Community Reinvestment Act (CRA)
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The Community Reinvestment Act (CRA) is not a specific program for brownfields projects in the sense that brownfields stakeholders can apply to take advantage of it. It is a set of policies that banks adhere to that can benefit brownfields redevelopment. Below is a brief description of the program and how it relates to brownfields redevelopment projects.
In 1977, Congress enacted the CRA to encourage federally-insured lending institutions to meet the credit needs of their communities, including low- and moderate-income neighborhoods. The CRA applies to federally insured depository institutions, national banks, savings associations and state-chartered commercial and savings banks. The federal agencies implementing the CRA regulations are the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board (FRB).
In 1995, the OCC released revised CRA regulations including new guidance for federal agencies to evaluate financial institutions’ records of serving their communities that focused on objective, performance-based assessment standards to minimize compliance burdens. The extent of the CRA evaluation is determined by the institution’s size and business strategy.
In 1999, the Financial Services Modernization Act further revised CRA regulations, wherein lending institutions must have satisfactory CRA ratings before the institution, or its holding company, affiliates or subsidiaries, can engage in any expanded financial activities. The revisions changed the frequency of the exam cycle for regulated financial institutions with assets of $250 million or less. The revisions also established the “sunshine” provision which requires public disclosure of agreements entered into by depository institutions and community organizations in fulfillment of CRA obligations.
Under the CRA, regulated financial institutions have continuing obligations to help meet the credit needs of the communities in which they are chartered. The CRA provides evaluation guidelines for the federal agencies to assess a lending institution’s record of meeting the credit needs of its community. Under the guidelines, lending institutions receive one of four CRA ratings: outstanding, satisfactory, needs to improve or substantial noncompliance. A rating of outstanding or satisfactory means that the lender has met its obligation to satisfy the credit needs of communities. A rating of needs to improve or substantial noncompliance reflects a failure on the part of the lending institution to meet the communities’ credit needs. Poor CRA ratings do not result in immediate sanctions but can interfere with an institution’s plans for service changes or merging with other financial institutions.
- Large lending institutions with assets greater than $250 million are evaluated approximately every two years using a lending, an investment and a service test.
- Small lending institutions with assets less than $250 million are evaluated using a streamlined test administered at variable intervals depending on current CRA ratings. The streamlined test does not include an investment or service test and is administered every four years for institutions with a satisfactory CRA rating and every five years for institutions with an outstanding CRA rating. The streamlined test focuses on lending performance with five criteria: loan to deposit ratio, majority of loans in assessment area, distribution of loans to borrowers, distribution of loans by geography and responsiveness to public comments.
- Wholesale institutions are those that do not provide home mortgage, small business or consumer loans to retail customers. Limited purpose institutions offer narrow product lines such as credit card or motor vehicle loans. Both of these types of institutions are evaluated based on community development lending, investments and services.
All institutions can submit a strategic plan for regulatory review as a substitute for the CRA evaluation. The strategic plan should outline a multi-year program of up to five years for satisfying a community’s credit needs and must include a high level of public participation. The strategic plan should satisfy the credit needs of a bank’s assessment area and address the lending, investment and service criteria that are a part of the usual evaluation. Federal regulators must approve the strategic plan with at least a satisfactory rating in order for the bank to forego the CRA evaluation process.
In 1997, EPA announced its original Brownfields Action Agenda in response to the widespread economic development obstacles posed by urban brownfields. The Agenda encouraged a cooperative approach among federal partners, lenders and prospective purchasers to ease fears of financial liability and regulatory burdens. The primary underlying concerns among financial institutions were lender liability and confusion about levels of contamination and the necessary cleanup (i.e. the difference between Superfund properties and brownfield properties.) Through this federal agreement, EPA has coordinated with the OCC to create incentives within the CRA regulations for economic revitalization and development. CRA regulations allow banks to meet their CRA obligations by making loans for the cleanup or redevelopment of brownfields as part of their community revitalization efforts.
Lenders subject to the CRA can claim credits for loans made to help finance the environmental cleanup or redevelopment of an industrial property when it is part of an effort to revitalize properties in low- and moderate-income communities. This can be advantageous for brownfields projects. For example, if a new low-income housing development is constructed instead of a commercial development project, it may not generate as much income in the community, but the housing may be more beneficial for increasing the quality of life of the citizens. A lender will take this aspect into consideration when making a loan and can fulfill CRA obligations for the bank at the same time.
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