The Community Reinvestment Act (CRA) has been around since the 70s, so most compliance professionals are pretty familiar with it. In this post, you'll get a quick-and-dirty overview of CRA exams, and a handful of prep best practice tips. Let's jump in.
CRA compliance is familiar for most lending institutions, but in this post, we'll cover a few things you may not know, and provide some tips for how to prep for a CRA exam. CRA, Redlining, and Fair Lending compliance are all closely entwined; best practice institutions will review their CRA compliance performance with an eye and an ear toward managing Fair Lending and Redlining compliance risk, too.
Want to learn how Ncontracts can help reduce your CRA compliance risk?
Let's start with a basic overview of what CRA is all about:
The Community Reinvestment Act (CRA) is a law intended to encourage depository institutions to help meet the credit needs of the communities in which they operate. CRA was designed to do two things:
CRA compliance is closely monitored by regulators and examiners. However, neither credit unions nor nonbank entities supervised by the Consumer Financial Protection Bureau have to comply with CRA.
Finally, CRA does not encourage the extension of unsafe or unsound credit. A financial institution's loan and deposit activity is expected to be safe, sound, and non-discriminatory.
In 1989, a CRA rating system was introduced, and the reasoning behind the rating system was explained. At this time, written evaluations became required: one for the institution, and one for the public. In 1995, the CRA regulations were revised again to put greater emphasis on the performance outcomes; different evaluation types were developed for different types of institutions. Public CRA ratings also became available online.
Today, the public CRA exam results are evaluated by community action groups, journalists, individual consumers, and of course, regulators. It will likely also be considered in any application for M&A activity.
Best Practice Tip: If you have a merger or acquisition planned for the future, take some time to evaluate all institutions' Fair Lending and CRA performance. As we've seen, issues with Fair Lending, CRA or Redlining can stall M&A activity.
Crucially, Fair Lending performance can and will impact your CRA performance rating. Evidence of potential discrimination according to Fair Lending regulations can lead to CRA rating downgrades.
There are four types of ratings that your institution will be assigned by your regulator (FDIC, FRB, or OCC):
These ratings will be made public. While Satisfactory and Outstanding ratings are the most common, lower ratings are not unheard of. We also anticipate that the heightened Redlining scrutiny in recent years may lead to increased CRA scrutiny now and in the future.
[Read Also: Tips to Prep for a CRA Compliance Exam]
There are 5 CRA evaluation types, which are designed to accommodate basic differences in institutions' structures and operations.
These unique evaluation methods are intended to establish performance-based CRA exams that are complete, accurate, and minimally burdensome to financial institutions. Here are the 5 evaluation types:
We will focus on the performance criteria of the first three types of CRA exams.
Best Practice Tip: It's worth noting that each of these three types of exam includes some form of data analysis. If data analysis isn't already part of your CRA compliance risk management program, it should be!
Here is an outline of the performance criteria evaluated in each of the exam types:
Want more information about how to prepare for a CRA exam? You're in luck. We've developed a sharable guide to CRA Exams that can help you prepare for the exam. Share it with the compliance team and your management in order to make sure everyone knows what to expect from a CRA exam. Just fill out the form below to get it!
As you can see, every CRA exam includes an analysis of your data in the lending test (at least). If you aren't analyzing your data regularly for CRA compliance, it's impossible to truly understand your risk. Ncontracts is experienced in CRA data analysis, mapping and geocoding; we help hundreds of institutions analyze their data and prepare for exams every year. To learn more about how we can help you improve your CRA compliance, fill out the form below: