When the Community Reinvestment Act (CRA) was established in 1977, people did all their banking in person. Depositing a paycheck or following up on a payment meant going downtown and walking into a branch.
The CRA was enacted to make sure these brick-and-mortar banks are meeting the needs of the communities in which they operate, including those living in low-income neighborhoods. Its purpose includes deterring redlining, the practice of denying loans in certain neighborhoods based on income or race.
During the nearly 40-year history of the law, banking has dramatically changed. Today, 55% of Americans say mobile banking is a habitual part of their lifestyle, according to findings by Carlisle & Gallagher Consulting Group. More than 60% of smartphone and “phablet” users are depositing checks remotely. Phablets are a cross between a smartphone and a tablet.
Changes to the CRA have been far fewer and far less dramatic. Now, regulators are looking at changing, or at least clarifying, key components of the law.
“CRA is coming of age,” says Norman Bliss, senior vice president and director of community development in the corporate responsibility sector at KeyBank. “We’re not looking at CRA 2.0. We’re really looking at 3.0 at this point.”
In the last 24 months, there’s been a good deal of activity from the bank regulatory agencies. The Office of the Comptroller of the Currency, Federal Reserve, and the Federal Deposit Insurance Corp. have issued interagency question-and-answer notices that aim to provide clarity and updates on key issues, says Bliss, who began his career as a bank examiner.
With the Q-and-A, the regulatory agencies move a step closer to giving banks credit for “alternative delivery systems and understanding that consumer behavior has changed,” he says.
In other words, the regulators are acknowledging the growth of online banking and looking at how this new activity should factor into a bank’s CRA obligations and assessments.
“Just because there is more emphasis on alternative delivery channels, it doesn’t mean that branches are not important,” Bliss stresses. “”They are important for customer relationships. They are and will remain important.”
In order to meet their CRA requirements, banks have long focused their CRA-related investments based on where they physically take deposits. For big national banks, that’s meant much of their CRA activities, including the purchase of low-income housing tax credits (LIHTCs), have been in the big urban areas where they do business like New York City and San Francisco.
The federal agencies have proposed allowing community development activities in a broader area to be considered for CRA purposes. “As long as you (a bank) meet the needs of your primary assessment area, you will receive credit for activities beyond your assessment area,” Bliss says, noting that the proposals have yet to be finalized.
A LIHTC investor, KeyBank invests approximately $220 million in tax credits each year.
The proposed changes could have major implications for the LIHTC industry. For example, a LIHTC investor in New York City may also be able to invest in deals in upstate New York and still receive CRA credit for that activity.
This would benefit affordable housing developers in non-CRA areas by increasing investor interest.
Another proposed change would give banks CRA credit for their green initiatives, according to Bliss.
The regulators are hoping to provide clarity that if you have energy-efficiency, solar, or wind measures, and it’s tied to an affordable housing development or a community facility, that’s a CRA credit activity, he says.
Supporters of the longtime historic tax credit (HTC) are also hoping bank regulators will expand and clarify when HTC investments qualify under the CRA.
They are asking that HTC transactions be automatically CRA-eligible if they are in low- or moderate-income areas that are in designated economic development districts and have support from the local governmental agency.
More than 160 organizations have signed a letter supporting the proposal, says John Leith-Tetrault, president of the National Trust Community Investment Corp. (NTCIC), a subsidiary of the National Trust for Historic Preservation that provides equity and debt to real estate projects that help revitalize low- and moderate- income communities. Since 2000, NTCIC has placed more than $785 million in gross equity and debt to help finance 104 projects with total development costs of $2.6 billion.
Bankers and the community development industry are now waiting to see if and when the proposals become final.