What Activities Qualify for CRA Credit?
Learn how financial institutions earn credit for their community engagement efforts under the Community Reinvestment Act.
The Community Reinvestment Act (CRA), enacted in 1977, is a federal law designed to encourage financial institutions to fulfill the credit needs of all segments of the communities where they operate. This includes a particular focus on low- and moderate-income (LMI) neighborhoods. The objective is to prevent discriminatory lending practices, historically known as redlining, and promote equitable access to credit throughout a bank’s assessment area.
“CRA credit” refers to activities by financial institutions that receive positive recognition during their performance evaluations by federal regulators. These evaluations assess how well a bank is meeting its obligations to serve its community. The law mandates that banking institutions with Federal Deposit Insurance Corporation (FDIC) insurance undergo regular assessments to determine their compliance.
Lending Activities for CRA Evaluation
Financial institutions receive CRA consideration for various lending activities that support low- and moderate-income individuals and communities. These activities are assessed across categories such as home mortgage, small business, small farm, and community development loans.
Home mortgage lending that qualifies for CRA credit includes residential mortgage loans, particularly those supporting affordable housing for LMI individuals and families. Loans to LMI borrowers or those located within LMI census tracts, including those for construction or rehabilitation of affordable housing, receive positive consideration.
Small business lending is a significant component of CRA evaluation. A small business loan refers to a loan of $1 million or less to a business with annual gross revenues of $1 million or less. Loans to small businesses, particularly those located in or serving LMI areas, or those that create or retain jobs for LMI individuals, contribute to a bank’s CRA performance.
Small farm lending also qualifies for CRA credit. These loans, especially those located in LMI census tracts, help support the economic viability of agricultural operations in underserved areas. Activities can include financing for equipment purchases or facility expansions.
Community development loans include financing for affordable housing projects, community facilities like health centers, or revitalization efforts in distressed areas. These loans may also include those that finance businesses or farms that create or retain jobs for LMI individuals, or those made to community development financial institutions (CDFIs) or small business investment companies (SBICs).
Qualified Investment Activities for CRA Evaluation
Qualified investments under the Community Reinvestment Act are lawful investments, grants, or donations with a primary purpose of community development. Such investments are assessed based on their dollar amount, innovativeness, complexity, and responsiveness to community needs.
Specific examples of qualified investments include equity investments in projects that provide affordable housing, such as those eligible for Low-Income Housing Tax Credits (LIHTC). Investments in community development financial institutions (CDFIs) or community development corporations (CDCs) also qualify, as these entities often focus on lending and development in LMI communities.
Financial institutions can also receive CRA credit for purchasing bonds or other debt instruments issued by state or local governments that specifically support affordable housing or community facilities. Grants and donations to non-profit organizations engaged in community development activities, such as those providing financial literacy programs, job training, or affordable housing support, are also considered.
Service Activities for CRA Evaluation
Service activities that qualify for CRA consideration demonstrate a financial institution’s commitment to providing accessible financial services and expertise to its communities, particularly LMI populations.
Retail banking services receive CRA credit when they enhance the accessibility of banking products and services, especially in LMI communities. This includes the establishment and maintenance of bank branches and ATMs in these areas. Offering services tailored for LMI individuals, such as low-cost checking accounts or basic transaction services, also contributes positively to a bank’s evaluation.
Community development services include activities that facilitate community growth and empowerment. Providing financial education or literacy programs to LMI individuals or in LMI areas is a significant qualifying activity. These programs can cover topics like budgeting, credit management, and homeownership.
Technical assistance or financial expertise provided to non-profit organizations focused on affordable housing or economic development also counts for CRA credit. Employee volunteer activities that utilize financial expertise and are related to community development, such as serving on the boards of community development organizations, also receive consideration.
Key Criteria for Community Development
For an activity to qualify as “community development” under the CRA, it must meet specific overarching criteria, regardless of whether it is a loan, investment, or service. The primary purpose of the activity must be to improve the circumstances for low- and moderate-income (LMI) families or individuals, or to stabilize and revitalize their neighborhoods.
Activities must primarily benefit LMI individuals, families, or geographic areas. LMI geographies are defined as census tracts where the median family income is less than 80 percent of the area median income. Additionally, activities that help revitalize or stabilize distressed or underserved non-LMI census tracts may qualify if they clearly benefit LMI individuals, for example, by creating jobs or improving essential community facilities.