
demographic, and institution- and community-specific information that 
an examiner reviews to understand the context in which an institution's 
record of performance should be evaluated. The Agencies will provide 
examiners with some of this information. The performance context is not 
a formal assessment of community credit needs.
Sec.  __.21(b)(2) Information Maintained by the Institution or Obtained 
From Community Contacts
    Sec.  __.21(b)(2)--1:  Will examiners consider performance context 
information provided by institutions?
    A1. Yes. An institution may provide examiners with any information 
it deems relevant, including information on the lending, investment, 
and service opportunities in its assessment area(s). This information 
may include data on the business opportunities addressed by lenders not 
subject to the CRA. Institutions are not required, however, to prepare 
a formal needs assessment. If an institution provides information to 
examiners, the Agencies will not expect information other than what the 
institution normally would develop to prepare a business plan or to 
identify potential markets and customers, including low- and moderate-
income persons and geographies in its assessment area(s). The Agencies 
will not evaluate an institution's efforts to ascertain community 
credit needs or rate an institution on the quality of any information 
it provides.
    Sec.  __.21(b)(2)--2: Will examiners conduct community contact 
interviews as part of the examination process?
    A2. Yes. Examiners will consider information obtained from 
interviews with local community, civic, and government leaders. These 
interviews provide examiners with knowledge regarding the local 
community, its economic base, and community development initiatives. To 
ensure that information from local leaders is considered--particularly 
in areas where the number of potential contacts may be limited--
examiners may use information obtained through an interview with a 
single community contact for examinations of more than one institution 
in a given market. In addition, the Agencies may consider information 
obtained from interviews conducted by other Agency staff and by the 
other Agencies. In order to augment contacts previously used by the 
Agencies and foster a wider array of contacts, the Agencies may share 
community contact information.
Sec.  __.21(b)(4) Institutional Capacity and Constraints
    Sec.  __.21(b)(4)--1: Will examiners consider factors outside of an 
institution's control that prevent it from engaging in certain 
activities?
    A1. Yes. Examiners will take into account statutory and supervisory 
limitations on an institution's ability to engage in any lending, 
investment, and service activities. For example, a savings association 
that has made few or no qualified investments due to its limited 
investment authority may still receive a low satisfactory rating under 
the investment test if it has a strong lending record.
Sec.  __.21(b)(5) Institution's Past Performance and the Performance of 
Similarly Situated Lenders
    Sec.  __.21(b)(5)--1: Can an institution's assigned rating be 
adversely affected by poor past performance?
    A1. Yes. The Agencies will consider an institution's past 
performance in its overall evaluation. For example, an institution that 
received a rating of ``needs to improve'' in the past may receive a 
rating of ``substantial noncompliance'' if its performance has not 
improved.
    Sec.  __.21(b)(5)--2: How will examiners consider the performance 
of similarly situated lenders?
    A2. The performance context section of the regulation permits the 
performance of similarly situated lenders to be considered, for 
example, as one of a number of considerations in evaluating the 
geographic distribution of an institution's loans to low-, moderate-, 
middle-, and upper-income geographies. This analysis, as well as other 
analyses, may be used, for example, where groups of contiguous 
geographies within an institution's assessment area(s) exhibit 
abnormally low penetration. In this regard, the performance of 
similarly situated lenders may be analyzed if such an analysis would 
provide accurate insight into the institution's lack of performance in 
those areas. The regulation does not require the use of a specific type 
of analysis under these circumstances. Moreover, no ratio developed 
from any type of analysis is linked to any lending test rating.

Sec.  __.21(f) Activities in Cooperation With Minority- or Women-Owned 
Financial Institutions and Low-Income Credit Unions

    Sec.  __.21(f)--1: The CRA provides that, in assessing the CRA 
performance of nonminority- and non-women-owned

[[Page 48536]]

(majority-owned) financial institutions, examiners may consider as a 
factor capital investments, loan participations, and other ventures 
undertaken by the institutions in cooperation with minority- or women-
owned financial institutions and low-income credit unions (MWLI), 
provided that these activities help meet the credit needs of local 
communities in which the MWLIs are chartered. Must such activities also 
benefit the majority-owned financial institution's assessment area(s)?
    A1. No. Although the regulations generally provide that an 
institution's CRA activities will be evaluated for the extent to which 
they benefit the institution's assessment area(s) or a broader 
statewide or regional area that includes the institution's assessment 
area(s), the Agencies apply a broader geographic criterion when 
evaluating capital investments, loan participations, and other ventures 
undertaken by that institution in cooperation with MWLIs, as provided 
by the CRA. Thus, such activities will be favorably considered in the 
CRA performance evaluation of the institution (as loans, investments, 
or services, as appropriate), even if the MWLIs are not located in, or 
such activities do not benefit, the assessment area(s) of the majority-
owned institution or the broader statewide or regional area that 
includes its assessment area(s). The activities must, however, help 
meet the credit needs of the local communities in which the MWLIs are 
chartered. The impact of a majority-owned institution's activities in 
cooperation with MWLIs on the majority-owned institution's CRA rating 
will be determined in conjunction with its overall performance in its 
assessment area(s).
    Examples of activities undertaken by a majority-owned financial 
institution in cooperation with MWLIs that would receive CRA 
consideration may include
     making a deposit or capital investment;
     purchasing a participation in a loan;
     loaning an officer or providing other technical expertise 
to assist an MWLI in improving its lending policies and practices;
     providing financial support to enable an MWLI to partner 
with schools or universities to offer financial literacy education to 
members of its local community; or
     providing free or discounted data processing systems, or 
office facilities to aid an MWLI in serving its customers.

Sec.  __.22--Lending Test

Sec.  __.22(a) Scope of Test

    Sec.  __.22(a)--1: Are there any types of lending activities that 
help meet the credit needs of an institution's assessment area(s) and 
that may warrant favorable consideration as activities that are 
responsive to the needs of the institution's assessment area(s)?
    A1. Credit needs vary from community to community. However, there 
are some lending activities that are likely to be responsive in helping 
to meet the credit needs of many communities. These activities include
     providing loan programs that include a financial education 
component about how to avoid lending activities that may be abusive or 
otherwise unsuitable;
     establishing loan programs that provide small, unsecured 
consumer loans in a safe and sound manner (i.e., based on the 
borrower's ability to repay) and with reasonable terms;
     offering lending programs, which feature reporting to 
consumer reporting agencies, that transition borrowers from loans with 
higher interest rates and fees (based on credit risk) to lower-cost 
loans, consistent with safe and sound lending practices. Reporting to 
consumer reporting agencies allows borrowers accessing these programs 
the opportunity to improve their credit histories and thereby improve 
their access to competitive credit products; and
     establishing loan programs with the objective of providing 
affordable, sustainable, long-term relief, for example, through loan 
refinancings, restructures, or modifications, to homeowners who are 
facing foreclosure on their primary residences.
    Examiners may consider favorably such lending activities, which 
have features augmenting the success and effectiveness of the small, 
intermediate small, or large institution's lending programs.
Sec.  __.22(a)(1) Types of Loans Considered
    Sec.  __.22(a)(1)--1: If a large retail institution is not required 
to collect and report home mortgage data under the HMDA, will the 
Agencies still evaluate the institution's home mortgage lending 
performance?
    A1. Yes. The Agencies will sample the institution's home mortgage 
loan files in order to assess its performance under the lending test 
criteria.
    Sec.  __.22(a)(1)--2: When will examiners consider consumer loans 
as part of an institution's CRA evaluation?
    A2. Consumer loans will be evaluated if the institution so elects 
and has collected and maintained the data; an institution that elects 
not to have its consumer loans evaluated will not be viewed less 
favorably by examiners than one that does. However, if consumer loans 
constitute a substantial majority of the institution's business, the 
Agencies will evaluate them even if the institution does not so elect. 
The Agencies interpret ``substantial majority'' to be so significant a 
portion of the institution's lending activity by number and dollar 
volume of loans that the lending test evaluation would not meaningfully 
reflect its lending performance if consumer loans were excluded.
Sec.  __.22(a)(2) Loan Originations and Purchases/Other Loan Data
    Sec.  __.22(a)(2)--1: How are lending commitments (such as letters 
of credit) evaluated under the regulation?
    A1. The Agencies consider lending commitments (such as letters of 
credit) only at the option of the institution, regardless of 
examination type. Commitments must be legally binding between an 
institution and a borrower in order to be considered. Information about 
lending commitments will be used by examiners to enhance their 
understanding of an institution's performance, but will be evaluated 
separately from the loans.
    Sec.  __.22(a)(2)--2: Will examiners review application data as 
part of the lending test?
    A2. Application activity is not a performance criterion of the 
lending test. However, examiners may consider this information in the 
performance context analysis because this information may give 
examiners insight on, for example, the demand for loans.
    Sec.  __.22(a)(2)--3: May a financial institution receive 
consideration under CRA for home mortgage loan modification, extension, 
and consolidation agreements (MECA), in which it obtains home mortgage 
loans from other institutions without actually purchasing or 
refinancing the home mortgage loans, as those terms have been 
interpreted under CRA and HMDA, as implemented by 12 CFR part 1003?
    A3. Yes. In some states, MECAs, which are not considered loan 
refinancings because the existing loan obligations are not satisfied 
and replaced, are common. Although these transactions are not 
considered to be purchases or refinancings, as those terms have been 
interpreted under CRA, they do achieve the same results. A small, 
intermediate small, or large institution may present information about 
its MECA activities with respect to home mortgages to examiners for 
consideration under the lending test as ``other loan data.''

[[Page 48537]]

    Sec.  __.22(a)(2)--4: In addition to MECAs, what are other examples 
of ``other loan data''?
    A4. Other loan data include, for example,
     loans funded for sale to the secondary markets that an 
institution has not reported under HMDA;
     unfunded loan commitments and letters of credit;
     commercial and consumer leases;
     loans secured by nonfarm residential real estate, not 
taken as an abundance of caution, that are used to finance small 
businesses or small farms and that are not reported as small business/
small farm loans or reported under HMDA; and
     an increase to a small business or small farm line of 
credit if the increase would cause the total line of credit to exceed 
$1 million, in the case of a small business line; or $500,000, in the 
case of a small farm line.
    Sec.  __.22(a)(2)--5: Do institutions receive consideration for 
originating or purchasing loans that are fully guaranteed?
    A5. Yes. For all examination types, examiners evaluate an 
institution's record of helping to meet the credit needs of its 
assessment area(s) through the origination or purchase of specified 
types of loans. Examiners do not take into account whether or not such 
loans are guaranteed.
    Sec.  __.22(a)(2)--6: Do institutions receive consideration for 
purchasing loan participations?
    A6. Yes. Examiners will consider the amount of loan participations 
purchased when evaluating an institution's record of helping to meet 
the credit needs of its assessment area(s) through the origination or 
purchase of specified types of loans, regardless of examination type. 
As with other loan purchases, examiners will evaluate whether loan 
participations purchased by an institution, which have been sold and 
purchased a number of times, artificially inflate CRA performance. See, 
e.g., Q&A Sec.  __.21(a)-1.
    Sec.  __.22(a)(2)--7: How are refinancings of small business loans, 
which are secured by a one-to-four family residence and that have been 
reported under HMDA as a refinancing, evaluated under CRA?
    A7. A loan of $1 million or less with a business purpose that is 
secured by a one-to-four family residence is considered a small 
business loan for CRA purposes only if the security interest in the 
residential property was taken as an abundance of caution and where the 
terms have not been made more favorable than they would have been in 
the absence of the lien. (See Call Report Glossary definition of ``Loan 
Secured by Real Estate.'') If this same loan is refinanced and the new 
loan is also secured by a one-to-four family residence, but only 
through an abundance of caution, this loan is reported not only as a 
refinancing under HMDA, but also as a small business loan under CRA. 
(Note that small farm loans are similarly treated.)
    It is not anticipated that ``double-reported'' loans will be so 
numerous as to affect the typical institution's CRA rating. In the 
event that an institution reports a significant number or amount of 
loans as both home mortgage and small business loans, examiners will 
consider that overlap in evaluating the institution's performance and 
generally will consider the ``double-reported'' loans as small business 
loans for CRA consideration.
    The origination of a small business or small farm loan that is 
secured by a one-to-four family residence is not reportable under HMDA, 
unless the purpose of the loan is home purchase or home improvement. 
Nor is the loan reported as a small business or small farm loan if the 
security interest is not taken merely as an abundance of caution. Any 
such loan may be provided to examiners as ``other loan data'' (``Other 
Secured Lines/Loans for Purposes of Small Business'') for consideration 
during a CRA evaluation. See Q&A Sec.  __.12(v)--3. The refinancings of 
such loans would be reported under HMDA.

Sec.  __.22(b) Performance Criteria

Sec.  __.22(b)(1) Lending Activity
    Sec.  __.22(b)(1)--1: How will the Agencies apply the lending 
activity criterion to discourage an institution from originating loans 
that are viewed favorably under CRA in the institution itself and 
referring other loans, which are not viewed as favorably, for 
origination by an affiliate?
    A1. Examiners will review closely institutions with (1) a small 
number and amount of home mortgage loans with an unusually good 
distribution among low- and moderate-income areas and low- and 
moderate-income borrowers and (2) a policy of referring most, but not 
all, of their home mortgage loans to affiliated institutions. If an 
institution is making loans mostly to low- and moderate-income 
individuals and areas and referring the rest of the loan applicants to 
an affiliate for the purpose of receiving a favorable CRA rating, 
examiners may conclude that the institution's lending activity is not 
satisfactory because it has inappropriately attempted to influence the 
rating. In evaluating an institution's lending, examiners will consider 
legitimate business reasons for the allocation of the lending activity.
Sec.  __.22(b)(2) & (3) Geographic Distribution and Borrower 
Characteristics
    Sec.  __.22(b)(2) & (3)--1: How do the geographic distribution of 
loans and the distribution of lending by borrower characteristics 
interact in the lending test applicable to either large or small 
institutions?
    A1. Examiners generally will consider both the distribution of an 
institution's loans among geographies of different income levels, and 
among borrowers of different income levels and businesses and farms of 
different sizes. The importance of the borrower distribution criterion, 
particularly in relation to the geographic distribution criterion, will 
depend on the performance context. For example, distribution among 
borrowers with different income levels may be more important in areas 
without identifiable geographies of different income categories. On the 
other hand, geographic distribution may be more important in areas with 
the full range of geographies of different income categories.
    Sec.  __.22(b)(2) & (3)--2: Must an institution lend to all 
portions of its assessment area?
    A2. The term ``assessment area'' describes the geographic area 
within which the agencies assess how well an institution, regardless of 
examination type, has met the specific performance tests and standards 
in the rule. The Agencies do not expect that simply because a census 
tract is within an institution's assessment area(s), the institution 
must lend to that census tract. Rather the Agencies will be concerned 
with conspicuous gaps in loan distribution that are not explained by 
the performance context. Similarly, if an institution delineated the 
entire county in which it is located as its assessment area, but could 
have delineated its assessment area as only a portion of the county, it 
will not be penalized for lending only in that portion of the county, 
so long as that portion does not reflect illegal discrimination or 
arbitrarily exclude low- or moderate-income geographies. The capacity 
and constraints of an institution, its business decisions about how it 
can best help to meet the needs of its assessment area(s), including 
those of low- and moderate-income neighborhoods, and other aspects of 
the performance context, are all relevant to explain why the 
institution is serving or

[[Page 48538]]

not serving portions of its assessment area(s).
    Sec.  __.22(b)(2) & (3)--3: Will examiners take into account loans 
made by affiliates when evaluating the proportion of an institution's 
lending in its assessment area(s)?
    A3. Examiners will not take into account loans made by affiliates 
when determining the proportion of an institution's lending in its 
assessment area(s), even if the institution elects to have its 
affiliate lending considered in the remainder of the lending test 
evaluation. However, examiners may consider an institution's business 
strategy of conducting lending through an affiliate in order to 
determine whether a low proportion of lending in the assessment area(s) 
should adversely affect the institution's lending test rating.
    Sec.  __.22(b)(2) & (3)--4: When will examiners consider loans 
(other than community development loans) made outside an institution's 
assessment area(s)?
    A4. Consideration will be given for loans to low- and moderate-
income persons and small business and farm loans outside of an 
institution's assessment area(s), provided the institution has 
adequately addressed the needs of borrowers within its assessment 
area(s). The Agencies will apply this consideration not only to loans 
made by large retail institutions being evaluated under the lending 
test, but also to loans made by small and intermediate small 
institutions being evaluated under their respective performance 
standards. Loans to low- and moderate-income persons and small 
businesses and farms outside of an institution's assessment area(s), 
however, will not compensate for poor lending performance within the 
institution's assessment area(s).
    Sec.  __.22(b)(2) & (3)--5: Under the lending test applicable to 
small, intermediate small, or large institutions, how will examiners 
evaluate home mortgage loans to middle- or upper-income individuals in 
a low- or moderate-income geography?
    A5. Examiners will consider these home mortgage loans under the 
performance criteria of the lending test, i.e., by number and amount of 
home mortgage loans, whether they are inside or outside the financial 
institution's assessment area(s), their geographic distribution, and 
the income levels of the borrowers. Examiners will use information 
regarding the financial institution's performance context to determine 
how to evaluate the loans under these performance criteria. Depending 
on the performance context, examiners could view home mortgage loans to 
middle-income individuals in a low-income geography very differently. 
For example, if the loans are for homes or multifamily housing located 
in an area for which the local, state, tribal, or Federal government or 
a community-based development organization has developed a 
revitalization or stabilization plan (such as a Federal enterprise 
community or empowerment zone) that includes attracting mixed-income 
residents to establish a stabilized, economically diverse neighborhood, 
examiners may give more consideration to such loans, which may be 
viewed as serving the low- or moderate-income community's needs as well 
as serving those of the middle- or upper-income borrowers. If, on the 
other hand, no such plan exists and there is no other evidence of 
governmental support for a revitalization or stabilization project in 
the area and the loans to middle- or upper-income borrowers 
significantly disadvantage or primarily have the effect of displacing 
low- or moderate-income residents, examiners may view these loans 
simply as home mortgage loans to middle- or upper-income borrowers who 
happen to reside in a low- or moderate-income geography and weigh them 
accordingly in their evaluation of the institution.
Sec.  __.22(b)(4) Community Development Lending
    Sec.  __.22(b)(4)--1: When evaluating an institution's record of 
community development lending under the lending test applicable to 
large institutions, may an examiner distinguish among community 
development loans on the basis of the actual amount of the loan that 
advances the community development purpose?
    A1. Yes. When evaluating the institution's record of community 
development lending under 12 CFR __.22(b)(4), it is appropriate to give 
greater weight to the amount of the loan that is targeted to the 
intended community development purpose. For example, consider two $10 
million projects (with a total of 100 units each) that have as their 
express primary purpose affordable housing and are located in the same 
community. One of these projects sets aside 40 percent of its units for 
low-income residents and the other project allocates 65 percent of its 
units for low-income residents. An institution would report both loans 
as $10 million community development loans under the 12 CFR __.42(b)(2) 
aggregate reporting obligation. However, transaction complexity, 
innovation and all other relevant considerations being equal, an 
examiner should also take into account that the 65 percent project 
provides more affordable housing for more people per dollar expended.
    Under 12 CFR __.22(b)(4), the extent of CRA consideration an 
institution receives for its community development loans should bear a 
direct relation to the benefits received by the community and the 
innovation or complexity of the loans required to accomplish the 
activity, not simply to the dollar amount expended on a particular 
transaction. By applying all lending test performance criteria, a 
community development loan of a lower dollar amount could meet the 
credit needs of the institution's community to a greater extent than a 
community development loan with a higher dollar amount, but with less 
innovation, complexity, or impact on the community.
    Sec.  __.22(b)(4)--2: How do examiners consider community 
development loans in the evaluation of an institution's record of 
lending under the lending test applicable to large institutions?
    A2. An institution's record of making community development loans 
may have a positive, neutral, or negative impact on the lending test 
rating. Community development lending is one of five performance 
criteria in the lending test criteria and, as such, it is considered at 
every examination. As with all lending test criteria, examiners 
evaluate an institution's record of making community development loans 
in the context of an institution's business model, the needs of its 
community, and the availability of community development opportunities 
in its assessment area(s) or the broader statewide or regional area(s) 
that includes the assessment area(s). For example, in some cases 
community development lending could have either a neutral or negative 
impact when the volume and number of community development loans are 
not adequate, depending on the performance context, while in other 
cases, it would have a positive impact when the institution is a leader 
in community development lending. Additionally, strong performance in 
retail lending may compensate for weak performance in community 
development lending, and conversely, strong community development 
lending may compensate for weak retail lending performance.
Sec.  __.22(b)(5) Innovative or Flexible Lending Practices
    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?

[[Page 48539]]

    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 variety and specific terms and conditions of the 
credit product 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. 
Historically, many institutions have used innovative and flexible 
lending practices to customize loans to their customers' specific needs 
in a safe and sound manner. However, an innovative or flexible lending 
practice is not required in order to obtain a specific CRA rating. See 
Q&A Sec.  __.28--1. Examples of lending practices that are considered 
innovative or flexible 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 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 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 needs 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 with 
reasonable terms and offered in a safe and sound manner, which includes 
evaluating an individual's ability to repay, 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 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, such as utility or rent payments, in an effort to evaluate 
low- or moderate-income individuals who lack sufficient conventional 
credit histories and who would be denied credit under the institution's 
traditional underwriting standards. The use of alternative credit 
histories in this manner to demonstrate that consumers have a timely 
and consistent record of paying their obligations may be considered as 
an innovative or flexible practice that augments the success and 
effectiveness of the lending program.

Sec.  __.22(c) Affiliate Lending

Sec.  __.22(c)(1) In General
    Sec.  __.22(c)(1)--1: If an institution, regardless of examination 
type, elects to have loans by its affiliate(s) considered, may it elect 
to have only certain categories of loans considered?
    A1. Yes. An institution may elect to have only a particular 
category of its affiliate's lending considered. The basic categories of 
loans are home mortgage loans, small business loans, small farm loans, 
community development loans, and the five categories of consumer loans 
(motor vehicle loans, credit card loans, home equity loans, other 
secured loans, and other unsecured loans).
Sec.  __.22(c)(2) Constraints on Affiliate Lending
Sec.  __.22(c)(2)(i) No Affiliate May Claim a Loan Origination or Loan 
Purchase if Another Institution Claims the Same Loan Origination or 
Purchase
    Sec.  __.22(c)(2)(i)--1: Regardless of examination type, how is 
this constraint on affiliate lending applied?
    A1. This constraint prohibits one affiliate from claiming a loan 
origination or purchase claimed by another affiliate. However, an 
institution can count as a purchase a loan originated by an affiliate 
that the institution subsequently purchases, or count as an origination 
a loan later sold to an affiliate, provided the same loans are not sold 
several times to inflate their value for CRA purposes. For example, 
assume that two institutions are affiliated. Institution A originates a 
loan and claims it as a loan origination. Institution B later purchases 
the loan. Institution B may count the loan as a purchased loan.
    The same institution may not count both the origination and 
purchase. Thus, for example, if an institution claims loans made by an 
affiliated mortgage company as loan originations, the institution may 
not also count the loans as purchased loans if it later purchases the 
loans from its affiliate. See also Q&As Sec.  __.22(c)(2)(ii)--1 and 
Sec.  __.22(c)(2)(ii)--2.
Sec.  __.22(c)(2)(ii) If an Institution Elects to Have its Supervisory 
Agency Consider Loans Within a Particular Lending Category Made by One 
or More of the Institution's Affiliates in a Particular Assessment 
Area, the Institution Shall Elect to Have the Agency Consider all Loans 
Within That Lending Category in That Particular Assessment Area Made by 
all of the Institution's Affiliates
    Sec.  __.22(c)(2)(ii)--1: Regardless of examination type, how is 
this constraint on affiliate lending applied?
    A1. This constraint prohibits ``cherry-picking'' affiliate loans 
within any one category of loans. The constraint requires an 
institution that elects to have a particular category of affiliate 
lending in a particular assessment area considered to include all loans 
of that type made by all of its affiliates in that particular 
assessment area. For example, assume that an institution has several 
affiliates, including a mortgage company that makes loans in the 
institution's

[[Page 48540]]

assessment area. If the institution elects to include the mortgage 
company's home mortgage loans, it must include all of its affiliates' 
home mortgage loans made in its assessment area. In addition, the 
institution cannot elect to include only those low- and moderate-income 
home mortgage loans made by its affiliates and not home mortgage loans 
to middle- and upper-income individuals or areas.
    Sec.  __.22(c)(2)(ii)--2: Regardless of examination type, how is 
this constraint applied if an institution's affiliates are also insured 
depository institutions subject to the CRA?
    A2. Strict application of this constraint against ``cherry-
picking'' to loans of an affiliate that is also an insured depository 
institution covered by the CRA would produce the anomalous result that 
the other institution would, without its consent, not be able to count 
its own loans. Because the Agencies did not intend to deprive an 
institution subject to the CRA of receiving consideration for its own 
lending, the Agencies read this constraint slightly differently in 
cases involving a group of affiliated institutions, some of which are 
subject to the CRA and share the same assessment area(s). In those 
circumstances, an institution that elects to include all of its 
mortgage affiliate's home mortgage loans in its assessment area would 
not automatically be required to include all home mortgage loans in its 
assessment area of another affiliate institution subject to the CRA. 
However, all loans of a particular type made by any affiliate in the 
institution's assessment area(s) must either be counted by the lending 
institution or by another affiliate institution that is subject to the 
CRA. This reading reflects the fact that a holding company may, for 
business reasons, choose to transact different aspects of its business 
in different subsidiary institutions. However, the method by which 
loans are allocated among the institutions for CRA purposes must 
reflect actual business decisions about the allocation of banking 
activities among the institutions and should not be designed solely to 
enhance their CRA evaluations.

Sec.  __.22(d) Lending by a Consortium or a Third Party

    Sec.  __.22(d)--1: Will equity and equity-type investments in a 
third party receive consideration under the lending test?
    A1. If an institution has made an equity or equity-type investment 
in a third party, community development loans made by the third party 
may be considered under the lending test. On the other hand, asset-
backed and debt securities that do not represent an equity-type 
interest in a third party will not be considered under the lending test 
unless the securities are booked by the purchasing institution as a 
loan. For example, if an institution purchases stock in a CDC that 
primarily lends in low- and moderate-income areas or to low- and 
moderate-income individuals in order to promote community development, 
the institution may claim a pro rata share of the CDC's loans as 
community development loans. The institution's pro rata share is based 
on its percentage of equity ownership in the CDC. Q&A Sec.  __.23(b)--1 
provides information concerning consideration of an equity or equity-
type investment under the investment test and both the lending and 
investment tests. (Note that in connection with an intermediate small 
institution's CRA performance evaluation, community development loans, 
including pro rata shares of community development loans, are 
considered only in the community development test.)
    Sec.  __.22(d)--2: Regardless of examination type, how will 
examiners evaluate loans made by consortia or third parties?
    A2. Loans originated or purchased by consortia in which an 
institution participates or by third parties in which an institution 
invests will be considered only if they qualify as community 
development loans and will be considered only under the community 
development criterion. However, loans originated directly on the books 
of an institution or purchased by the institution are considered to 
have been made or purchased directly by the institution, even if the 
institution originated or purchased the loans as a result of its 
participation in a loan consortium. These loans would be considered 
under the lending test or community development test criteria 
appropriate to them depending on the type of loan and type of 
examination.
    Sec.  __.22(d)--3: In some circumstances, an institution may invest 
in a third party, such as a community development bank, that is also an 
insured depository institution and is thus subject to CRA requirements. 
If the investing institution requests its supervisory Agency to 
consider its pro rata share of community development loans made by the 
third party, as allowed under 12 CFR __.22(d), may the third party also 
receive consideration for these loans?
    A3. Yes, regardless of examination type, as long as the financial 
institution and the third party are not affiliates. The regulations 
state, at 12 CFR __.22(c)(2)(i), that two affiliates may not both claim 
the same loan origination or loan purchase. However, if the financial 
institution and the third party are not affiliates, the third party may 
receive consideration for the community development loans it 
originates, and the financial institution that invested in the third 
party may also receive consideration for its pro rata share of the same 
community development loans under 12 CFR __.22(d).

Sec.  __.23--Investment Test

Sec.  __.23(a) Scope of Test

    Sec.  __.23(a)--1: May an institution, regardless of examination 
type, receive consideration under the CRA regulations if it invests 
indirectly through a fund, the purpose of which is community 
development, as that is defined in the CRA regulations?
    A1. Yes, the direct or indirect nature of the qualified investment 
does not affect whether an institution will receive consideration under 
the CRA regulations because the regulations do not distinguish between 
``direct'' and ``indirect'' investments. Thus, an institution's 
investment in an equity fund that, in turn, invests in projects that, 
for example, provide affordable housing to low- and moderate-income 
individuals, would receive consideration as a qualified investment 
under the CRA regulations, provided the investment benefits one or more 
of the institution's assessment area(s) or a broader statewide or 
regional area(s) that includes one or more of the institution's 
assessment area(s). Similarly, an institution may receive consideration 
for a direct qualified investment in a nonprofit organization that, for 
example, supports affordable housing for low- and moderate-income 
individuals in the institution's assessment area(s) or a broader 
statewide or regional area(s) that includes the institution's 
assessment area(s).
    Sec.  __.23(a)--2: In order to receive CRA consideration, what 
information may an institution provide that would demonstrate that an 
investment in a nationwide fund with a primary purpose of community 
development will directly or indirectly benefit one or more of the 
institution's assessment area(s) or a broader statewide or regional 
area that includes the institution's assessment area(s)?
    A2. There may be several ways to demonstrate that the institution's 
investment in a nationwide fund meets the geographic requirements, and 
the Agencies will employ appropriate flexibility in this regard in 
reviewing

[[Page 48541]]

information the institution provides that reasonably supports this 
determination.
    In making this determination, the Agencies will consider any 
information provided by a financial institution that reasonably 
demonstrates that the purpose, mandate, or function of the fund 
includes serving geographies or individuals located within the 
institution's assessment area(s) or a broader statewide or regional 
area that includes the institution's assessment area(s). Typically, 
information about where a fund's investments are expected to be made or 
targeted will be found in the fund's prospectus, or other documents 
provided by the fund prior to or at the time of the institution's 
investment, and the institution, at its option, may provide such 
documentation in connection with its CRA evaluation.
    Nationwide funds are important sources of investments in low- and 
moderate-income and underserved communities throughout the country and 
can be an efficient vehicle for institutions in making qualified 
investments that help meet community development needs. Nationwide 
funds may be suitable investment opportunities, particularly for large 
financial institutions with a nationwide branch footprint. Other 
financial institutions, including those with a nationwide business 
focus, may find such funds to be efficient investment vehicles to help 
meet community development needs in their assessment area(s) or the 
broader statewide or regional area that includes their assessment 
area(s). Prior to investing in such a fund, an institution should 
consider reviewing the fund's investment record to see if it is 
generally consistent with the institution's investment goals and the 
geographic considerations in the regulations. Examiners will consider 
investments in nationwide funds that benefit the institution's 
assessment area(s). Examiners will also consider investments in 
nationwide funds that benefit the broader statewide or regional area 
that includes the institution's assessment area(s) consistent with the 
treatment detailed in Q&A Sec.  __.12(h)--6.

Sec.  __.23(b) Exclusion

    Sec.  __.23(b)--1: Even though the regulations state that an 
activity that is considered under the lending or service tests cannot 
also be considered under the investment test, may parts of an activity 
be considered under one test and other parts be considered under 
another test?
    A1. Yes, in some instances the nature of an activity may make it 
eligible for consideration under more than one of the performance 
tests. For example, certain investments and related support provided by 
a large retail institution to a CDC may be evaluated under the lending, 
investment, and service tests. Under the service test, the institution 
may receive consideration for any community development services that 
it provides to the CDC, such as service by an executive of the 
institution on the CDC's board of directors. If the institution makes 
an investment in the CDC that the CDC uses to make community 
development loans, the institution may receive consideration under the 
lending test for its pro rata share of community development loans made 
by the CDC. Alternatively, the institution's investment may be 
considered under the investment test, assuming it is a qualified 
investment. In addition, an institution may elect to have a part of its 
investment considered under the lending test and the remaining part 
considered under the investment test. If the investing institution opts 
to have a portion of its investment evaluated under the lending test by 
claiming its pro rata share of the CDC's community development loans, 
the amount of investment considered under the investment test will be 
offset by that portion. Thus, the institution would receive 
consideration under the investment test for only the amount of its 
investment multiplied by the percentage of the CDC's assets that meet 
the definition of a qualified investment.
    Sec.  __.23(b)--2: If home mortgage loans to low- and moderate-
income borrowers have been considered under an institution's lending 
test, may the institution that originated or purchased them also 
receive consideration under the investment test if it subsequently 
purchases mortgage-backed securities that are primarily or exclusively 
backed by such loans?
    A2. No. Because the institution received lending test consideration 
for the loans that underlie the securities, the institution may not 
also receive consideration under the investment test for its purchase 
of the securities. Of course, an institution may receive investment 
test consideration for purchases of mortgage-backed securities that are 
backed by loans to low- and moderate-income individuals as long as the 
securities are not backed primarily or exclusively by loans that the 
same institution originated or purchased.

Sec.  __.23(e) Performance Criteria

    Sec.  __.23(e)--1: When applying the four performance criteria of 
12 CFR __.23(e), may an examiner distinguish among qualified 
investments based on how much of the investment actually supports the 
underlying community development purpose?
    A1. Yes. By applying all the criteria, a qualified investment of a 
lower dollar amount may be weighed more heavily under the investment 
test than a qualified investment with a higher dollar amount that has 
fewer qualitative enhancements. The criteria permit an examiner to 
qualitatively weight certain investments differently or to make other 
appropriate distinctions when evaluating an institution's record of 
making qualified investments. For instance, an examiner should take 
into account that a targeted mortgage-backed security that qualifies as 
an affordable housing issue that has only 60 percent of its face value 
supported by loans to low- or moderate-income borrowers would not 
provide as much affordable housing for low- and moderate-income 
individuals as a targeted mortgage-backed security with 100 percent of 
its face value supported by affordable housing loans to low- and 
moderate-income borrowers. The examiner should describe any 
differential weighting (or other adjustment), and its basis in the 
Performance Evaluation. See also Q&A Sec.  __.12(t)--8 for a discussion 
about the qualitative consideration of prior-period investments.
    Sec.  __.23(e)--2: How do examiners evaluate an institution's 
qualified investment in a fund, the primary purpose of which is 
community development, as defined in the CRA regulations?
    A2. When evaluating qualified investments that benefit an 
institution's assessment area(s) or a broader statewide or regional 
area that includes its assessment area(s), examiners will look at the 
following four performance criteria:
    (1) The dollar amount of qualified investments;
    (2) The innovativeness or complexity of qualified investments;
    (3) The responsiveness of qualified investments to credit and 
community development needs; and
    (4) The degree to which the qualified investments are not routinely 
provided by private investors.
    With respect to the first criterion, examiners will determine the 
dollar amount of qualified investments by relying on the figures 
recorded by the institution according to generally accepted accounting 
principles (GAAP). Although institutions may exercise a range of 
investment strategies, including short-term investments, long-term 
investments, investments that are

[[Page 48542]]

immediately funded, and investments with a binding, up-front commitment 
that are funded over a period of time, institutions making the same 
dollar amount of investments over the same number of years, all other 
performance criteria being equal, would receive the same level of 
consideration. Examiners will include both new and outstanding 
investments in this determination. The dollar amount of qualified 
investments also will include the dollar amount of legally binding 
commitments recorded by the institution according to GAAP.
    The extent to which qualified investments receive consideration, 
however, depends on how examiners evaluate the investments under the 
remaining three performance criteria--innovativeness and complexity, 
responsiveness, and degree to which the investment is not routinely 
provided by private investors. Examiners also will consider factors 
relevant to the institution's CRA performance context, such as the 
effect of outstanding long-term qualified investments, the pay-in 
schedule, and the amount of any cash call, on the capacity of the 
institution to make new investments.

Sec.  __.24--Service Test

Sec.  __.24(a) Scope of Test

    Sec.  __.24(a)--1: How do examiners evaluate retail banking 
services and community development services under the large institution 
service test?
    A1. Retail banking services and community development services are 
the two components of the service test and are both important in 
evaluating a large institution's performance. In evaluating retail 
banking services, examiners consider the availability and effectiveness 
of an institution's systems for delivering 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. 
Examples of retail banking services that improve access to financial 
services, or decrease costs, for low- or moderate-income individuals 
include
     low-cost deposit accounts;
     electronic benefit transfer accounts and point of sale 
terminal systems;
     individual development accounts;
     free or low-cost government, payroll, or other check 
cashing services; and
     reasonably priced international remittance services.
    In evaluating community development services, examiners consider 
the extent to which the institution provides such services and their 
innovativeness and responsiveness to community needs. Examples of 
community development services are listed in Q&A Sec.  __.12(i)--3. 
Examiners will consider any information provided by the institution 
that demonstrates community development services benefit low- or 
moderate-income individuals or are responsive to community development 
needs.

Sec.  __.24(d) Performance Criteria--Retail Banking Services

    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 within a community 
is an important factor in determining the availability of credit and 
non-credit services. Therefore, the service test performance standards 
place primary emphasis on full service branches while still considering 
alternative systems. The principal focus is on 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. Under the service test, alternative 
systems for delivering retail banking services are considered only to 
the extent that they are effective alternatives in providing needed 
services to low- and moderate-income areas and individuals.
    Sec.  __.24(d)--2: How do examiners evaluate an institution's 
activities in connection with Individual Development Accounts (IDA)?
    A2. Although there is no standard IDA program, IDAs typically are 
deposit accounts targeted to low- and moderate-income families that are 
designed to help them accumulate savings for education or job-training, 
down-payment and closing costs on a new home, or start-up capital for a 
small business. Once participants have successfully funded an IDA, 
their personal IDA savings are matched by a public or private entity. 
Financial institution participation in IDA programs comes in a variety 
of forms, including providing retail banking services to IDA 
accountholders, providing matching dollars or operating funds to an IDA 
program, designing or implementing IDA programs, providing consumer 
financial education to IDA accountholders or prospective 
accountholders, or other means. The extent of financial institutions' 
involvement in IDAs and the products and services they offer in 
connection with the accounts will vary. Thus, subject to 12 CFR 
__.23(b), examiners evaluate the actual services and products provided 
by an institution in connection with IDA programs as one or more of the 
following: community development services, retail banking services, 
qualified investments, home mortgage loans, small business loans, 
consumer loans, or community development loans. See, e.g., Q&A Sec.  
__.12(i)--3.
    Note that all types of institutions may participate in IDA 
programs. Their IDA activities are evaluated under the performance 
criteria of the type of examination applicable to the particular 
institution.
Sec.  __.24(d)(3) Availability and Effectiveness of Alternative Systems 
for Delivering Retail Banking Services
    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 institutions 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 individuals. To determine whether a 
financial institution's alternative delivery system is an available and 
effective means of delivering retail banking services in low- and 
moderate-income geographies and to low- and 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 the institution's 
other delivery systems;
     the range of services delivered;
     the ease of use;
     the rate of adoption and use; 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

[[Page 48543]]

available to, and used by, low- or moderate-income individuals, such as 
data on customer usage or transactions.
    Sec.  __.24(d)(3)--2: Are debit cards considered under the service 
test as an alternative delivery system?
    A2. By themselves, no. However, if debit cards are a part of a 
larger combination of products, such as a comprehensive electronic 
banking service, that allows an institution to deliver needed services 
to low- and moderate-income areas and individuals in its community, the 
overall delivery system that includes the debit card feature would be 
considered an alternative delivery system.
Sec.  __.24(d)(4) Range of Services Provided in Geographies of 
Different Incomes
    Sec.  __.24(d)(4)--1: How do examiners evaluate the range of 
services provided in low-, moderate-, middle-, and upper-income 
geographies and the degree to which those services are tailored to meet 
the needs of those geographies?
    A1. Examiners review both information from the institution's public 
file and other information provided related to the range of services 
offered and how they are tailored to meet the particular needs of low- 
and moderate-income geographies. Examiners always review the 
information that institutions must maintain in their public files: A 
list of services generally offered at their branches, including their 
hours of operation; available loan and deposit products; transaction 
fees, as well as descriptions, where applicable, of material 
differences in the availability or cost of services at particular 
branches. See 12 CFR __.43(a)(5). The information provided by the 
financial institution to identify the types of services offered and any 
differences in services among its branches in different geographies may 
indicate how its services (including, where appropriate, business 
hours) are tailored to the convenience and needs of its assessment 
area(s), particularly low- or moderate-income geographies or low- or 
moderate-income individuals. See 12 CFR __, appendix A, section (b)(3). 
Examiners also review any other information provided by the 
institution, such as data regarding the costs and features of loan and 
deposit products, account usage and retention, geographic location of 
accountholders, the availability of information in languages other than 
English, and any other relevant information demonstrating that its 
services are tailored to meet the needs of its customers in the various 
geographies in its assessment area(s). Any information that 
institutions may maintain regarding services offered through 
alternative delivery systems (see Q&A Sec.  __.24(d)(3)--1) and through 
collaborations with government, community, educational or employer 
organizations to offer or expand the range of services or access to 
services, particularly designed to meet the needs of their assessment 
area(s), including low- and moderate-income communities will also be 
considered. Examiners will also review information provided by the 
public through comments or community contacts.

Sec.  __.24(e) Performance Criteria--Community Development Services

    Sec.  __.24(e)--1: Under what conditions may an institution receive 
consideration for community development services offered by affiliates 
or third parties?
    A1. At an institution's option, the Agencies will consider services 
performed by an affiliate or by a third party on the institution's 
behalf under the service test if the services provided enable the 
institution to help meet the credit needs of its community. Indirect 
services that enhance an institution's ability to deliver credit 
products or deposit services within its community and that can be 
quantified may be considered under the service test, if those services 
have not been considered already under the lending or investment test. 
See Q&A Sec.  __.23(b)-1. For example, an institution that contracts 
with a community organization to provide home ownership counseling to 
low- and moderate-income home buyers as part of the institution's 
mortgage program may receive consideration for that indirect service 
under the service test. In contrast, donations to a community 
organization that offers financial services to low- or moderate-income 
individuals may be considered under the investment test, but would not 
also be eligible for consideration under the service test. Services 
performed by an affiliate will be treated the same as affiliate loans 
and investments made in the institution's assessment area and may be 
considered if the service is not claimed by any other institution. See 
12 CFR __.22(c) and __.23(c).
    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. According to the regulation, the Agencies evaluate the 
extent to which the financial institution provides community 
development services as well as the innovativeness and responsiveness 
of such services. Examiners consider both quantitative and qualitative 
aspects of community development services during the evaluation. 
Examiners assess quantitative factors to determine the extent to which 
community development services are offered and used. The review is not 
limited to a single quantitative factor. For example, quantitative 
factors may include the number of
     low- or moderate-income participants;
     organizations served;
     sessions sponsored; or
     financial institution staff hours devoted.
    Examiners will also consider qualitative factors by assessing the 
degree to which community development services are innovative or 
responsive to community needs. See Q&As Sec.  __.21(a)--4 and Sec.  
__.21(a)--3. These performance criteria recognize that community 
development services sometimes require special expertise and effort on 
the part of the institution and provide benefit to the community that 
would not otherwise be possible. Such an assessment will depend on the 
impact of a particular activity on community needs and the benefits 
received by a community. See Q&A Sec.  __.28(b)--1. For example, a 
financial institution employee's unique expertise and service on the 
board of a community organization may demonstrate these qualitative 
factors when the employee's ongoing engagement significantly improves 
the products, services or operations of the community development 
organization.
    Examiners will consider any relevant information provided by the 
institution and from third parties that documents the extent, 
innovativeness, and responsiveness of community development services.

Sec.  __.25--Community Development Test for Wholesale or Limited 
Purpose Institutions

Sec.  __.25(a) Scope of Test

    Sec.  __.25(a)--1: How can certain credit card banks help to meet 
the credit needs of their communities without losing their exemption 
from the definition of ``bank'' in the Bank Holding Company Act (BHCA), 
as amended by the Competitive Equality Banking Act of 1987 (CEBA)?
    A1. Although the BHCA restricts institutions known as CEBA credit 
card banks to credit card operations, a CEBA credit card bank can 
engage in community development activities

[[Page 48544]]

without losing its exemption under the BHCA. A CEBA credit card bank 
could provide community development services and investments without 
engaging in operations other than credit card operations. For example, 
the bank could provide credit card counseling, or the financial 
expertise of its executives, free of charge, to community development 
organizations. In addition, a CEBA credit card bank could make 
qualified investments, as long as the investments meet the guidelines 
for passive and noncontrolling investments provided in the BHCA and the 
Board's Regulation Y. Finally, although a CEBA credit card bank cannot 
make any loans other than credit card loans, under 12 CFR __.25(d)(2) 
(community development test--indirect activities), the bank could elect 
to have part of its qualified passive and noncontrolling investments in 
a third-party lending consortium considered as community development 
lending, provided that the consortium's loans otherwise meet the 
requirements for community development lending. When assessing a CEBA 
credit card bank's CRA performance under the community development 
test, examiners will take into account the bank's performance context. 
In particular, examiners will consider the legal constraints imposed by 
the BHCA on the bank's activities, as part of the bank's performance 
context in 12 CFR __.21(b)(4).

Sec.  __.25(d) Indirect Activities

    Sec.  __.25(d)--1: How are investments in third-party community 
development organizations considered under the community development 
test?
    A1. Similar to the lending test for retail institutions, 
investments in third-party community development organizations may be 
considered as qualified investments or as community development loans 
or both (provided there is no double counting), at the institution's 
option, as described above in the discussion regarding 12 CFR __.22(d) 
and __.23(b).

Sec.  __.25(e) Benefit to Assessment Area(s)

    Sec.  __.25(e)--1: How do examiners evaluate a wholesale or limited 
purpose institution's qualified investment in a fund that invests in 
projects nationwide and which has a primary purpose of community 
development, as that is defined in the regulations?
    A1. If examiners find that a wholesale or limited purpose 
institution has adequately addressed the needs of its assessment 
area(s), they will give consideration to qualified investments, as well 
as community development loans and community development services, by 
that institution nationwide. In determining whether an institution has 
adequately addressed the needs of its assessment area(s), examiners 
will consider qualified investments that benefit a broader statewide or 
regional area that includes the institution's assessment area(s).

Sec.  __.25(f) Community Development Performance Rating

    Sec.  __.25(f)--1: Must a wholesale or limited purpose institution 
engage in all three categories of community development activities 
(lending, investment, and service) to perform well under the community 
development test?
    A1. No, a wholesale or limited purpose institution may perform well 
under the community development test by engaging in one or more of 
these activities.

Sec.  __.26--Small Institution Performance Standards

    Sec.  __.26--1: When evaluating a small or intermediate small 
institution's performance, will examiners consider, at the 
institution's request, retail and community development loans 
originated or purchased by affiliates, qualified investments made by 
affiliates, or community development services provided by affiliates?
    A1. 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 and intermediate 
small institutions. See Q&As addressing 12 CFR __.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 an institution's assessment area(s).

Sec.  __.26(a) Performance Criteria

Sec.  __.26(a)(2) Intermediate Small Institutions
    Sec.  __.26(a)(2)--1: When is an institution examined as an 
intermediate small institution?
    A1. When a small institution has met the intermediate small 
institution asset threshold delineated in 12 CFR __.12(u)(1) for two 
consecutive calendar year-ends, the institution may be examined under 
the intermediate small institution examination procedures. The 
regulation does not specify an additional lag period between becoming 
an intermediate small institution and being examined as an intermediate 
small institution, as it does for large institutions, because an 
intermediate small institution is not subject to CRA data collection 
and reporting requirements. Institutions should contact their primary 
regulator for information on examination schedules.

Sec.  __.26(b) Lending Test

    Sec.  __.26(b)--1: May examiners consider, under one or more of the 
performance criteria of the small institution performance standards, 
lending-related activities, such as community development loans and 
lending-related qualified investments, when evaluating a small 
institution?
    A1. Yes. Examiners can consider ``lending-related activities,'' 
including community development loans and lending-related qualified 
investments, when evaluating the first four performance criteria of the 
small institution performance test. Although lending-related activities 
are specifically mentioned in the regulation in connection with only 
the first three criteria (i.e., loan-to-deposit ratio, percentage of 
loans in the institution's assessment area(s), and lending to borrowers 
of different incomes and businesses of different sizes), examiners can 
also consider these activities when they evaluate the fourth criteria--
geographic distribution of the institution's loans.
    Although lending-related community development activities are 
evaluated under the community development test applicable to 
intermediate small institutions, these activities may also augment the 
loan-to-deposit ratio analysis (12 CFR __.26(b)(1)) and the percentage 
of loans in the intermediate small institution's assessment area(s) 
analysis (12 CFR __.26(b)(2)), if appropriate.
    Sec.  __.26(b)--2: What is meant by ``as appropriate'' when 
referring to the fact that lending-related activities will be 
considered, ``as appropriate,'' under the various small institution 
performance criteria?
    A2. ``As appropriate'' means that lending-related activities will 
be considered when it is necessary to determine whether an institution 
meets or exceeds the standards for a satisfactory rating. Examiners 
will also consider other lending-related activities at an institution's 
request, provided they have not also been considered under the 
community development test applicable to intermediate small 
institutions.

[[Page 48545]]

    Sec.  __.26(b)--3: When evaluating a small institution's lending 
performance, will examiners consider, at the institution's request, 
community development loans originated or purchased by a consortium in 
which the institution participates or by a third party in which the 
institution has invested?
    A3. Yes. However, a small institution that elects to have examiners 
consider community development loans originated or purchased by a 
consortium or third party must maintain sufficient information on its 
share of the community development loans so that the examiners may 
evaluate these loans under the small institution performance criteria.
    Sec.  __.26(b)--4: Under the small institution lending test 
performance standards, will examiners consider both loan originations 
and purchases?
    A4. Yes, consistent with the other assessment methods in the 
regulation, examiners will consider both loans originated and purchased 
by the institution. Likewise, examiners may consider any other loan 
data the small institution chooses to provide, including data on loans 
outstanding, commitments, and letters of credit.
    Sec.  __.26(b)--5: Under the small institution lending test 
performance standards, how will qualified investments be considered for 
purposes of determining whether a small institution receives a 
satisfactory CRA rating?
    A5. The small institution lending test performance standards focus 
on lending and other lending-related activities. Therefore, examiners 
will consider only lending-related qualified investments for the 
purpose of determining whether a small institution that is not an 
intermediate small institution receives a satisfactory CRA rating.
Sec.  __.26(b)(1) Loan-to-Deposit Ratio
    Sec.  __.26(b)(1)--1: How is the loan-to-deposit ratio calculated?
    A1. A small institution's loan-to-deposit ratio is calculated in 
the same manner that the Uniform Bank Performance Report (UBPR) 
determines the ratio. It is calculated by dividing the institution's 
net loans and leases by its total deposits. The ratio is found in the 
Liquidity and Investment Portfolio section of the UBPR. Examiners will 
use this ratio to calculate an average since the last examination by 
adding the quarterly loan-to-deposit ratios and dividing the total by 
the number of quarters.
    Sec.  __.26(b)(1)--2: How is the ``reasonableness'' of a loan-to-
deposit ratio evaluated?
    A2. No specific ratio is reasonable in every circumstance, and each 
small institution's ratio is evaluated in light of information from the 
performance context, including the institution's capacity to lend, 
demographic and economic factors present in the assessment area(s), and 
the lending opportunities available in the assessment area(s). If a 
small institution's loan-to-deposit ratio appears unreasonable after 
considering this information, lending performance may still be 
satisfactory under this criterion taking into consideration the number 
and the dollar volume of loans sold to the secondary market or the 
number and amount and innovativeness or complexity of community 
development loans and lending-related qualified investments.
    Sec.  __.26(b)(1)--3: If an institution makes a large number of 
loans off-shore, will examiners segregate the domestic loan-to-deposit 
ratio from the foreign loan-to-deposit ratio?
    A3. No. Examiners will look at the institution's net loan-to-
deposit ratio for the whole institution, without any adjustments.
Sec.  __.26(b)(2) Percentage of Lending Within Assessment Area(s)
    Sec.  __.26(b)(2)--1: Must a small institution have a majority of 
its lending in its assessment area(s) to receive a satisfactory 
performance rating?
    A1. No. The percentage of loans and, as appropriate, other lending-
related activities located in the institution's assessment area(s) is 
but one of the performance criteria upon which small institutions are 
evaluated. If the percentage of loans and other lending-related 
activities in an institution's assessment area(s) is less than a 
majority, then the institution does not meet the standards for 
satisfactory performance only under this criterion. The effect on the 
overall performance rating of the institution, however, is considered 
in light of the performance context, including information regarding 
economic conditions; loan demand; the institution's size, financial 
condition, business strategies, and branching network; and other 
aspects of the institution's lending record.
Sec.  __.26(b)(3) & (4) Distribution of Lending Within Assessment 
Area(s) by Borrower Income and Geographic Location
    Sec.  __.26(b)(3) & (4)--1: How will a small institution's 
performance be assessed under these lending distribution criteria?
    A1. Distribution of loans, like other small institution performance 
criteria, is considered in light of the performance context. For 
example, a small institution is not required to lend evenly throughout 
its assessment area(s) or in any particular geography. However, in 
order to meet the standards for satisfactory performance under this 
criterion, conspicuous gaps in a small institution's loan distribution 
must be adequately explained by performance context factors such as 
lending opportunities in the institution's assessment area(s), the 
institution's product offerings and business strategy, and 
institutional capacity and constraints. In addition, it may be 
impracticable to review the geographic distribution of the lending of 
an institution with very few demographically distinct geographies 
within an assessment area. If sufficient information on the income 
levels of individual borrowers or the revenues or sizes of business 
borrowers is not available, examiners may use loan size as a proxy for 
estimating borrower characteristics, where appropriate.

Sec.  __.26(c) Intermediate Small Institution Community Development 
Test

    Sec.  __.26(c)--1: How will the community development test be 
applied flexibly for intermediate small institutions?
    A1. Generally, intermediate small institutions engage in a 
combination of community development loans, qualified investments, and 
community development services. An institution may not simply ignore 
one or more of these categories of community development, nor do the 
regulations prescribe a required threshold for community development 
loans, qualified investments, and community development services. 
Instead, based on the institution's assessment of community development 
needs in its assessment area(s), it may engage in different categories 
of community development activities that are responsive to those needs 
and consistent with the institution's capacity.
    An intermediate small institution has the flexibility to allocate 
its resources among community development loans, qualified investments, 
and community development services in amounts that it reasonably 
determines are most responsive to community development needs and 
opportunities. Appropriate levels of each of these activities would 
depend on the capacity and business strategy of the institution, 
community needs, and number and types of opportunities for community 
development.

[[Page 48546]]

Sec.  __.26(c)(3) Community Development Services
    Sec.  __.26(c)(3)--1: What will examiners consider when evaluating 
the provision of community development services by an intermediate 
small institution?
    A1. In addition to the examples listed in Q&A Sec.  __.12(i)-3, 
examiners will consider retail banking services as community 
development services if they provide benefit to low- or moderate-income 
individuals. Examples include:
     Low-cost deposit accounts;
     electronic benefit transfer accounts and point of sale 
terminal systems;
     individual development accounts;
     free or low-cost government, payroll, or other check 
cashing services; and
     reasonably priced international remittance services.
    In addition, providing services to low- and moderate-income 
individuals through branches and other facilities located in low- and 
moderate-income, designated disaster, or distressed or underserved 
nonmetropolitan middle-income areas is considered. Generally, the 
presence of branches located in low- and moderate-income geographies 
will help to demonstrate the availability of banking services to low- 
and moderate-income individuals.
Sec.  __.26(c)(4) Responsiveness to Community Development Needs
    Sec.  __.26(c)(4)--1: When evaluating an intermediate small 
institution's community development record, what will examiners 
consider when reviewing the responsiveness of community development 
lending, qualified investments, and community development services to 
the community development needs of the area?
    A1. When evaluating an intermediate small institution's community 
development record, examiners will consider not only quantitative 
measures of performance, such as the number and amount of community 
development loans, qualified investments, and community development 
services, but also qualitative aspects of performance. In particular, 
examiners will evaluate the responsiveness of the institution's 
community development activities in light of the institution's 
capacity, business strategy, the needs of the community, and the number 
and types of opportunities for each type of community development 
activity (its performance context). Examiners also will consider the 
results of any assessment by the institution of community development 
needs, and how the institution's activities respond to those needs.
    An evaluation of the degree of responsiveness considers the 
following factors: The volume, mix, and qualitative aspects of 
community development loans, qualified investments, and community 
development services. Consideration of the qualitative aspects of 
performance recognizes that community development activities sometimes 
require special expertise or effort on the part of the institution or 
provide a benefit to the community that would not otherwise be made 
available. (However, ``innovativeness'' and ``complexity''--factors 
examiners consider when evaluating a large institution under the 
lending, investment, and service tests--are not criteria in the 
intermediate small institutions' community development test.) In some 
cases, a smaller loan may have more qualitative 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 in low- or moderate-income geographies, designated disaster 
areas, or distressed or underserved nonmetropolitan middle-income 
geographies. Activities are also considered particularly responsive to 
community development needs if they benefit low- or moderate-income 
geographies.

Sec.  __.26(d) Performance Rating

    Sec.  __.26(d)--1: How can a small institution that is not an 
intermediate small institution achieve an ``outstanding'' performance 
rating?
    A1. A small institution that is not an intermediate small 
institution that meets each of the standards in the lending test for a 
``satisfactory'' rating and exceeds some or all of those standards may 
warrant an ``outstanding'' performance rating. In assessing performance 
at the ``outstanding'' level, the Agencies consider the extent to which 
the institution exceeds each of the performance standards and, at the 
institution's option, its performance in making qualified investments 
and providing services that enhance credit availability in its 
assessment area(s). In some cases, a small institution may qualify for 
an ``outstanding'' performance rating solely on the basis of its 
lending activities, but only if its performance materially exceeds the 
standards for a ``satisfactory'' rating, particularly with respect to 
the penetration of borrowers at all income levels and the dispersion of 
loans throughout the geographies in its assessment area(s) that display 
income variation. An institution with a high loan-to-deposit ratio and 
a high percentage of loans in its assessment area(s), but with only a 
reasonable penetration of borrowers at all income levels or a 
reasonable dispersion of loans throughout geographies of differing 
income levels in its assessment area(s), generally will not be rated 
``outstanding'' based only on its lending performance. However, the 
institution's performance in making qualified investments and its 
performance in providing branches and other services and delivery 
systems that enhance credit availability in its assessment area(s) may 
augment the institution's satisfactory rating to the extent that it may 
be rated ``outstanding.''
    Sec.  __.26(d)--2: Will a small institution's qualified 
investments, community development loans, and community development 
services be considered if they do not directly benefit its assessment 
area(s)?
    A2. Yes. These activities are eligible for consideration if they 
benefit a broader statewide or regional area that includes a small 
institution's assessment area(s), as discussed more fully in Q&As Sec.  
__.12(h)-6 and Sec.  __.12(h)-7.

Sec.  __.27--Strategic Plan

Sec.  __.27(c) Plans in General

    Sec.  __.27(c)--1: To what extent will the Agencies provide 
guidance to an institution during the development of its strategic 
plan?
    A1. An institution will have an opportunity to consult with and 
provide information to the Agencies on a proposed strategic plan. 
Through this process, an institution is provided guidance on procedures 
and on the information necessary to ensure a complete submission. For 
example, the Agencies will provide guidance on whether the level of 
detail as set out in the proposed plan would be sufficient to permit 
Agency evaluation of the plan. However, the Agencies' guidance during 
plan development and, particularly, prior to the public comment period, 
will not include commenting on the merits of a proposed strategic plan 
or on the adequacy of measurable goals.
    Sec.  __.27(c)--2: How will a joint strategic plan be reviewed if 
the affiliates have different primary Federal supervisors?
    A2. The Agencies will coordinate review of and action on the joint 
plan. Each Agency will evaluate the measurable goals for those 
affiliates for which it is the primary regulator.

[[Page 48547]]

Sec.  __.27(f) Plan Content

Sec.  __.27(f)(1) Measurable Goals
    Sec.  __.27(f)(1)--1: How should annual measurable goals be 
specified in a strategic plan?
    A1. Annual measurable goals (e.g., number of loans, dollar amount, 
geographic location of activity, and benefit to low- and moderate-
income areas or individuals) must be stated with sufficient specificity 
to permit the public and the Agencies to quantify what performance will 
be expected. However, institutions are provided flexibility in 
specifying goals. For example, an institution may provide ranges of 
lending amounts in different categories of loans. Measurable goals may 
also be linked to funding requirements of certain public programs or 
indexed to other external factors as long as these mechanisms provide a 
quantifiable standard.

Sec.  __.27(g) Plan Approval

Sec.  __.27(g)(2) Public Participation
    Sec.  __.27(g)(2)--1: How will the public receive notice of a 
proposed strategic plan?
    A1. An institution submitting a strategic plan for approval by the 
Agencies is required to solicit public comment on the plan for a period 
of 30 days after publishing notice of the plan at least once in a 
newspaper of general circulation. The notice should be sufficiently 
prominent to attract public attention and should make clear that public 
comment is desired. An institution may, in addition, provide notice to 
the public in any other manner it chooses.

Sec.  __.28--Assigned Ratings

    Sec.  __.28--1: Are innovative lending practices, innovative or 
complex qualified investments, and innovative community development 
services required for a ``satisfactory'' or ``outstanding'' CRA rating?
    A1. No. The performance criterion of ``innovativeness'' applies 
only under the lending, investment, and service tests applicable to 
large institutions and the community development test applicable to 
wholesale and limited purpose institutions. Moreover, even under these 
tests, the lack of innovative lending practices, innovative or complex 
qualified investments, or innovative community development services 
alone will not result in a ``needs to improve'' CRA rating. However, 
under these tests, the use of innovative lending practices, innovative 
or complex qualified investments, and innovative community development 
services may augment the consideration given to an institution's 
performance under the quantitative criteria of the regulations, 
resulting in a higher performance rating. See also Q&A Sec.  
__.26(c)(4)-1 for a discussion about responsiveness to community 
development needs under the community development test applicable to 
intermediate small institutions.

Sec.  __.28(a) Ratings in General

    Sec.  __.28(a)--1: How are institutions with domestic branches in 
more than one state assigned a rating?
    A1. The evaluation of an institution that maintains domestic 
branches in more than one state (``multistate institution'') will 
include a written evaluation and rating of its CRA record of 
performance as a whole and in each state in which it has a domestic 
branch. The written evaluation will contain a separate presentation on 
a multistate institution's performance for each MSA and the 
nonmetropolitan area within each state, if it maintains one or more 
domestic branch offices in these areas. This separate presentation will 
contain conclusions, supported by facts and data, on performance under 
the performance tests and standards in the regulation. The evaluation 
of a multistate institution that maintains a domestic branch in two or 
more states in a multistate metropolitan area will include a written 
evaluation (containing the same information described above) and rating 
of its CRA record of performance in the multistate metropolitan area. 
In such cases, the statewide evaluation and rating will be adjusted to 
reflect performance in the portion of the state not within the 
multistate MSA.
    Sec.  __.28(a)--2: How are institutions that operate within only a 
single state assigned a rating?
    A2. An institution that operates within only a single state 
(``single-state institution'') will be assigned a rating of its CRA 
record based on its performance within that state. In assigning this 
rating, the Agencies will separately present a single-state 
institution's performance for each metropolitan area in which the 
institution maintains one or more domestic branch offices. This 
separate presentation will contain conclusions, supported by facts and 
data, on the single-state institution's performance under the 
performance tests and standards in the regulation.
    Sec.  __.28(a)--3: How do the Agencies weight performance under the 
lending, investment, and service tests for large retail institutions?
    A3. A rating of ``outstanding,'' ``high satisfactory,'' ``low 
satisfactory,'' ``needs to improve,'' or ``substantial noncompliance,'' 
based on a judgment supported by facts and data, will be assigned under 
each performance test. Points will then be assigned to each rating as 
described in the first matrix set forth below. A large retail 
institution's overall rating under the lending, investment and service 
tests will then be calculated in accordance with the second matrix set 
forth below, which incorporates the rating principles in the 
regulation.

                   Points Assigned for Performance Under Lending, Investment and Service Tests
----------------------------------------------------------------------------------------------------------------
                                                                      Lending         Service       Investment
----------------------------------------------------------------------------------------------------------------
Outstanding.....................................................              12               6               6
High Satisfactory...............................................               9               4               4
Low Satisfactory................................................               6               3               3
Needs to Improve................................................               3               1               1
Substantial Noncompliance.......................................               0               0               0
----------------------------------------------------------------------------------------------------------------


[[Page 48548]]


                   Composite Rating Point Requirements
                      [Add points from three tests]
------------------------------------------------------------------------
                 Rating                            Total points
------------------------------------------------------------------------
Outstanding.............................  20 or over.
Satisfactory............................  11 through 19.
Needs to Improve........................  5 through 10.
Substantial Noncompliance...............  0 through 4.
------------------------------------------------------------------------
Note: There is one exception to the Composite Rating matrix. An
  institution may not receive a rating of ``satisfactory'' unless it
  receives at least ``low satisfactory'' on the lending test. Therefore,
  the total points are capped at three times the lending test score.

Sec.  __.28(b) Lending, Investment, and Service Test Ratings

    Sec.  __.28(b)--1: How is performance under the quantitative and 
qualitative performance criteria weighed when examiners assign a CRA 
rating?
    A1. The lending, investment, and service tests each contain a 
number of performance criteria designed to measure whether an 
institution is effectively helping to meet the credit needs of its 
entire community, including low- and moderate-income neighborhoods, in 
a safe and sound manner. Some of these performance criteria are 
quantitative, such as number and amount, and others, such as the use of 
innovative or flexible lending practices, the innovativeness or 
complexity of qualified investments, and the innovativeness and 
responsiveness of community development services, are qualitative. The 
performance criteria that deal with these qualitative aspects of 
performance recognize that these loans, qualified investments, and 
community development services sometimes require special expertise and 
effort on the part of the institution and provide a benefit to the 
community that would not otherwise be possible. As such, the Agencies 
consider the qualitative aspects of an institution's activities when 
measuring the benefits received by a community. An institution's 
performance under these qualitative criteria may augment the 
consideration given to an institution's performance under the 
quantitative criteria of the regulations, resulting in a higher level 
of performance and rating.

Sec.  __.28(c) Effect of Evidence of Discriminatory or Other Illegal 
Credit Practices

    Sec.  __.28(c)--1: What is meant by ``discriminatory or other 
illegal credit practices''?
    A1. An institution engages in discriminatory credit practices if it 
discourages or discriminates against credit applicants or borrowers on 
a prohibited basis, in violation, for example, of the Fair Housing Act 
or the Equal Credit Opportunity Act (as implemented by Regulation B). 
Examples of other illegal credit practices inconsistent with helping to 
meet community credit needs include violations of
     the Truth in Lending Act regarding rescission 
of certain mortgage transactions and regarding disclosures and certain 
loan term restrictions in connection with credit transactions that are 
subject to the Home Ownership and Equity Protection Act;
     the Real Estate Settlement Procedures Act 
regarding the giving and accepting of referral fees, unearned fees, or 
kickbacks in connection with certain mortgage transactions; and
     the Federal Trade Commission Act regarding 
unfair or deceptive acts or practices. Examiners will determine the 
effect of evidence of illegal credit practices as set forth in 
examination procedures and Sec.  __.28(c) of the regulation.
    Violations of other provisions of the consumer protection laws 
generally will not adversely affect an institution's CRA rating, but 
may warrant the inclusion of comments in an institution's performance 
evaluation. These comments may address the institution's policies, 
procedures, training programs, and internal assessment efforts.

Sec.  __.29--Effect of CRA Performance on Applications

Sec.  __.29(a) CRA Performance

    Sec.  __.29(a)--1: What weight is given to an institution's CRA 
performance examination in reviewing an application?
    A1. In reviewing applications in which CRA performance is a 
relevant factor, information from a CRA examination of the institution 
is a particularly important consideration. The examination is a 
detailed evaluation of the institution's CRA performance by its 
supervisory Agency. In this light, an examination is an important, and 
often controlling, factor in the consideration of an institution's 
record. In some cases, however, the examination may not be recent, or a 
specific issue raised in the application process, such as progress in 
addressing weaknesses noted by examiners, progress in implementing 
commitments previously made to the reviewing Agency, or a supported 
allegation from a commenter, is relevant to CRA performance under the 
regulation and was not addressed in the examination. In these 
circumstances, the applicant should present sufficient information to 
supplement its record of performance and to respond to the substantive 
issues raised in the application proceeding.
    Sec.  __.29(a)--2: What consideration is given to an institution's 
commitments for future action in reviewing an application by those 
Agencies that consider such commitments?
    A2. Commitments for future action are not viewed as part of the CRA 
record of performance. In general, institutions cannot use commitments 
made in the applications process to overcome a seriously deficient 
record of CRA performance. However, commitments for improvements in an 
institution's performance may be appropriate to address specific 
weaknesses in an otherwise satisfactory record or to address CRA 
performance when a financially troubled institution is being acquired.

Sec.  __.29(b) Interested Parties

    Sec.  __.29(b)--1: What consideration is given to comments from 
interested parties in reviewing an application?
    A1. Materials relating to CRA performance received during the 
application process can provide valuable information. Written comments, 
which may express either support for or opposition to the application, 
are made a part of the record in accordance with the Agencies' 
procedures, and are carefully considered in making the Agencies' 
decisions. Comments should be supported by facts about the applicant's 
performance and should be as specific as possible in explaining the 
basis for supporting or opposing the application. These comments must 
be submitted within the time limits provided under the Agencies' 
procedures.
    Sec.  __.29(b)--2: Is an institution required to enter into 
agreements with private parties?
    A2. No. Although communications between an institution and members 
of its community may provide a valuable method for the institution to 
assess how best to address the credit needs of the community, the CRA 
does not require an institution to enter into agreements with private 
parties. The Agencies do not monitor compliance with nor enforce these 
agreements.

Sec.  __.41--Assessment Area Delineation

Sec.  __.41(a) In General

    Sec.  __.41(a)--1: How do the Agencies evaluate ``assessment 
areas'' under the CRA regulations?
    A1. The rule focuses on the distribution and level of an 
institution's lending, investments, and services

[[Page 48549]]

rather than on how and why an institution delineated its assessment 
area(s) in a particular manner. Therefore, the Agencies will not 
evaluate an institution's delineation of its assessment area(s) as a 
separate performance criterion. Rather, the Agencies will only review 
whether the assessment area(s) delineated by the institution complies 
with the limitations set forth in the regulations at 12 CFR __.41(e).
    Sec.  __.41(a)--2: If an institution elects to have the Agencies 
consider affiliate lending, will this decision affect the institution's 
assessment area(s)?
    A2. If an institution elects to have the lending activities of its 
affiliates considered in the evaluation of the institution's lending, 
the geographies in which the affiliate lends do not affect the 
institution's delineation of assessment area(s).
    Sec.  __.41(a)--3: Can a financial institution identify a specific 
racial or ethnic group rather than a geographic area as its assessment 
area?
    A3. No, assessment areas must be based on geography. The only 
exception to the requirement to delineate an assessment area based on 
geography is that an institution, the business of which predominantly 
consists of serving the needs of military personnel or their dependents 
who are not located within a defined geographic area, may delineate its 
entire deposit customer base as its assessment area.

Sec.  __.41(c) Geographic Area(s) for Institutions Other Than Wholesale 
or Limited Purpose Institutions

Sec.  __.41(c)(1) Generally Consist of One or More MSAs or Metropolitan 
Divisions or One or More Contiguous Political Subdivisions
    Sec.  __.41(c)(1)--1: Besides cities, towns, and counties, what 
other units of local government are political subdivisions for CRA 
purposes?
    A1. Townships and Indian reservations are political subdivisions 
for CRA purposes. Institutions should be aware that the boundaries of 
townships and Indian reservations may not be consistent with the 
boundaries of the census tracts (i.e., geographies) in the area. In 
these cases, institutions must ensure that their assessment area(s) 
consists only of whole geographies by adding any portions of the 
geographies that lie outside the political subdivision to the 
delineated assessment area(s).
    Sec.  __.41(c)(1)--2: Are wards, school districts, voting 
districts, and water districts political subdivisions for CRA purposes?
    A2. No. However, an institution that determines that it 
predominantly serves an area that is smaller than a city, town, or 
other political subdivision may delineate as its assessment area the 
larger political subdivision and then, in accordance with 12 CFR 
__.41(d), adjust the boundaries of the assessment area to include only 
the portion of the political subdivision that it reasonably can be 
expected to serve. The smaller area that the institution delineates 
must consist of entire geographies, may not reflect illegal 
discrimination, and may not arbitrarily exclude low- or moderate-income 
geographies.

Sec.  __.41(d) Adjustments to Geographic Area(s)

    Sec.  __.41(d)--1: When may an institution adjust the boundaries of 
an assessment area to include only a portion of a political 
subdivision?
    A1. Institutions must include whole geographies (i.e., census 
tracts) in their assessment areas and generally should include entire 
political subdivisions. Because census tracts are the common geographic 
areas used consistently nationwide for data collection, the Agencies 
require that assessment areas be made up of whole geographies. If 
including an entire political subdivision would create an area that is 
larger than the area the institution can reasonably be expected to 
serve, an institution may, but is not required to, adjust the 
boundaries of its assessment area to include only portions of the 
political subdivision. For example, this adjustment is appropriate if 
the assessment area would otherwise be extremely large, of unusual 
configuration, or divided by significant geographic barriers (such as a 
river, mountain, or major highway system). When adjusting the 
boundaries of their assessment areas, institutions must not arbitrarily 
exclude low- or moderate-income geographies or set boundaries that 
reflect illegal discrimination.

Sec.  __.41(e) Limitations on Delineation of an Assessment Area

Sec.  __.41(e)(3) May Not Arbitrarily Exclude Low- or Moderate-Income 
Geographies
    Sec.  __.41(e)(3)--1: How will examiners determine whether an 
institution has arbitrarily excluded low- or moderate-income 
geographies?
    A1. Examiners will make this determination on a case-by-case basis 
after considering the facts relevant to the institution's assessment 
area delineation. Information that examiners will consider may include
     income levels in the institution's assessment area(s) and 
surrounding geographies;
     locations of branches and deposit-taking ATMs;
     loan distribution in the institution's assessment area(s) 
and surrounding geographies;
     the institution's size;
     the institution's financial condition; and
     the business strategy, corporate structure, and product 
offerings of the institution.
Sec.  __.41(e)(4) May Not Extend Substantially Beyond an MSA Boundary 
or Beyond a State Boundary Unless Located in a Multistate MSA
    Sec.  __.41(e)(4)--1: What are the maximum limits on the size of an 
assessment area?
    A1. An institution may not delineate an assessment area extending 
substantially across the boundaries of an MSA unless the MSA is in a 
combined statistical area (CSA)). Although more than one MSA in a CSA 
may be delineated as a single assessment area, an institution's CRA 
performance in individual MSAs in those assessment areas will be 
evaluated using separate median family incomes and other relevant 
information at the MSA level rather than at the CSA level.
    An assessment area also may not extend substantially across state 
boundaries unless the assessment area is located in a multistate MSA. 
An institution may not delineate a whole state as its assessment area 
unless the entire state is contained within an MSA. These limitations 
apply to wholesale and limited purpose institutions as well as other 
institutions.
    An institution must delineate separate assessment areas for the 
areas inside and outside an MSA if the area served by the institution's 
branches outside the MSA extends substantially beyond the MSA boundary. 
Similarly, the institution must delineate separate assessment areas for 
the areas inside and outside of a state if the institution's branches 
extend substantially beyond the boundary of one state (unless the 
assessment area is located in a multistate MSA). In addition, the 
institution should also delineate separate assessment areas if it has 
branches in areas within the same state that are widely separate and 
not at all contiguous. For example, an institution that has its main 
office in New York City and a branch in Buffalo, New York, and each 
office serves only the immediate areas around it, should delineate two 
separate assessment areas.

[[Page 48550]]

    Sec.  __.41(e)(4)--2: May an institution delineate one assessment 
area that consists of an MSA and two large counties that abut the MSA 
but are not adjacent to each other?
    A2. As a general rule, an institution's assessment area should not 
extend substantially beyond the boundary of an MSA. Therefore, the MSA 
would be a separate assessment area, and because the two abutting 
counties are not adjacent to each other and, in this example, extend 
substantially beyond the boundary of the MSA, the institution would 
delineate each county as a separate assessment area, assuming branches 
or deposit-taking ATMs are located in each county and the MSA. So, in 
this example, there would be three assessment areas. However, if the 
MSA and the two counties were in the same CSA, then the institution 
could delineate only one assessment area including them all. But, the 
institution's CRA performance in the MSAs and the non-MSA counties in 
that assessment area would be evaluated using separate median family 
incomes and other relevant information at the MSA and state, non-MSA 
level, rather than at the CSA level.

Sec.  __.42--Data Collection, Reporting, and Disclosure

    Sec.  __.42--1: When must an institution collect and report data 
under the CRA regulations?
    A1. All institutions except small institutions are subject to data 
collection and reporting requirements. (``Small institution'' is 
defined in the Agencies' CRA regulations at 12 CFR __.12(u).) Examples 
describing the data collection requirements of institutions, in 
particular those that have just surpassed the asset-size threshold of a 
small institution, may be found on the FFIEC Web site at http://www.ffiec.gov/cra. All institutions that are subject to the data 
collection and reporting requirements must report the data for a 
calendar year (CY) by March 1 of the subsequent year. For example, data 
for CY 2015 would be reported by March 1, 2016.
    The Board of Governors of the Federal Reserve System processes the 
reports for all of the primary regulators. Data may be submitted on 
diskette, CD-ROM, or via Internet email.
    CRA respondents are encouraged to use the free FFIEC Data Entry 
Software to send their CRA data. ``Submission via Web'' is the 
preferred option. CRA respondents may also send a properly encrypted 
CRA file (using the ``Export to Federal Reserve Board via Internet 
email'' option) to [email protected].
    Please mail diskette or CD-ROM submissions to: Federal Reserve 
Board, Attention: CRA Processing, 20th & Constitution Avenue NW., MS 
N402, Washington, DC 20551-0001.
    For questions about submitting or resubmitting CRA data, please 
contact the FFIEC at [email protected].
    Sec.  __.42--2: Should an institution develop its own program for 
data collection, or will the regulators require a certain format?
    A2. An institution may use the free software that is provided by 
the FFIEC to reporting institutions for data collection and reporting 
or develop its own program. Those institutions that develop their own 
programs may create a data submission using the File Specifications and 
Edit Validation Rules that have been set forth to assist with 
electronic data submissions. For information about specific electronic 
formatting procedures, contact [email protected].
    Sec.  __.42--3: How should an institution report data on lines of 
credit?
    A3. Institutions must collect and report data on lines of credit in 
the same way that they provide data on loan originations. Lines of 
credit are considered originated at the time the line is approved or 
increased; and an increase is considered a new origination. Generally, 
the full amount of the credit line is the amount that is considered 
originated. In the case of an increase to an existing line, the amount 
of the increase is the amount that is considered originated and that 
amount should be reported. However, consistent with the Call Report 
instructions, institutions would not report an increase to a small 
business or small farm line of credit if the increase would cause the 
total line of credit to exceed $1 million, in the case of a small 
business line, or $500,000, in the case of a small farm line. Of 
course, institutions may provide information about such line increases 
to examiners as ``other loan data.''
    Sec.  __.42--4: Should renewals of lines of credit be collected 
and/or reported?
    A4. Renewals of lines of credit for small business, small farm, 
consumer, or community development purposes should be collected and 
reported, if applicable, in the same manner as renewals of small 
business or small farm loans. See Q&A Sec.  __.42(a)-5. Institutions 
that are HMDA reporters continue to collect and report home equity 
lines of credit at their option in accordance with the requirements of 
12 CFR part 1003.
    Sec.  __.42--5: When should merging institutions collect data?
    A5. Three scenarios of data collection responsibilities for the 
calendar year of a merger and subsequent data reporting 
responsibilities are described below.
     Two institutions are exempt from CRA collection and 
reporting requirements because of asset size. The institutions merge. 
No data collection is required for the year in which the merger takes 
place, regardless of the resulting asset size. Data collection would 
begin after two consecutive years in which the combined institution had 
year-end assets at least equal to the small institution asset-size 
threshold amount described in 12 CFR __.12(u)(1).
     Institution A, an institution required to collect and 
report the data, and Institution B, an exempt institution, merge. 
Institution A is the surviving institution. For the year of the merger, 
data collection is required for Institution A's transactions. Data 
collection is optional for the transactions of the previously exempt 
institution. For the following year, all transactions of the surviving 
institution must be collected and reported.
     Two institutions that each are required to collect and 
report the data merge. Data collection is required for the entire year 
of the merger and for subsequent years so long as the surviving 
institution is not exempt. The surviving institution may file either a 
consolidated submission or separate submissions for the year of the 
merger but must file a consolidated report for subsequent years.
    Sec.  __.42--6: Can small institutions get a copy of the data 
collection software even though they are not required to collect or 
report data?
    A6. Yes. Any institution that is interested in receiving a copy of 
the software may download it from the FFIEC Web site at http://www.ffiec.gov/cra. For assistance, institutions may send an email to 
[email protected].
    Sec.  __.42--7: If a small institution is designated a wholesale or 
limited purpose institution, must it collect data that it would not 
otherwise be required to collect because it is a small institution?
    A7. No. However, small institutions that are designated as 
wholesale or limited purpose institutions must be prepared to identify 
those loans, investments, and services to be evaluated under the 
community development test.

Sec.  __.42(a) Loan Information Required To be Collected and Maintained

    Sec.  __.42(a)--1: Must institutions collect and report data on all 
commercial loans of $1 million or less at origination?

[[Page 48551]]

    A1. No. Institutions that are not exempt from data collection and 
reporting are required to collect and report only those commercial 
loans that they capture in Call Report Schedule RC-C, Part II. Small 
business loans are defined as those whose original amounts are $1 
million or less and that were reported as either ``Loans secured by 
nonfarm or nonresidential real estate'' or ``Commercial and industrial 
loans'' in Call Report Schedule RC-C, Part I.
    Sec.  __.42(a)--2: For loans defined as small business loans, what 
information should be collected and maintained?
    A2. Institutions that are not exempt from data collection and 
reporting are required to collect and maintain, in a standardized, 
machine-readable format, information on each small business loan 
originated or purchased for each calendar year:
     A unique number or alpha-numeric symbol that can be used 
to identify the relevant loan file.
     The loan amount at origination.
     The loan location.
     An indicator whether the loan was to a business with gross 
annual revenues of $1 million or less.
    The location of the loan must be maintained by census tract. In 
addition, supplemental information contained in the file specifications 
includes a date associated with the origination or purchase and whether 
a loan was originated or purchased by an affiliate. The same 
requirements apply to small farm loans.
    Sec.  __.42(a)--3: Will farm loans need to be segregated from 
business loans?
    A3. Yes.
    Sec.  __.42(a)--4: Should institutions collect and report data on 
all agricultural loans of $500,000 or less at origination?
    A4. Institutions are to report those farm loans that they capture 
in Call Report Schedule RC-C, Part II. Small farm loans are defined as 
those whose original amounts are $500,000 or less and were reported as 
either ``Loans to finance agricultural production and other loans to 
farmers'' or ``Loans secured by farmland'' in Call Report Schedule RC-
C, Part I.
    Sec.  __.42(a)--5: Should institutions collect and report data 
about small business and small farm loans that are refinanced or 
renewed?
    A5. An institution should collect information about small business 
and small farm loans that it refinances or renews as loan originations. 
(A refinancing generally occurs when the existing loan obligation or 
note is satisfied and a new note is written, while a renewal refers to 
an extension of the term of a loan. However, for purposes of small 
business and small farm CRA data collection and reporting, it is not 
necessary to distinguish between the two.) When reporting small 
business and small farm data, however, an institution may only report 
one origination (including a renewal or refinancing treated as an 
origination) per loan per year, unless an increase in the loan amount 
is granted. However, a demand loan that is merely reviewed annually is 
not reported as a renewal because the term of the loan has not been 
extended.
    If an institution increases the amount of a small business or small 
farm loan when it extends the term of the loan, it should always report 
the amount of the increase as a small business or small farm loan 
origination. The institution should report only the amount of the 
increase if the original or remaining amount of the loan has already 
been reported one time that year. For example, a financial institution 
makes a term loan for $25,000; principal payments have resulted in a 
present outstanding balance of $15,000. In the next year, the customer 
requests an additional $5,000, which is approved, and a new note is 
written for $20,000. In this example, the institution should report 
both the $5,000 increase and the renewal or refinancing of the $15,000 
as originations for that year. These two originations may be reported 
together as a single origination of $20,000.
    Sec.  __.42(a)--6: Does a loan to the ``fishing industry'' come 
under the definition of a small farm loan?
    A6. Yes. Instructions for Call Report Schedule RC--C, Part I 
include loans ``made for the purpose of financing fisheries and 
forestries, including loans to commercial fishermen'' as a component of 
the definition for ``Loans to finance agricultural production and other 
loans to farmers.'' Call Report Schedule RC-C, Part II, which serves as 
the basis of the definition for small business and small farm loans in 
the regulation, captures both ``Loans to finance agricultural 
production and other loans to farmers'' and ``Loans secured by 
farmland.''
    Sec.  __.42(a)--7: How should an institution report a home equity 
line of credit, part of which is for home improvement purposes and part 
of which is for small business purposes?
    A7. When an institution originates a home equity line of credit 
that is for both home improvement and small business purposes, the 
institution has the option of reporting the portion of the home equity 
line that is for home improvement purposes as a home improvement loan 
under HMDA. Examiners would consider that portion of the line when they 
evaluate the institution's home mortgage lending. When an institution 
refinances a home equity line of credit into another home equity line 
of credit, HMDA reporting continues to be optional. If the institution 
opts to report the refinanced line, the entire amount of the line would 
be reported as a refinancing and examiners will consider the entire 
refinanced line when they evaluate the institution's home mortgage 
lending.
    If an institution that has originated a home equity line of credit 
for both home improvement and small business purposes (or if an 
institution that has refinanced such a line into another line) chooses 
not to report a home improvement loan (or a refinancing) under HMDA, 
and if the line meets the regulatory definition of a ``community 
development loan,'' the institution should collect and report 
information on the entire line as a community development loan. If the 
line does not qualify as a community development loan, the institution 
has the option of collecting and maintaining (but not reporting) the 
entire line of credit as ``Other Secured Lines/Loans for Purposes of 
Small Business.''
    Sec.  __.42(a)--8: When collecting small business and small farm 
data for CRA purposes, may an institution collect and report 
information about loans to small businesses and small farms located 
outside the United States?
    A8. At an institution's option, it may collect data about small 
business and small farm loans located outside the United States; 
however, it cannot report this data because the CRA data collection 
software will not accept data concerning loan locations outside the 
United States.
    Sec.  __.42(a)--9: Is an institution that has no small farm or 
small business loans required to report under CRA?
    A9. Each institution subject to data reporting requirements must, 
at a minimum, submit a transmittal sheet, definition of its assessment 
area(s), and a record of its community development loans. If the 
institution does not have community development loans to report, the 
record should be sent with ``0'' in the community development loan 
composite data fields. An institution that has not purchased or 
originated any small business or small farm loans during the reporting 
period would not submit the composite loan records for small business 
or small farm loans.
    Sec.  __.42(a)--10: How should an institution collect and report 
the location of a loan made to a small business or farm if the borrower

[[Page 48552]]

provides an address that consists of a post office box number or a 
rural route and box number?
    A10. Prudent banking practices and Bank Secrecy Act regulations 
dictate that institutions know the location of their customers and loan 
collateral. Further, Bank Secrecy Act regulations specifically state 
that a post office box is not an acceptable address. Therefore, 
institutions typically will know the actual location of their borrowers 
or loan collateral beyond an address consisting only of a post office 
box.
    Many borrowers have street addresses in addition to rural route and 
box numbers. Institutions should ask their borrowers to provide the 
street address of the main business facility or farm or the location 
where the loan proceeds otherwise will be applied. Moreover, in many 
cases in which the borrower's address consists only of a rural route 
number, the institution knows the location (i.e., the census tract) of 
the borrower or loan collateral. Once the institution has this 
information available, it should assign the census tract to that 
location (geocode) and report that information as required under the 
regulation.
    However, if an institution cannot determine a rural borrower's 
street address, and does not know the census tract, the institution 
should report the borrower's state, county, MSA or metropolitan 
division, if applicable, and ``NA,'' for ``not available,'' in lieu of 
a census tract code.
Sec.  __.42(a)(2) Loan Amount at Origination
    Sec.  __.42(a)(2)--1: When an institution purchases a small 
business or small farm loan, in whole or in part, which amount should 
the institution collect and report--the original amount of the loan or 
the amount at purchase?
    A1. When collecting and reporting information on purchased small 
business and small farm loans, including loan participations, an 
institution collects and reports the amount of the loan at origination, 
not at the time of purchase. This is consistent with the Call Report's 
use of the ``original amount of the loan'' to determine whether a loan 
should be reported as a ``loan to a small business'' or a ``loan to a 
small farm'' and in which loan size category a loan should be reported. 
When assessing the volume of small business and small farm loan 
purchases for purposes of evaluating lending test performance under 
CRA, however, examiners will evaluate an institution's activity based 
on the amounts at purchase.
    Sec.  __.42(a)(2)--2: How should an institution collect data about 
multiple loan originations to the same business?
    A2. If an institution makes multiple originations to the same 
business, the loans should be collected and reported as separate 
originations rather than combined and reported as they are on the Call 
Report, which reflects loans outstanding, rather than originations. 
However, if institutions make multiple originations to the same 
business solely to inflate artificially the number or volume of loans 
evaluated for CRA lending performance, the Agencies may combine these 
loans for purposes of evaluation under the CRA.
    Sec.  __.42(a)(2)--3: How should an institution collect data 
pertaining to credit cards issued to small businesses?
    A3. If an institution agrees to issue credit cards to a business's 
employees, all of the credit card lines opened on a particular date for 
that single business should be reported as one small business loan 
origination rather than reporting each individual credit card line, 
assuming the criteria in the ``small business loan'' definition in the 
regulation are met. The credit card program's ``amount at origination'' 
is the sum of all of the employee/business credit cards' credit limits 
opened on a particular date. If subsequently issued credit cards 
increase the small business credit line, the added amount is reported 
as a new origination.
Sec.  __.42(a)(3) The Loan Location
    Sec.  __.42(a)(3)--1: Which location should an institution record 
if a small business loan's proceeds are used in a variety of locations?
    A1. The institution should record the loan location by either the 
location of the small business borrower's headquarters or the location 
where the greatest portion of the proceeds are applied, as indicated by 
the borrower.
Sec.  __.42(a)(4) Indicator of Gross Annual Revenue
    Sec.  __.42(a)(4)--1: When indicating whether a small business 
borrower had gross annual revenues of $1 million or less, upon what 
revenues should an institution rely?
    A1. Generally, an institution should rely on the revenues that it 
considered in making its credit decision. For example, in the case of 
affiliated businesses, such as a parent corporation and its subsidiary, 
if the institution considered the revenues of the entity's parent or a 
subsidiary corporation of the parent as well, then the institution 
would aggregate the revenues of both corporations to determine whether 
the revenues are $1 million or less. Alternatively, if the institution 
considered the revenues of only the entity to which the loan is 
actually extended, the institution should rely solely upon whether 
gross annual revenues are above or below $1 million for that entity. 
However, if the institution considered and relied on revenues or income 
of a cosigner or guarantor that is not an affiliate of the borrower, 
such as a sole proprietor, the institution should not adjust the 
borrower's revenues for reporting purposes.
    Sec.  __.42(a)(4)--2: If an institution that is not exempt from 
data collection and reporting does not request or consider revenue 
information to make the credit decision regarding a small business or 
small farm loan, must the institution collect revenue information in 
connection with that loan?
    A2. No. In those instances, the institution should enter the code 
indicating ``revenues not known'' on the individual loan portion of the 
data collection software or on an internally developed system. Loans 
for which the institution did not collect revenue information may not 
be included in the loans to businesses and farms with gross annual 
revenues of $1 million or less when reporting this data.
    Sec.  __.42(a)(4)--3: What gross revenue should an institution use 
in determining the gross annual revenue of a start-up business?
    A3. The institution should use the actual gross annual revenue to 
date (including $0 if the new business has had no revenue to date). 
Although a start-up business will provide the institution with pro 
forma projected revenue figures, these figures may not accurately 
reflect actual gross revenue and, therefore, should not be used.
    Sec.  __.42(a)(4)--4: When indicating the gross annual revenue of 
small business or small farm borrowers, do institutions rely on the 
gross annual revenue or the adjusted gross annual revenue of their 
borrowers?
    A4. Institutions rely on the gross annual revenue, rather than the 
adjusted gross annual revenue, of their small business or small farm 
borrowers when indicating the revenue of small business or small farm 
borrowers. The purpose of this data collection is to enable examiners 
and the public to judge whether the institution is lending to small 
businesses and small farms or whether it is only making small loans to 
larger businesses and farms.
    The regulation does not require institutions to request or consider 
revenue information when making a loan; however, if institutions do 
gather this information from their borrowers,

[[Page 48553]]

the Agencies expect them to collect and rely upon the borrowers' gross 
annual revenue for purposes of CRA. The CRA regulations similarly do 
not require institutions to verify revenue amounts; thus, institutions 
may rely on the gross annual revenue amount provided by borrowers in 
the ordinary course of business. If an institution does not collect 
gross annual revenue information for its small business and small farm 
borrowers, the institution should enter the code ``revenues not 
known.'' See Q&A Sec.  __.42(a)(4)-2.

Sec.  __.42(b) Loan Information Required To Be Reported

Sec.  __.42(b)(1) Small Business and Small Farm Loan Data
    Sec.  __.42(b)(1)--1: For small business and small farm loan 
information that is collected and maintained, what data should be 
reported?
    A1. Each institution that is not exempt from data collection and 
reporting is required to report in machine-readable form annually by 
March 1 the following information, aggregated for each census tract in 
which the institution originated or purchased at least one small 
business or small farm loan during the prior year:
     The number and amount of loans originated or purchased 
with original amounts of $100,000 or less.
     The number and amount of loans originated or purchased 
with original amounts of more than $100,000 but less than or equal to 
$250,000.
     The number and amount of loans originated or purchased 
with original amounts of more than $250,000 but not more than $1 
million, as to small business loans, or $500,000, as to small farm 
loans.
     To the extent that information is available, the number 
and amount of loans to businesses and farms with gross annual revenues 
of $1 million or less (using the revenues the institution considered in 
making its credit decision).
Sec.  __.42(b)(2) Community Development Loan Data
    Sec.  __.42(b)(2)--1: What information about community development 
loans must institutions report?
    A1. Institutions subject to data reporting requirements must report 
the aggregate number and amount of community development loans 
originated and purchased during the prior calendar year.
    Sec.  __.42(b)(2)--2: If a loan meets the definition of a home 
mortgage, small business, or small farm loan AND qualifies as a 
community development loan, where should it be reported? Can Federal 
Housing Administration, Veterans Affairs, and Small Business 
Administration loans be reported as community development loans?
    A2. Except for multifamily affordable housing loans, which may be 
reported by retail institutions both under HMDA as home mortgage loans 
and as community development loans, in order to avoid double counting, 
retail institutions must report loans that meet the definition of 
``home mortgage loan,'' ``small business loan,'' or ``small farm loan'' 
only in those respective categories even if they also meet the 
definition of ``community development loan.'' As a practical matter, 
this is not a disadvantage for institutions evaluated under the 
lending, investment, and service tests because any affordable housing 
mortgage, small business, small farm, or consumer loan that would 
otherwise meet the definition of ``community development loan'' will be 
considered elsewhere in the lending test. Any of these types of loans 
that occur outside the institution's assessment area(s) can receive 
consideration under the borrower characteristic criteria of the lending 
test. See Q&A Sec.  __.22(b)(2) & (3)-4.
    Limited purpose and wholesale institutions that meet the size 
threshold for reporting purposes also must report loans that meet the 
definitions of home mortgage, small business, or small farm loans in 
those respective categories. However, these institutions must also 
report any loans from those categories that meet the regulatory 
definition of ``community development loan'' as community development 
loans. There is no double counting because wholesale and limited 
purpose institutions are not subject to the lending test and, 
therefore, are not evaluated on their level and distribution of home 
mortgage, small business, small farm, and consumer loans.
    Sec.  __.42(b)(2)--3: When the primary purpose of a loan is to 
finance an affordable housing project for low- or moderate-income 
individuals, but, for example, only 40 percent of the units in question 
will actually be occupied by individuals or families with low or 
moderate incomes, should the entire loan amount be reported as a 
community development loan?
    A3. It depends. As long as the primary purpose of the loan is a 
community development purpose as described in Q&A Sec.  __.12(h)-8, the 
full amount of the institution's loan should be included in its 
reporting of aggregate amounts of community development lending. Even 
though the entire amount of the loan is reported, as noted in Q&A Sec.  
__.22(b)(4)-1, examiners may make qualitative distinctions among 
community development loans on the basis of the extent to which the 
loan advances the community development purpose.
    In addition, if an institution that reports CRA data elects to 
request consideration for loans that provide mixed-income housing where 
only a portion of the loan has community development as its primary 
purpose, such as in connection with a development that has a mixed-
income housing component or an affordable housing set-aside required by 
Federal, state, or local government, the institution must report only 
the pro rata dollar amount of the portion of the loan that provides 
affordable housing to low- or moderate-income individuals. The pro rata 
dollar amount of the total activity will be based on the percentage of 
units that are affordable. See Q&A Sec.  __.12(h)-8 for a discussion of 
``primary purpose'' of community development describing the distinction 
between the types of loans that would be reported in full and those for 
which only the pro rata amount would be reported.
    Sec.  __.42(b)(2)--4: When an institution purchases a participation 
in a community development loan, which amount should the institution 
report--the entire amount of the credit originated by the lead lender 
or the amount of the participation purchased?
    A4. The institution reports only the amount of the participation 
purchased as a community development loan. However, the institution 
uses the entire amount of the credit originated by the lead lender to 
determine whether the original credit meets the definition of a ``loan 
to a small business,'' ``loan to a small farm,'' or ``community 
development loan.'' For example, if an institution purchases a $400,000 
participation in a business credit that has a community development 
purpose, and the entire amount of the credit originated by the lead 
lender is over $1 million, the institution would report $400,000 as a 
community development loan.
    Sec.  __.42(b)(2)--5: Should institutions collect and report data 
about community development loans that are refinanced or renewed?
    A5. Yes. Institutions should collect information about community 
development loans that they refinance or renew as loan originations. 
Community development loan refinancings and renewals are subject to the 
reporting limitations that apply to refinancings and renewals of small

[[Page 48554]]

business and small farm loans. See Q&A Sec.  __.42(a)-5.
Sec.  __.42(b)(3) Home Mortgage Loans
    Sec.  __.42(b)(3)--1: Must institutions that are not required to 
collect home mortgage loan data by the HMDA collect home mortgage loan 
data for purposes of the CRA?
    A1. No. If an institution is not required to collect home mortgage 
loan data by the HMDA, the institution need not collect home mortgage 
loan data under the CRA. Examiners will sample these loans to evaluate 
the institution's home mortgage lending. If an institution wants to 
ensure that examiners consider all of its home mortgage loans, the 
institution may collect and maintain data on these loans.

Sec.  __.42(c) Optional Data Collection and Maintenance

Sec.  __.42(c)(1) Consumer Loans
    Sec.  __.42(c)(1)--1: What are the data requirements regarding 
consumer loans?
    A1. There are no data reporting requirements for consumer loans. 
Institutions may, however, opt to collect and maintain data on consumer 
loans. If an institution chooses to collect information on consumer 
loans, it may collect data for one or more of the following categories 
of consumer loans: Motor vehicle, credit card, home equity, other 
secured, and other unsecured. If an institution collects data for loans 
in a certain category, it must collect data for all loans originated or 
purchased within that category. The institution must maintain these 
data separately for each category for which it chooses to collect data. 
The data collected and maintained should include for each loan
     a unique number or alpha-numeric symbol that can be used 
to identify the relevant loan file;
     the loan amount at origination or purchase;
     the loan location; and
     the gross annual income of the borrower that the 
institution considered in making its credit decision.
    Generally, guidance given with respect to data collection of small 
business and small farm loans, including, for example, guidance 
regarding collecting loan location data, and whether to collect data in 
connection with refinanced or renewed loans, will also apply to 
consumer loans.
Sec.  __.42(c)(1)(iv) Income of Borrower
    Sec.  __.42(c)(1)(iv)--1: If an institution does not consider 
income when making an underwriting decision in connection with a 
consumer loan, must it collect income information?
    A1. No. Further, if the institution routinely collects, but does 
not verify, a borrower's income when making a credit decision, it need 
not verify the income for purposes of data maintenance.
    Sec.  __.42(c)(1)(iv)--2: May an institution list ``0'' in the 
income field on consumer loans made to employees when collecting data 
for CRA purposes as the institution would be permitted to do under 
HMDA?
    A2. Yes.
    Sec.  __.42(c)(1)(iv)--3: When collecting the gross annual income 
of consumer borrowers, do institutions collect the gross annual income 
or the adjusted gross annual income of the borrowers?
    A3. Institutions collect the gross annual income, rather than the 
adjusted gross annual income, of consumer borrowers. The purpose of 
income data collection in connection with consumer loans is to enable 
examiners to determine the distribution, particularly in the 
institution's assessment area(s), of the institution's consumer loans, 
based on borrower characteristics, including the number and amount of 
consumer loans to low-, moderate-, middle-, and upper-income borrowers, 
as determined on the basis of gross annual income.
    The regulation does not require institutions to request or consider 
income information when making a loan; however, if institutions do 
gather this information from their borrowers, the Agencies expect them 
to collect the borrowers' gross annual income for purposes of CRA. The 
CRA regulations similarly do not require institutions to verify income 
amounts; thus, institutions may rely on the gross annual income amount 
provided by borrowers in the ordinary course of business.
    Sec.  __.42(c)(1)(iv)--4: Whose income does an institution collect 
when a consumer loan is made to more than one borrower?
    A4. An institution that chooses to collect and maintain information 
on consumer loans collects the gross annual income of all primary 
obligors for consumer loans, to the extent that the institution 
considered the income of the obligors when making the decision to 
extend credit. Primary obligors include co-applicants and co-borrowers, 
including co-signers. An institution does not, however, collect the 
income of guarantors on consumer loans, because guarantors are only 
secondarily liable for the debt.
Sec.  __.42(c)(2) Other Loan Data
    Sec.  __.42(c)(2)--1: Call Report Schedule RC-C, Part II does not 
allow institutions to report loans for commercial and industrial 
purposes that are secured by residential real estate, unless the 
security interest in the nonfarm residential real estate is taken only 
as an abundance of caution. (See Q&A Sec.  __.12(v)-3.) Loans extended 
to small businesses with gross annual revenues of $1 million or less 
may, however, be secured by residential real estate. May an institution 
collect this information to supplement its small business lending data 
at the time of examination?
    A1. Yes. If these loans promote community development, as defined 
in the regulation, the institution should collect and report 
information about the loans as community development loans. Otherwise, 
at the institution's option, it may collect and maintain data 
concerning loans, purchases, and lines of credit extended to small 
businesses and secured by nonfarm residential real estate for 
consideration in the CRA evaluation of its small business lending. An 
institution may collect this information as ``Other Secured Lines/Loans 
for Purposes of Small Business'' in the individual loan data. This 
information should be maintained at the institution but should not be 
submitted for central reporting purposes.
    Sec.  __.42(c)(2)--2: Must an institution collect data on loan 
commitments and letters of credit?
    A2. No. Institutions are not required to collect data on loan 
commitments and letters of credit. Institutions may, however, provide 
for examiner consideration information on letters of credit and 
commitments.
    Sec.  __.42(c)(2)--3: Are commercial and consumer leases considered 
loans for purposes of CRA data collection?
    A3. Commercial and consumer leases are not considered small 
business or small farm loans or consumer loans for purposes of the data 
collection requirements in 12 CFR __.42(a) & (c)(1). However, if an 
institution wishes to collect and maintain data about leases, the 
institution may provide this data to examiners as ``other loan data'' 
under 12 CFR __.42(c)(2) for consideration under the lending test.

Sec.  __.42(d) Data on Affiliate Lending

    Sec.  __.42(d)--1: If an institution elects to have an affiliate's 
home mortgage lending considered in its CRA evaluation, what data must 
the institution make available to examiners?
    A1. If the affiliate is a HMDA reporter, the institution must 
identify those loans reported by its affiliate under 12 CFR part 1003 
(Regulation C, implementing HMDA). At its option, the institution may 
provide examiners with either the affiliate's entire HMDA Disclosure

[[Page 48555]]

Statement or just those portions covering the loans in its assessment 
area(s) that it is electing to consider. If the affiliate is not 
required by HMDA to report home mortgage loans, the institution must 
provide sufficient data concerning the affiliate's home mortgage loans 
for the examiners to apply the performance tests.

Sec.  __.43--Content and Availability of Public File

Sec.  __.43(a) Information Available to the Public

Sec.  __.43(a)(1) Public Comments Related to an Institution's CRA 
Performance
    Sec.  __.43(a)(1)--1: What happens to comments received by the 
Agencies?
    A1. Comments received by an Agency will be on file at the Agency 
for use by examiners. Those comments are also available to the public 
unless they are exempt from disclosure under the Freedom of Information 
Act.
    Sec.  __.43(a)(1)--2: Is an institution required to respond to 
public comments?
    A2. No. All institutions should review comments and complaints 
carefully to determine whether any response or other action is 
warranted. A small institution subject to the small institution 
performance standards is specifically evaluated on its record of taking 
action, if warranted, in response to written complaints about its 
performance in helping to meet the credit needs in its assessment 
area(s). See 12 CFR __.26(b)(5). For all institutions, responding to 
comments may help to foster a dialogue with members of the community or 
to present relevant information to an institution's supervisory Agency. 
If an institution responds in writing to a letter in the public file, 
the response must also be placed in that file, unless the response 
reflects adversely on any person or placing it in the public file 
violates a law.
Sec.  __.43(a)(2) CRA Performance Evaluation
    Sec.  __.43(a)(2)--1: May an institution include a response to its 
CRA performance evaluation in its public file?
    A1. Yes. However, the format and content of the evaluation, as 
transmitted by the supervisory Agency, may not be altered or abridged 
in any manner. In addition, an institution that received a less than 
satisfactory rating during it most recent examination must include in 
its public file a description of its current efforts to improve its 
performance in helping to meet the credit needs of its entire 
community. See 12 CFR __.43(b)(5). The institution must update the 
description on a quarterly basis.

Sec.  __.43(b) Additional Information Available to the Public

Sec.  __.43(b)(1) Institutions Other Than Small Institutions
    Sec.  __.43(b)(1)--1: Must an institution that elects to have 
affiliate lending considered include data on this lending in its public 
file?
    A1. Yes. The lending data to be contained in an institution's 
public file covers the lending of the institution's affiliates, as well 
as of the institution itself, considered in the assessment of the 
institution's CRA performance. An institution that has elected to have 
mortgage loans of an affiliate considered must include either the 
affiliate's HMDA Disclosure Statements for the two prior years or the 
parts of the Disclosure Statements that relate to the institution's 
assessment area(s), at the institution's option.
    Sec.  __.43(b)(1)--2: May an institution retain its CRA disclosure 
statement in electronic format in its public file, rather than printing 
a hard copy of the CRA disclosure statement for retention in its public 
file?
    A2. Yes, if the institution can readily print out its CRA 
disclosure statement from an electronic medium (e.g., CD, DVD, or 
Internet Web site) when a consumer requests the public file. If the 
request is at a branch other than the main office or the one designated 
branch in each state that holds the complete public file, the 
institution should provide the CRA disclosure statement in a paper 
copy, or in another format acceptable to the requestor, within five 
calendar days, as required by 12 CFR __.43(c)(2)(ii).

Sec.  __.43(c) Location of Public Information

    Sec.  __.43(c)--1: What is an institution's ``main office'' ?
    A1. An institution's main office is the main, home, or principal 
office as designated in its charter.
    Sec.  __.43(c)--2: May an institution maintain a copy of its public 
file on an intranet or the Internet?
    A2. Yes, an institution may keep all or part of its public file on 
an intranet or the Internet, provided that the institution maintains 
all of the information, either in paper or electronic form, that is 
required in 12 CFR __.43. An institution that opts to keep part or all 
of its public file on an intranet or the Internet must follow the rules 
in 12 CFR __.43(c)(1) and (2) as to what information is required to be 
kept at a main office and at a branch. The institution also must ensure 
that the information required to be maintained at a main office and 
branch, if kept electronically, can be readily downloaded and printed 
for any member of the public who requests a hard copy of the 
information.

Sec.  __.44--Public Notice by Institutions

    Sec.  __.44--1: Are there any placement or size requirements for an 
institution's public notice?
    A1. The notice must be placed in the institution's public lobby, 
but the size and placement may vary. The notice should be placed in a 
location and be of a sufficient size that customers can easily see and 
read it.

Sec.  __.45--Publication of Planned Examination Schedule

    Sec.  __.45--1: Where will the Agencies publish the planned 
examination schedule for the upcoming calendar quarter?
    A1. The Agencies may use the Federal Register, a press release, the 
Internet, or other existing Agency publications for disseminating the 
list of the institutions scheduled for CRA examinations during the 
upcoming calendar quarter. Interested parties should contact the 
appropriate Federal financial supervisory Agency for information on how 
the Agency is publishing the planned examination schedule.
    Sec.  __.45--2: Is inclusion on the list of institutions that are 
scheduled to undergo CRA examinations in the next calendar quarter 
determinative of whether an institution will be examined in that 
quarter?
    A2. No. The Agencies attempt to determine as accurately as possible 
which institutions will be examined during the upcoming calendar 
quarter. However, whether an institution's name appears on the 
published list does not conclusively determine whether the institution 
will be examined during that quarter. The Agencies may need to defer a 
planned examination or conduct an unforeseen examination because of 
scheduling difficulties or other circumstances.

Appendix A to Part __--Ratings

    Appendix A to Part __--1: Must an institution's performance fit 
each aspect of a particular rating profile in order to receive that 
rating?
    A1. No. Exceptionally strong performance in some aspects of a 
particular rating profile may compensate for weak performance in 
others. For example, a retail institution other than an intermediate 
small institution that uses non-branch delivery systems to obtain 
deposits and to deliver loans may have

[[Page 48556]]

almost all of its loans outside the institution's assessment 
area(s). Assume that an examiner, after consideration of performance 
context and other applicable regulatory criteria, concludes that the 
institution has weak performance under the lending criteria 
applicable to lending activity, geographic distribution, and 
borrower characteristics within the assessment area(s). The 
institution may compensate for such weak performance by 
exceptionally strong performance in community development lending in 
its assessment area(s) or a broader statewide or regional area that 
includes its assessment area(s).

Appendix B to Part __--CRA Notice

    Appendix B to Part __--1: What agency information should be 
added to the CRA notice form?
    A1. The following information should be added to the form:
    OCC-supervised institutions only: For all national banks and 
Federal savings associations (collectively, banks), in connection 
with the nationwide list of banks that are scheduled for CRA 
evaluation in a particular quarter, you may insert the following Web 
site along with the postal mailing address of the deputy 
comptroller: http://www.occ.treas.gov. In addition, in connection 
with the invitation for comments on the bank's performance in 
helping to meet community credit needs, you may insert the following 
email address along with the postal mailing address of the deputy 
comptroller: [email protected].
    For community banks, insert in the appropriate blank the postal 
mailing address of the deputy comptroller of the district in which 
the institution is located. These addresses can be found at http://www.occ.gov. For banks supervised under the large bank program, 
insert in the appropriate blank the following postal mailing 
address: ``Large Bank Supervision, 400 7th Street SW., Washington, 
DC 20219-0001.'' For banks supervised under the midsize/credit card 
bank program, insert in the appropriate blank the following postal 
mailing address: ``Midsize and Credit Card Bank Supervision, 400 7th 
Street SW., Washington, DC 20219-0001.''
    OCC-, FDIC-, and Board-supervised institutions: ``Officer in 
Charge of Supervision'' is the title of the responsible official at 
the appropriate Federal Reserve Bank.
End of text of the Interagency Questions and Answers

    Dated: July 6, 2016.
Thomas J. Curry,
Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System, July 7, 2016.
Robert deV. Frierson,
Secretary of the Board.
    Dated at Washington, DC, this 6th day of July, 2016.

Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
[FR Doc. 2016-16693 Filed 7-22-16; 8:45 am]
BILLING CODE 4810-33-P 6210-01-P 6714-01-P