Covid-19 Risk Management: Balancing CRA & Fair Lending

With the hourly updates for the number of sick, the calls for school and business closures, and prohibiting gatherings of more than 10 people, it’s clear that communities are struggling. There’s talk of stimulus payments and feeding those that are hungry and going without.  As financial professionals, we need to ask ourselves: What can we do? How can we help?

The answer to that has come from A Joint Statement on CRA Consideration issued on March 19, 2020. (FIL-19-2020). From now until six months after the national emergency is lifted, banks under $1 billion in assets will receive CRA consideration for community development activities.

The Federal Reserve Board, the FDIC, and the Office of the Comptroller of the Currency encourage financial institutions to work with affected customers and communities, particularly those that are low- and moderate-income. Pursuant to the Community Reinvestment Act (CRA), the agencies will provide favorable consideration of certain retail banking services, retail lending activities, and community development activities related to this national emergency.

Leveraging the basic principles of CRA the agencies have suggested:

• Waiving certain fees, such as:
  • Automated teller machine (ATM) fees for customers and non-customers,
  • Overdraft fees,
  • Late payment fees on credit cards and other loans, and
  • Early withdrawal penalties on time deposits;
• Easing restrictions on cashing out-of-state and non-customer checks;
• Expanding the availability of other short-term, unsecured credit products for credit worthy borrowers;
• Increasing credit card limits for creditworthy borrowers;
• Providing alternative service options to customers in light of limited ability to access branches; and
• Offering payment accommodations, such as allowing borrowers to defer or skip payments or extending the payment due date, which would avoid delinquencies and  negative credit bureau reporting, caused by COVID-19-related issues.

Additionally, banks that focus to activities for distressed or underserved non-metropolitan middle income geographies and that support community services targeted to LMI individuals such as:

• Loans, investments or services that support digital access for low- and moderate-income individuals or communities;
• Loans, investments, or services that support access to health care, particularly for low- and moderate-income individuals or communities;
• Economic development activities that sustain small business operations, particularly in low- and moderate-income communities; and
• Investment or service activities that support provision of food supplies and services for low- and moderate-income individuals or communities.

Learn how you can collect, test, analyze, and geocode the data required for CRA compliance by downloading information about Ncommunity!

How to Tell if a Loan Qualifies as a CRA Small Business Loan

The agencies emphasize that activities that have economic impact and may extend outside of an assessment area for the FI will receive favorable consideration in a broader statewide or regional area to help stabilize communities effected by COVID-19. 

Balancing CRA & Fair Lending Concerns

Now is the time to help small businesses and those in need weather this storm. But don’t let your efforts to do good derail your fair lending efforts.

Before taking action, take the time to consider the impact these strategies may have on your Fair Lending/Banking program. Creating or leveraging strong fair banking policies/procedures will be important to ensuring your bank is treating all similarly situated individuals the same.

Compliance's Bermuda Triangle: REMAs, Redlining, and CRA

Let’s say you waive an overdraft fee for your neighbor but charge that same fee to a single mother. That action will support your CRA efforts but may negatively impact your fair banking program. Tracking fee waivers and reasons for those will be important. 

Another example: Your bank creates an unsecured personal loan with no interest for six months, a required minimum amount and a $200 application fee. This may make sense in the moment but cause fair lending challenges down the line. Will you require the $200 to be paid at time of closing or worked into the loan? What is the interest going to be after 6 months? Will combining interest with the loan fee impact the customer’s ability to pay it back? 

As you seek ways to support your community, make sure your FI:

• Has a strategic plan that is written to make both the FI and the customer succeed
• Follows written policies, procedures and guidelines (especially when waiving fees, underwriting of new loans, or modifying existing loans)
• Tracking and monitoring all efforts for both CRA credit and Fair Lending/Banking analysis.

Failing to plan is a plan for failure. Use this time to strengthen your community development efforts through a strategy that is fair, compliant, measurable, and trackable. 

As always, Ncontracts is your risk and compliance management partner. We’re here to help.