Federal Register /Vol. 62, No. 193/Monday, October 6, 1997 ... · Federal Register/Vol. 62, No. 193/Monday, October 6, 1997/Notices 52105 ... Community Reinvestment Act (CRA)

52105Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

and high cost areas; (6) support for low-income consumers; (7) support forschools, libraries, and health careproviders; (8) interstate subscriber linecharge and common line cost recovery;and (9) administration of supportmechanisms. The reporting and

recordkeeping requirements containedin CC Docket No. 96–45 are designed toimplement section 254 follow. Thereporting and recordkeeping arenecessary to ensure the integrity of theprogram. All the collections arenecessary to implement the

congressional mandate for universalservice. The reporting andrecordkeeping requirements arenecessary to verify that the carriers andother respondents are eligible to receiveuniversal service support. Obligation tocomply: mandatory.

Rule section/title (47 CFR) Hours perresponse

Total annualburden

a. 36.611(a) and 36.612—Submission and Updating information to NECA ............................................................. 20 ................ 26,800b. 54.101(c)—Demonstration of exceptional circumstances for toll-limitation grace period ...................................... 50 ................ 100c. 54.201(b)–(c)—Submission of eligibility criteria ..................................................................................................... 1 .................. 3,400d. 54.201(d)(2)—Advertisement of services and charges ......................................................................................... 50 ................ 65,000e. 54.205(a)—Advance notice of relinquishment of universal service ....................................................................... .5 ................. 50f. 54.207(c)(1)—Submission of proposal for redefining a rural service area ............................................................. 125 .............. 6,250g. 54.307(b)—Reporting of expenses and number of lines served ........................................................................... 2.5 (avg.) ..... 4,100h. 54.401(b)(1)–(2)—Submission of disconnection waiver request ........................................................................... 2 .................. 100i. 54.401(d)—Lifeline certification to the Administrator .............................................................................................. 1 .................. 1,300j. 54.407(c)—Lifeline recordkeeping ........................................................................................................................... 80 ................ 104,000k. 54.409(a)–(b)—Consumer qualification for Lifeline ................................................................................................ 5 min ........... 440,000l. 54.409(b)—Consumer notification of Lifeline discontinuance ................................................................................. 5 min ........... 44,000m. 54.418(b)—Link Up recordkeeping ....................................................................................................................... 80 ................ 104,000n. 54.501(d)(4) and 54.516—Schools and Libraries recordkeeping .......................................................................... 41 (avg.) ...... 372,000o. 54.504(b)–(c), 54.507(d) and 54.509(a)—Description of services requested and certification ............................. 2 .................. 100,000p. 54.601(b)(4) and 54.609(b)—Calculating support for health care providers ......................................................... 100 .............. 340,000q. 54.601(b)(3) and 54.619—Shared facility recordkeeping ...................................................................................... 21 (avg.) ...... 160,000r. 54.607(b)(1)–(2)—Submission of proposed rural rate ............................................................................................ 3 .................. 150s. 54.603(b)(1), 54.615(c)–(d) and 54.623(d)—Description of services requested and certification ........................ 1 .................. 12,000t. 54.619(d)—Submission of rural health care report ................................................................................................. 40 ................ 40u. 54.701(f)(1) and (f)(2)—Submission of annual report and CAM ........................................................................... 40 ................ 40v. 54.701(g)—Submission of quarterly report ............................................................................................................ 10 ................ 40w. 54.707—Submission of state commission designation ......................................................................................... .25 ............... 850

Public reporting burden for thecollections of information is as notedabove. Send comments regarding theburden estimate or any other aspect ofthe collections of information, includingsuggestions for reducing the burden toPerformance Evaluation and RecordsManagement, Washington, DC 20554.Federal Communications Commission.William F. Caton,Acting Secretary.[FR Doc. 97–26418 Filed 10–3–97; 8:45 am]BILLING CODE 6712–01–U

FEDERAL FINANCIAL INSTITUTIONSEXAMINATION COUNCIL

Community Reinvestment Act;Interagency Questions and AnswersRegarding Community Reinvestment

AGENCY: Federal Financial InstitutionsExamination Council.ACTION: Notice and request for comment.

SUMMARY: The Consumer ComplianceTask Force of the Federal FinancialInstitutions Examination Council(FFIEC) is supplementing, amending,and republishing its InteragencyQuestions and Answers RegardingCommunity Reinvestment. TheInteragency Questions and Answershave been prepared by staff of the Office

of the Comptroller of the Currency(OCC), the Federal Reserve Board(Board), the Federal Deposit InsuranceCorporation (FDIC), and the Office ofThrift Supervision (OTS) (collectively,the ‘‘agencies’’) to answer mostfrequently asked questions aboutcommunity reinvestment. TheInteragency Questions and Answerscontain informal staff guidance foragency personnel, financial institutions,and the public. Staff of the agencies seekcomment on the proposed questions andanswers concerning how to determinewhether particular activities have a‘‘primary purpose’’ of communitydevelopment. In addition, staff alsoinvite public comment on the new andrevised questions and answers,particularly the guidance regardinghome mortgage loans to middle- andupper-income individuals in low- ormoderate-income areas.

DATES: Effective date of amendedInteragency Questions and Answers onCommunity Reinvestment: October 6,1997. The agencies request thatcomments on the proposed questionsand answers be submitted on or beforeDecember 5, 1997.

ADDRESSES: Questions and commentsmay be sent to Joe M. Cleaver, ExecutiveSecretary, Federal Financial InstitutionsExamination Council, 2100

Pennsylvania Avenue NW., Suite 200,Washington, DC 20037, or by facsimiletransmission to (202) 634–6556.

FOR FURTHER INFORMATION CONTACT:OCC: Malloy Harris, National Bank

Examiner, Community and ConsumerPolicy Division, (202) 874–4446; orMargaret Hesse, Senior Attorney,Community and Consumer LawDivision, (202) 874–5750, Office of theComptroller of the Currency, 250 EStreet, SW., Washington, DC 20219.

Board: Glenn E. Loney, AssociateDirector, Division of Consumer andCommunity Affairs, (202) 452–3585; orRobert deV. Frierson, Assistant GeneralCounsel, Legal Division, (202) 452–3711, Board of Governors of the FederalReserve System, 20th Street andConstitution Avenue, NW., Washington,DC 20551.

FDIC: Bobbie Jean Norris, NationalCoordinator, Community Affairs andCommunity Reinvestment, Division ofCompliance and Consumer Affairs,(202) 942–3090; or Ann Hume Loikow,Counsel, Legal Division, (202) 898–3796, Federal Deposit InsuranceCorporation, 550 17th Street, NW.,Washington, DC 20429.

OTS: Theresa A. Stark, ProjectManager, Compliance Policy, (202) 906–7054; or Richard R. Riese, ProjectManager, Compliance Policy, (202) 906–

52106 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

6134, Office of Thrift Supervision, 1700G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

Background

In 1995, the agencies revised theirCommunity Reinvestment Act (CRA)regulations by issuing a joint final rule,which was published on May 4, 1995(60 FR 22156). See 12 CFR parts 25, 228,345 and 563e, implementing 12 U.S.C.2901 et seq. The agencies published twonotices of proposed rulemaking prior topublishing the joint final rule. See 58 FR67466 (Dec. 21, 1993); 59 FR 51232 (Oct.7, 1994). The agencies published relatedclarifying documents on December 20,1995 (60 FR 66048) and May 10, 1996(61 FR 21362).

On October 21, 1996, the ConsumerCompliance Task Force of the FFIECpublished ‘‘Interagency Questions andAnswers Regarding CommunityReinvestment’’ (hereinafter, InteragencyQuestions and Answers) to provideinformal staff guidance for use byagency personnel, financial institutions,and the public. See 61 FR 54647. In thesupplementary information publishedwith the Interagency Questions andAnswers, the agencies’ staff requestedcomments and indicated that theyintended to update the InteragencyQuestions and Answers on a periodicbasis. 61 FR at 54648. This documentsupplements, revises, and republishesthat guidance based, in part, onquestions and comments received fromexaminers, financial institutions, andother interested parties. The agenciesconsider the Interagency Questions andAnswers to be their primary vehicle fordisseminating guidance interpretingtheir CRA regulations.

This document includes newquestions and answers that: (1) Clarifythat not all activities that financebusinesses meeting certain sizeeligibility standards necessarily promoteeconomic development under the CRAregulations; (2) make a technicalcorrection to one of the questions andanswers published in the originalInteragency Questions and Answers; (3)explain how the Agencies’ examinersevaluate home mortgage loans tomiddle- and upper-income borrowers inlow- and moderate-income areas underthe CRA regulations’ lending test; (4)explain how a financial institutionshould geocode a small business orsmall farm loan where the borrowerprovides only a post office box or ruralroute and box number; and (5) cautionthat the Agencies’ quarterly publicationof a list of financial institutions that willbe examined for CRA compliance issubject to change. Finally, this

document especially seeks comment onthe proposed questions and answersconcerning how to determine whetherparticular activities have a ‘‘primarypurpose’’ of community development,and also invites public comment on thenew and revised questions and answers.

A discussion of the revised and newquestions and answers follows.Questions and answers are grouped bythe provision of the CRA regulationsthat they discuss and are presented inthe same order as the regulatoryprovisions. The Interagency Questionsand Answers employ an abbreviatedmethod to cite to the regulations.Because the regulations of the fouragencies are substantively identical,corresponding sections of the differentregulations usually bear the same suffix.Therefore, the Interagency Questionsand Answers typically cite only to thesuffix. For example, the small bankperformance standards for nationalbanks appear at 12 CFR 25.26; forFederal Reserve member bankssupervised by the Board, they appear at12 CFR 228.26; for nonmember banks, at12 CFR 345.26; and for thrifts, at 12 CFR563e.26. Accordingly, the citation inthis document would be to § ——.26. Inthe few instances in which the suffix inone of the regulations is different, thespecific citation for that regulation isprovided.

Do All Activities That FinanceBusinesses Meeting Certain SizeEligibility Standards Promote EconomicDevelopment?

The CRA Regulations define the term‘‘community development’’ to include‘‘activities that promote economicdevelopment by financing businesses orfarms that meet the size eligibilitystandards of the Small BusinessAdministration’s DevelopmentCompany or Small Business InvestmentCompany programs (13 CFR 121.301) orhave gross annual revenues of $1million or less.’’ 12 CFR 25.12(h)(3),228.12(h)(3), 345.12(h)(3) and563e.12(g)(3).

The October 1996 InteragencyQuestions and Answers included aquestion and answer concerningwhether all activities that finance thesebusinesses or farms promote economicdevelopment. That question and answer(Q&A), Q&A1 addressing §§ l.12(h)(3)and 563e.12(g)(3), is being revised inresponse to further questions and publiccomments. The revised question andanswer clarifies that to be considered as‘‘community development’’ under§§ l.12(h)(3) and 563e.12(g)(3), a loan,investment or service, whether madedirectly or through an intermediary,must meet both a size test and a purpose

test. An activity meets the sizerequirement if it finances entities thateither meet the size eligibility standardsof the Small Business Administration’sDevelopment Company (SBDC) or SmallBusiness Investment Company (SBIC)programs, or have gross annual revenuesof $1 million or less. To meet thepurpose test, the activity must promoteeconomic development. An activity isconsidered to promote economicdevelopment if it supports permanentjob creation, retention, and/orimprovement for persons who arecurrently low- or moderate-income, orsupports permanent job creation,retention, and/or improvement in low-or moderate-income geographiestargeted for redevelopment by Federal,state, local or tribal governments. Theagencies will presume that any loan orinvestment in or to a SBDC or SBICpromotes economic development.Funding provided in connection withother SBA programs may also promoteeconomic development; however,examiners will make that determinationbased on business types, fundingpurposes, and other relevantinformation.

Where Do Institutions Find IncomeLevel Data

In the October 1996 InteragencyQuestions and Answers, Q&A1addressing §§ l.12(n) and 563e.12(m)contained an incorrect address for theFFIEC’s internet home page. Thatquestion and answer has been revised toinclude the correct address: ‘http://www.ffiec.gov/’.

Home Mortgage Loans to Middle- andUpper-Income Borrowers in Low- andModerate-Income Areas

Several community developmentorganizations have notified the agenciesof their belief that the CRA regulationsdo not sufficiently recognize the effortsof financial institutions that make homemortgage loans to middle- or upper-income borrowers in low- or moderate-income areas. These communityorganizations have suggested to agencystaff that lower-income geographiesshould be developed into mixed-incomegeographies, inhabited with residents ofall income categories.

For example, one communityorganization described problems that itscommunity encountered inredeveloping an inner city area byproviding single family housingaffordable to low- and moderate-incomeborrowers and other necessary services.Although affordable housing wasprovided, the community had difficultyattracting retail services. A commercialdeveloper considered building a


shopping center near a new, affordablehousing development, but determinedthat the center would not be profitablebecause of the lower level of disposableincome of many of the low- andmoderate-income homeowners.Consequently, the communityorganization representative stressedhow important it is for futuredevelopment that distressed areas beingrevitalized attract residents of allincome levels.

The Agencies previously consideredthe appropriate weight that should beaccorded lending in low- and moderate-income areas to higher-incomeborrowers. During the CRA reformrulemaking process, however, theagencies received public commentopposed to a proposal that would haveevaluated an institution’s lendingprimarily based on its lending activitiesin low- and moderate-incomegeographies. See, e.g., 58 FR 67,466,67,480 (December 21, 1993). Thosecommenters opposed the proposal,stating that it would inappropriatelyhave given institutions a greaterincentive to make loans to high-incomeborrowers located in low-incomegeographies than to make loans to low-income borrowers located in high-income geographies. In response tothese comments, the final interagencyCRA regulations de-emphasized thelocation of the loans under the lendingtest by also evaluating lending based onborrower characteristics, i.e., income.

Because of the numerous inquiries theagencies have received since the finalrules were issued, agency staff areadding new guidance addressing§ l.22(b)(2) & (3), answering how homemortgage loans to borrowers of allincomes, but especially to middle- andupper-income borrowers, located inlow- or moderate-income areas will beevaluated under the CRA regulations’lending test.

The new question and answerexplains that examiners consider allhome mortgage loans under theperformance criteria of the lending test.This means that examiners first evaluatethe institution’s lending activity basedon the number and amount of homemortgage loans in the institution’sassessment area(s). Examiners nextevaluate the geographic distribution ofall of the institution’s home mortgageloans based on the loan location,including (1) the portion of theinstitution’s lending in the institution’sassessment area(s); (2) the dispersion oflending in the institution’s assessmentarea(s); and (3) the number and amountof loans in low-, moderate-, middle-,and upper-income geographies in theinstitution’s assessment area(s). Finally,

examiners evaluate these loans based onborrower characteristics, i.e., thenumber and amount of home mortgageloans to low-, moderate-, middle-, andupper-income individuals.

The regulation, however, allowsexaminers flexibility in judging theappropriate consideration of loans tomiddle- or upper-income individuals inlow- or moderate-income areas. Thenew question and answer explains thatall of the lending test criteria must beconsidered in light of an institution’sperformance context. The performancecontext will determine the importanceof the borrower distribution criterion,particularly as it relates to thegeographic distribution of the loans. Ifthe performance context informationindicates, for example, that the loans arefor homes located in an area for whichthe local, state, tribal, or FederalGovernment or a community-baseddevelopment organization hasdeveloped a revitalization orstabilization plan (such as a FederalEnterprise Community or EmpowermentZone) that includes attracting mixed-income residents to establish astabilized, economically diverseneighborhood, the examiner has theflexibility to consider these loans asfavorably as loans to low- or moderate-income borrowers in the low- ormoderate-income geography. If, on theother hand, no such plan exists andthere is no other evidence ofgovernmental support for arevitalization or stabilization project inthe area and the loans to middle- orupper-income borrowers significantlydisadvantage or primarily have theeffect of displacing low- or moderate-income residents, examiners may viewthese loans simply as home mortgageloans to middle- or upper-incomeborrowers who happen to reside in alow- or moderate-income geography andweigh them accordingly in theirevaluation of the institution. Thus, theperformance context may significantlyinfluence how these loans affect aninstitution’s performance.

Geocoding Addresses Consisting of PostOffice Boxes or Rural Routes and BoxNumbers

Staff from the agencies previouslyprovided guidance about how togeocode (i.e., assign a census tract orblock numbering area for) smallbusiness or small farm loans for whichthe borrower provides an addressconsisting of either a post office boxnumber or a rural route and boxnumber. See Interagency Staff CRAInterpretive Letter, published as OCCInterpretive Letter No. 729, (1995–1996Transfer Binder) Fed. Banking L. Rep.

(CCH), ¶ 81–046 (June 14, 1996). In thisletter, staff indicated that, if aninstitution could not obtain from itssmall business or small farm borrower astreet address in addition to a ruralroute and box number or post office boxnumber, the institution could collectand report the location of the loan basedon the town, state, and zip codeprovided by the borrower. The locationof the borrower’s post office wouldserve as a proxy for the location of thesmall business or farm.

Staff have reconsidered this guidanceand are now providing a question andanswer based on § l.42(a)(3) addressingthis issue. The revised guidance statesthat, for purposes of 1997 datacollection and reporting, financialinstitutions may rely on the guidanceprovided in the interpretive letter if asmall business or small farm borrowerprovides only a rural route and boxnumber or a post office box number asits address. Thus, for 1997, institutionsmay collect and report the location ofsmall business or small farm loans forwhich the institution has been unable toascertain a street address, using thelocation (i.e., the census tract or blocknumbering area) of the borrower’s postoffice box as a proxy.

Because financial institutionstypically know where their smallbusiness or small farm borrowers, or thecollateral securing their loans, arelocated, staff have provided newinstructions for 1998 data collection andreporting purposes. Beginning in 1998,financial institutions should request thestreet address of small business andsmall farm borrowers, even if theborrower initially provides only a postoffice box number or rural route and boxnumber. If no street address exists,institutions should not use the postoffice box as a proxy, but insteadgeocode the census tract or blocknumbering area as ‘‘NA.’’

Is Publication of the List of Institutionsto be Examined in the UpcomingQuarter Determinative of Whether anInstitution Will, in Fact, be Examinedin the Upcoming Quarter

Agency staff have added a newquestion and answer addressing § l.45relating to the publication of theinstitutions to be examined in theupcoming quarter. The question andanswer clarifies that whether or not aninstitution is included on the publishedlist will not always indicate that theinstitution will or will not be examinedin the upcoming quarter. Although theagencies will attempt to ensure that thepublished lists are as accurate aspossible, the agencies sometimes mayneed to alter their examination plans.


Because of the potential for suchadjustments, staff urge all interestedmembers of the public to file commentsregarding the CRA performance of aninstitution whether or not theinstitution has been scheduled for aCRA examination.

Request for Comment and ProposedQuestions and Answers on CommunityDevelopment Explaining the ‘‘PrimaryPurpose’’ for Community DevelopmentActivities

The definitions of ‘‘communitydevelopment loan,’’ ‘‘communitydevelopment service,’’ and ‘‘qualifiedinvestment’’ all require a ‘‘primarypurpose of community development.’’See 12 CFR 25.12(i)(1), (j)(1), and (s);228.12(i)(1), (j)(1), and (s); 345.12(i)(1),(j)(1), and (s); and 563e.12(h)(1), (i)(1),and (r). The agencies have received anumber of inquiries about whethercertain activities have the necessary‘‘primary purpose’’ of communitydevelopment to qualify as a communitydevelopment loan, qualified investmentor community development service.Some inquiries come from personsinterested in creating new communitydevelopment vehicles. These inquiriestypically ask what minimumcharacteristics should be designed intoa targeted loan, investment or service topossess the necessary primary purpose.In answering these questions, theagencies have generally stated that a‘‘primary purpose’’ of communitydevelopment exists when the loan,investment or service is divisible andmeasurable in terms of dollars, housingunits built, or countable individualsbenefited, and when an identifiablemajority of the dollars expended, unitsbuilt or individuals benefited is clearlyattributable to one of the communitydevelopment purposes enumerated inthe regulation.

However, this answer does notaddress other inquiries concerningactivities that are subject to certain legalor market restraints, such that they donot reach this threshold, yet oftendisplay laudable communitydevelopment purposes and result inreal, long-term community developmentbenefits. In addition, many of theprojects occur within a performancecontext that buttresses a conclusion thatthe activity was ‘‘designed for theexpress purpose’’ of achieving aqualifying community developmentpurpose, even though less than half thedollars involved in the entire projecthave been concentrated on that purpose.Federal tax-incentive affordable housingprojects, where less than half the unitsor half the dollars go into the portion ofthe project that represents affordable

housing for low- or moderate-incomepersons, fall into this category.

A number of other inquiries arecharacterized by a range of facts andcontexts. Given this variety, theagencies recognize that many types ofendeavors have been devised to addressan array of community developmentpursuits. In addition, the agencies haveobserved that within the broad range ofqualifying activities, distinctions canand should be made among thoseactivities. Accordingly, in publishingproposed guidance on ‘‘primarypurpose,’’ the agencies are alsoproviding additional commentary thatemphasizes the quantitative andqualitative distinctions that should bemade when applying the performancecriteria of the pertinent regulatory teststo evaluate eligible communitydevelopment loans, qualifiedinvestments or community developmentservices.

Proposed Q&A7 addressing §§ l.12(i)and 563e.12(h) is based on the preambleto the final rule as set forth at 60 FR22,156, 22,159 (May 4, 1995), whichstates that activities not designed for theexpress purpose of communitydevelopment (as defined in theregulation) are not eligible forconsideration as communitydevelopment loans or services orqualified investments. The preamblefurther states that the provision ofindirect or short-term benefits to low- ormoderate-income persons does notmake an activity communitydevelopment. In addition toincorporating this preamble languageinto the Interagency Questions andAnswers, the answer identifies the kindof information that would be reviewedto determine whether an activity wasdesigned for the express purpose ofcommunity development. The answeradopts a simplified threshold rule andan alternative approach for findingsufficient bases to conclude that anactivity possesses the requisite primarypurpose.

Agency staff are also proposingadditional questions and answers thatprovide relevant guidance on theevaluation of activities whose primarypurpose is community development, aswell as the reporting of communitydevelopment loans. This additionalguidance emphasizes that once a loan orinvestment is found to possess aprimary purpose of communitydevelopment, the evaluation of thatcommunity development loan orqualified investment under the relevantperformance criteria would allow fordifferentiation among those activitiesbased not only on the differing dollaramounts attributable to the underlying

community development purpose, butalso on the loan’s innovation orcomplexity under § l.22(b)(4) or theinvestment’s innovation, complexity,responsiveness or non-routinecharacteristics under § l.23(e). Inaddition, proposed Q&A3 addressing§ l.42(b)(2) discusses whether a loanmay be reported as a communitydevelopment loan if its primary purposeis to finance an affordable housingproject for low- or moderate-incomeindividuals, but only 40% of the unitsin question will actually be occupied byindividuals or families with low- ormoderate-incomes.

Staff request public commentparticularly addressing whether theproposed primary purpose standardover-inclusively qualifies activities ashaving a community developmentpurpose, and, if so, is this adequatelybalanced by the regulatory requirementsthat allow marginal activities to beweighted less heavily than thoseactivities that provide a greater benefitrelated to the community developmentpurpose or demonstrate otherperformance criteria, such asinnovation, complexity, orresponsiveness. Staff also invitecomment about whether the proposedguidance may result in excluding, as nothaving a primary purpose of communitydevelopment, deserving endeavors.

Sections l.12(i) & 563e.12(h)

Proposed Q7

What is meant by the term ‘‘primarypurpose’’ as that term is used to definewhat constitutes a communitydevelopment loan, a qualifiedinvestment or a communitydevelopment service?

Proposed A7

A loan, investment or service has asits primary purpose communitydevelopment when it is designed for theexpress purpose of revitalizing orstabilizing low- or moderate-incomeareas, providing affordable housing for,or community services targeted to, low-or moderate-income persons, orpromoting economic development byfinancing small businesses and farmsthat meet the requirements set forth in§§ l.12(h) or 563e.12(g). To determinewhether an activity is designed for anexpress community developmentpurpose, the agencies apply one of twoapproaches. First, if a majority of thedollars or beneficiaries of the activityare identifiable to one or more of theenumerated community developmentpurposes, then the activity will beconsidered to possess the requisiteprimary purpose. Alternatively, where


the measurable portion of any benefitbestowed or dollars applied to thecommunity development purpose is lessthan a majority of the entire activity’sbenefits or dollar value, then the activitymay still be considered to possess therequisite primary purpose if (1) theexpress, bona fide intent of the activity,as stated, for example, in a prospectus,loan proposal, or community actionplan, is primarily one or more of theenumerated community developmentpurposes; (2) the activity is specificallystructured (given any relevant market orlegal constraints or performance contextfactors) to achieve the expressedcommunity development purpose; and(3) the activity accomplishes, or isreasonably certain to accomplish, thecommunity development purposeinvolved. The fact that an activityprovides indirect or short-term benefitsto low-or moderate-income persons doesnot make the activity communitydevelopment, nor does the merepresence of such indirect or short-termbenefits constitute a primary purpose ofcommunity development. Financialinstitutions that want examiners toconsider certain activities under eitherapproach should be prepared todemonstrate the activities’qualifications.

Section l.22(b)(4)

Proposed Q1

When evaluating an institution’srecord of community developmentlending, may an examiner distinguishamong community development loanson the basis of the actual amount of theloan that advances the communitydevelopment purpose?

Proposed A1

Yes. When evaluating the institution’srecord of community developmentlending under § l.22(b)(4), it isappropriate to give greater weight to theamount of the loan that is targeted to theintended community developmentpurpose. For example, consider two $10million projects (with a total of 100units each) that have as their expressprimary purpose affordable housing andare located in the same community. Oneof these projects sets aside 40% of itsunits for low-income residents and theother project allocates 65% of its unitsfor low-income residents. An institutionwould report both loans as $10 millioncommunity development loans underthe § l.42(b)(2) aggregate reportingobligation. However, transactioncomplexity, innovation and all otherrelevant considerations being equal, the65% project would receive greaterpositive consideration under the

lending test than the 40% project. The65% project provides more affordablehousing for more people per dollarexpended.

Under § l.22(b)(4), the amount ofCRA consideration an institutionreceives for its community developmentloans should bear a direct relation to thebenefits received by the community andthe innovation or complexity of theloans required to accomplish theactivity, not simply to the dollar amountexpended on a particular transaction. Byapplying all performance criteria, acommunity development loan of a lowerdollar amount could receive morefavorable consideration under thelending test than a communitydevelopment loan with a higher dollaramount, but with less innovation,complexity, or impact on thecommunity.

Section l.23(e)

Proposed Q1

When applying the performancecriteria of § l.23(e), may an examinerdistinguish among qualified investmentsbased on how much of the investmentactually supports the underlyingcommunity development purpose?

Proposed A1

Yes. Although § l.23(e)(1) speaks interms of the dollar amount of qualifiedinvestments, the criterion permits anexaminer to weight certain investmentsdifferently or to make other appropriatedistinctions when evaluating aninstitution’s record of making qualifiedinvestments. For instance, a targetedmortgage-backed security that qualifiesas an affordable housing issue that hasonly 60% of its face value supported byloans to low-or moderate-incomeborrowers generally would not beweighted as heavily under § l.23(e)(1)as a targeted mortgage-backed securitywith 100% of its face value supportedby affordable housing loans to low-andmoderate-income borrowers. Theexaminer should describe anydifferential weighting (or otheradjustment), and its basis in the PublicEvaluation. However, no matter how aqualified investment is handled forpurposes of § l.23(e)(1), it will also beevaluated with respect to theperformance criteria set forth in§ l.23(e) (2), (3) and (4) . By applyingall criteria, a qualified investment of alower dollar amount could receive morefavorable consideration under theInvestment Test than a qualifiedinvestment with a higher dollar amount,but with fewer qualitativeenhancements.

Sectionl.42(b)(2)

Proposed Q3When the primary purpose of a loan

is to finance an affordable housingproject for low-or moderate-incomeindividuals, but only 40% of the unitsin question will actually be occupied byindividuals or families with low-ormoderate-incomes, should the entireloan amount be reported as acommunity development loan?

Proposed A3Yes. As long as the primary purpose

of the loan is a community developmentpurpose, the full amount of theinstitution’s loan should be included inits reporting of aggregate amounts ofcommunity development lending.

General CommentsIn addition to the specific request for

comments on the proposed ‘‘primarypurpose’’ questions and answers, staffinvite public comment on the new andrevised questions and answers,particularly the guidance regardinghome mortgage loans to middle-andupper-income individuals in low-ormoderate-income areas. Staff also invitepublic comment on a continuing basison any issues raised by the CRA andthese Interagency Questions andAnswers. Staff of the agencies intend tocontinue to update the InteragencyQuestions and Answers periodically. If,after reading the Interagency Questionsand Answers, financial institutions,examiners, community groups, or otherinterested parties have unansweredquestions or comments about theagencies’ community reinvestmentregulations, they should submit them tothe agencies. Staff will considerincluding questions received from thepublic in future guidance.

Small Business Regulatory EnforcementFairness Act of 1996 (SBREFA)

The SBREFA requires an agency, foreach rule for which it prepares a finalregulatory flexibility analysis, to publishone or more compliance guides to helpsmall entities understand how tocomply with the rule.

Pursuant to section 605(b) of theRegulatory Flexibility Act, the agenciescertified that their proposed CRA rulewould not have a significant economicimpact on a substantial number of smallentities and invited public comments onthat determination. See 58 FR 67478(Dec. 21, 1993); 59 FR 51250 (Oct. 7,1994). In response to public comment,the agencies voluntarily prepared a finalregulatory flexibility analysis for thejoint final rule, although the analysiswas not required because it supported


the agencies’ earlier certificationregarding the proposed rule. Because aregulatory flexibility analysis was notrequired, section 212 of the SBREFAdoes not apply to the final CRA rule.However, in their continuing efforts toprovide clear, understandableregulations and to comply with thespirit of the SBREFA, the agencies havecompiled the Interagency Questions andAnswers. The Interagency Questionsand Answers serve the same purpose asthe compliance guide described in theSBREFA by providing guidance on avariety of issues of particular concern tosmall banks and thrifts. The text of theInteragency Questions and Answersfollows:

Text of the Interagency Questions andAnswers

Interagency Questions and AnswersRegarding Community Reinvestment

Table of Contents

The agencies are providing answers toquestions pertaining to the followingprovisions and topics of the CRA regulations:

§ l.11 Authority, purposes, and scope§ l.11(c) Scope

§§ 25.11(c)(3), 228.11(c)(3) & 345.11(c)(3)Certain special purpose banks

§ l.12 Definitions§ l.12(a) Affiliate§§ l.12(f) & 563e.12(e) Branch§§ l.12(h) & 563e.12(g) Community

development§ l.12(h)(3) & 563e.12(g)(3) Activities

that promote economic development byfinancing businesses or farms that meetcertain size eligibility standards

§§ l.12(i) & 563e.12(h) Communitydevelopment loan

§§ l.12(j) & 563e.12(i) Communitydevelopment service

§§ l.12(k) & 563e.12(j) Consumer loan§§ l.12(m) & 563e.12(l) Home mortgage

loan§§ l.12(n) & 563e.12(m) Income level§§ l.12(o) & 563e.12(n) Limited purpose

institution§§ l.12(s) & 563e.12(r) Qualified

investmentl.12(t) Small institution§ l.12(u) Small business loan§ l.12(w) Wholesale institution§ l.21 Performance tests, standards, and

ratings, in general§ l.21(a) Performance tests and standards§ l.21(b) Performance context

§ l.21(b)(2) Information maintained bythe institution or obtained fromcommunity contacts

§ l.21(b)(4) Institutional capacity andconstraints

§ l.21(b)(5) Institution’s pastperformance and the performance ofsimilarly situated lenders

§ l.22 Lending test§ l.22(a) Scope of test

§ l.22(a)(1) Types of loans considered§ l.22(a)(2) Other loan data

§ l.22(b) Performance criteria

§ l.22(b)(1) Lending activity§ l.22(b)(2) & (3) Geographic distribution

and borrower characteristics§ l.22(c) Affiliate lending

§ l.22(c)(1) In general§ l.22(c)(2) Constraints on affiliate

lending§ l.22(c)(2)(i) No affiliate may claim a

loan origination or loan purchase ifanother institution claims the same loanorigination or purchase

§ l.22(c)(2)(ii) If an institution elects tohave its supervisory agency considerloans within a particular lendingcategory made by one or more of theinstitution’s affiliates in a particularassessment area, the institution shallelect to have the agency consider allloans within that lending category in thatparticular assessment area made by all ofthe institution’s affiliates

§ l.22(d) Lending by a consortium or athird party

§ l.23 Investment test§ l.23(b) Exclusion§ l.24 Service test§ l.24(d) Performance criteria—retail

banking services§ l.24(d)(3) Availability and

effectiveness of alternative systems fordelivering retail banking services

§ l.25 Community development test forwholesale or limited purpose institutions

§ l.25(d) Indirect activities§ l.25(f) Community development

performance rating§ l.26 Small institution performance

standards§ l.26(a) Performance criteria

§ l.26(a)(1) Loan-to-deposit ratio§ l.26(a)(2) Percentage of lending within

assessment area(s)§ l.26(a)(3) and (4) Distribution of

lending within assessment area(s) byborrower income and geographiclocation

§ l.26(b) Performance rating§ l.27—Strategic plan§ l.27(c) Plans in general§ l.27(f) Plan content

§ l.27(f)(1) Measurable goals§ l.27(g) Plan approval

§ l.27(g)(2) Public participation§ l.28—Assigned ratings§ l.28(a) Ratings in general§ l.29—Effect of CRA performance on

applications§ l.29(a) CRA performance§ l.29(b) Interested parties§ l.41—Assessment area delineation§ l.41(a) In general§ l.41(c) Geographic area(s) for institutions

other than wholesale or limited purposeinstitutions

§ l.41(c)(1) Generally consist of one ormore MSAs or one or more contiguouspolitical subdivisions

§ l.41(d) Adjustments to geographic area(s)§ l.41(e) Limitations on delineation of an

assessment area§ l.41(e)(3) May not arbitrarily exclude

low- or moderate-income geographies§ l.41(e)(4) May not extend substantially

beyond a CMSA boundary or beyond astate boundary unless located in amultistate MSA

§ l.42—Data collection, reporting, anddisclosure

§ l.42(a) Loan information required to becollected and maintained

§ l.42(a)(2) Loan amount at origination§ l.42(a)(3) The loan location§ l.42(a)(4) Indicator of gross annual

revenue§ l.42(b) Loan information required to be

reported§ l.42(b)(1) Small business and small

farm loan data§ l.42(b)(2) Community development

loan data§ l.42(b)(3) Home mortgage loans

§ l.42(c) Optional data collection andmaintenance

§ l.42(c)(1) Consumer loans§ l.42(c)(1)(iv) Income of borrower§ l.42(c)(2) Other loan data

§ l.42(d) Data on affiliate lending§ l.43—Content and availability of public

file§ l.43(a) Information available to the

public§ l.43(a)(1) Public comments

§ l.43(b) Additional information availableto the public

§ l.43(b)(1) Institutions other than smallinstitutions

§ l.43(c) Location of public information§ l.44—Public notice by institutions§ l.45—Publication of planned examination

scheduleAPPENDIX B to PartlCRA Notice

The body of the InteragencyQuestions and Answers RegardingCommunity Reinvestment follows:

Section l .11—Authority, purposes,and scope

Section l .11(c) Scope

Section 25.11(c)(3), 228.11(c)(3) &345.11(c)(3) Certain Special PurposeBanks

Q1. Is the list of special purposebanks exclusive?

A1. No, there may be other examplesof special purpose banks. These banksengage in specialized activities that donot involve granting credit to the publicin the ordinary course of business.Special purpose banks typically serve ascorrespondent banks, trust companies,or clearing agents or engage only inspecialized services, such as cashmanagement controlled disbursementservices. A financial institution,however, does not become a specialpurpose bank merely by ceasing to makeloans and, instead, making investmentsand providing other retail bankingservices.

Q2. To be a special purpose bank,must a bank limit its activities in itscharter?

A2. No. A special purpose bank may,but is not required to, limit the scope ofits activities in its charter, articles ofassociation or other corporateorganizational documents. A bank that


does not have legal limitations on itsactivities, but has voluntarily limited itsactivities, however, would no longer beexempt from Community ReinvestmentAct (CRA) requirements if itsubsequently engaged in activities thatinvolve granting credit to the public inthe ordinary course of business. A bankthat believes it is exempt from CRA asa special purpose bank should seekconfirmation of this status from itssupervisory agency.

Section l .12—Definitions

Section l .12(a) AffiliateQ1. Does the definition of ‘‘affiliate’’

include subsidiaries of an institution?A1. Yes, ‘‘affiliate’’ includes any

company that controls, is controlled by,or is under common control withanother company. An institution’ssubsidiary is controlled by theinstitution and is, therefore, an affiliate.

Sections l .12(f) & 563e.12(e) BranchQ1. Do the definitions of ‘‘branch,’’

‘‘automated teller machine (ATM),’’ and‘‘remote service facility (RSF)’’ includemobile branches, ATMs, and RSFs?

A1. Yes. Staffed mobile offices thatare authorized as branches areconsidered ‘‘branches’’ and mobileATMs and RSFs are considered ‘‘ATMs’’and ‘‘RSFs.’’

Q2. Are loan production offices(LPOs) branches for purposes of theCRA?

A2. LPOs and other offices are not‘‘branches’’ unless they are authorizedas branches of the institution throughthe regulatory approval process of theinstitution’s supervisory agency.

Sections l.12(h) & 563e.12(g)Community Development

Q1. Are community developmentactivities limited to those that promoteeconomic development?

A1. No. Although the definition of‘‘community development’’ includesactivities that promote economicdevelopment by financing smallbusinesses or farms, the rule does notlimit community development loansand services and qualified investmentsto those activities. Communitydevelopment also includes community-or tribal-based child care, educational,health, or social services targeted tolow- or moderate-income persons,affordable housing for low- or moderate-income individuals, and activities thatrevitalize or stabilize low- or moderate-income areas.

Q2. Must a community developmentactivity occur inside a low- or moderate-income area in order for an institutionto receive CRA consideration for theactivity?

A2. No. Community developmentincludes activities outside of low- andmoderate-income areas that provideaffordable housing for, or communityservices targeted to, low- or moderate-income individuals and activities thatpromote economic development byfinancing small businesses and farms.Activities that stabilize or revitalizeparticular low- or moderate-incomeareas (including by creating, retaining,or improving jobs for low- or moderate-income persons) also qualify ascommunity development, even if theactivities are not located in these low-or moderate-income areas. One exampleis financing a supermarket that serves asan anchor store in a small strip malllocated at the edge of a middle-incomearea, if the mall stabilizes the adjacentlow-income community by providingneeded shopping services that are nototherwise available in the low-incomecommunity.

Q3. Does the regulation provideflexibility in considering performance inhigh-cost areas?

A3. Yes, the flexibility of theperformance standards allowsexaminers to account in theirevaluations for conditions in high-costareas. Examiners consider lending andservices to individuals and geographiesof all income levels and businesses ofall sizes and revenues. In addition, theflexibility in the requirement thatcommunity development loans,community development services, andqualified investments have as their‘‘primary’’ purpose communitydevelopment allows examiners toaccount for conditions in high-costareas. For example, examiners couldtake into account the fact that activitiesaddress a credit shortage among middle-income people or areas caused by thedisproportionately high cost of building,maintaining or acquiring a house whendetermining whether an institution’sloan to or investment in an organizationthat funds affordable housing formiddle-income people or areas, as wellas low- and moderate-income people orareas, has as its primary purposecommunity development.

Sections l.12(h)(3) & 563e.12(g)(3)Activities That Promote EconomicDevelopment by Financing Businessesor Farms That Meet Certain SizeEligibility Standards

Q1. ‘‘Community development’’includes activities that promoteeconomic development by financingbusinesses or farms that meet certainsize eligibility standards. Are allactivities that finance businesses andfarms that meet these size eligibility

standards considered to be communitydevelopment?

A1. No. To be considered as‘‘community development’’ under§§ ——.12(h)(3) and 563e.12(g)(3), aloan, investment or service, whethermade directly or through anintermediary, must meet both a size testand a purpose test. An activity meetsthe size requirement if it financesentities that either meet the sizeeligibility standards of the SmallBusiness Administration’s DevelopmentCompany (SBDC) or Small BusinessInvestment Company (SBIC) programs,or have gross annual revenues of $1million or less. To meet the purposetest, the activity must promoteeconomic development. An activity isconsidered to promote economicdevelopment if it supports permanentjob creation, retention, and/orimprovement for persons who arecurrently low- or moderate-income, orsupports permanent job creation,retention, and/or improvement in low-or moderate-income geographiestargeted for redevelopment by Federal,state, local or tribal governments. Theagencies will presume that any loan orinvestment in or to a SBDC or SBICpromotes economic development.

Sections l.12(i) & 563e.12(h)Community Development Loan

Q1. What are examples of communitydevelopment loans?

A1. Examples of communitydevelopment loans include, but are notlimited to, loans to:

• Borrowers for affordable housingrehabilitation and construction,including construction and permanentfinancing of multifamily rental propertyserving low- and moderate-incomepersons;

• Not-for-profit organizations servingprimarily low- and moderate-incomehousing or other communitydevelopment needs;

• Borrowers to construct orrehabilitate community facilities thatare located in low- and moderate-income areas or that serve primarilylow- and moderate-income individuals;

• Financial intermediaries includingCommunity Development FinancialInstitutions (CDFIs), CommunityDevelopment Corporations (CDCs),minority- and women-owned financialinstitutions, community loan funds orpools, and low-income or communitydevelopment credit unions thatprimarily lend or facilitate lending topromote community development.

• Local, state, and tribal governmentsfor community development activities;and


• Borrowers to finance environmentalclean-up or redevelopment of anindustrial site as part of an effort torevitalize the low- or moderate-incomecommunity in which the property islocated.

Q2. If a retail institution that is notrequired to report under the HomeMortgage Disclosure Act (HMDA) makesaffordable home mortgage loans thatwould be HMDA-reportable homemortgage loans if it were a reportinginstitution, or if a small institution thatis not required to collect and report loandata under CRA makes small businessand small farm loans and consumerloans that would be collected and/orreported if the institution were a largeinstitution, may the institution havethese loans considered as communitydevelopment loans?

A2. No. Although small institutionsare not required to report or collectinformation on small business and smallfarm loans and consumer loans, andsome institutions are not required toreport information about their homemortgage loans under HMDA, if theseinstitutions are retail institutions, theagencies will consider in their CRAevaluations the institutions’ originationsand purchases of loans that would havebeen collected or reported as smallbusiness, small farm, consumer or homemortgage loans, had the institution beena collecting and reporting institutionunder the CRA or the HMDA. Therefore,these loans will not be considered ascommunity development loans.Multifamily dwelling loans, however,may be considered as communitydevelopment loans as well as homemortgage loans. See also Q&A2addressing § l.42(b)(2).

Q3. Do secured credit cards or othercredit card programs targeted to low- ormoderate-income individuals qualify ascommunity development loans?

A3. No. Credit cards issued to low- ormoderate-income individuals forhousehold, family, or other personalexpenditures, whether as part of aprogram targeted to such individuals orotherwise, do not qualify as communitydevelopment loans because they do nothave as their primary purpose any of theactivities included in the definition of‘‘community development.’’

Q4. The regulation indicates thatcommunity development includes‘‘activities that revitalize or stabilizelow- or moderate-income geographies.’’Do all loans in a low- to moderate-income geography have a stabilizingeffect?

A4. No. Some loans may provide onlyindirect or short-term benefits to low- ormoderate-income individuals in a low-or moderate-income geography. These

loans are not considered to have acommunity development purpose. Forexample, a loan for upper-incomehousing in a distressed area is notconsidered to have a communitydevelopment purpose simply because ofthe indirect benefit to low- or moderate-income persons from construction jobsor the increase in the local tax base thatsupports enhanced services to low- andmoderate-income area residents. On theother hand, a loan for an anchorbusiness in a distressed area (or anearby area), that employs or servesresidents of the area, and thus stabilizesthe area, may be considered to have acommunity development purpose. Forexample, in an underserved, distressedarea, a loan for a pharmacy thatemploys, and provides supplies to,residents of the area promotescommunity development.

Q5. Must there be some immediate ordirect benefit to the institution’sassessment area(s) to satisfy theregulations’ requirement that qualifiedinvestments and communitydevelopment loans or services benefit aninstitution’s assessment area(s) or abroader statewide or regional area thatincludes the institution’s assessmentarea(s)?

A5. No. The regulations, for example,recognize that community developmentorganizations and programs arefrequently efficient and effective waysfor institutions to promote communitydevelopment. These organizations andprograms often operate on a statewide oreven multi-state basis. Therefore, aninstitution’s activity is considered acommunity development loan or serviceor a qualified investment if it supportsan organization or activity that coversan area that is larger than, but includes,the institution’s assessment area(s). Theinstitution’s assessment area need notreceive an immediate or direct benefitfrom the institution’s specificparticipation in the broader organizationor activity, provided the purpose,mandate, or function of the organizationor activity includes serving geographiesor individuals located within theinstitution’s assessment area.Furthermore, the regulations permit awholesale or limited purpose institutionto consider community developmentloans, community developmentservices, and qualified investmentswherever they are located, as long as theinstitution has otherwise adequatelyaddressed the credit needs within itsassessment area(s).

Q6. What is meant by a ‘‘regionalarea’’ in the requirement that acommunity development loan mustbenefit the institution’s assessmentarea(s) or a broader statewide or

regional area that includes theinstitution’s assessment area(s)?

A6. A ‘‘regional area’’ may be as smallas a city or county or as large as amultistate area. For example, the ‘‘mid-Atlantic states’’ may comprise a regionalarea. When examiners evaluatecommunity development loans thatbenefit a regional area that includes theinstitution’s assessment area, however,the examiners will consider the size ofthe regional area and the actual orpotential benefit to the institution’sassessment area(s). In most cases, thelarger the regional area, the more diffusethe benefit will be to the institution’sassessment area(s). Examiners may viewloans with more direct benefits to aninstitution’s assessment area(s) as moreresponsive to the credit needs of thearea(s) than loans for which the actualbenefit to the assessment area(s) isuncertain or for which the benefit isdiffused throughout a larger area thatincludes the assessment area(s).

Sectionsl.12(j) & 563e.12(i)Community Development Service

Q1. In addition to meeting thedefinition of ‘‘community development’’in the regulation, communitydevelopment services must also berelated to the provision of financialservices. What is meant by ‘‘provision offinancial services’’?

A1. Providing financial servicesmeans providing services of the typegenerally provided by the financialservices industry. Providing financialservices often involves informingcommunity members about how to getor use credit or otherwise providingcredit services or information to thecommunity. For example, service on theboard of directors of an organizationthat promotes credit availability orfinances affordable housing is related tothe provision of financial services.Providing technical assistance aboutfinancial services to community-basedgroups, local or tribal governmentagencies, or intermediaries that help tomeet the credit needs of low- andmoderate-income individuals or smallbusinesses and farms is also providingfinancial services. By contrast, activitiesthat do not take advantage of theemployees’ financial expertise, such asneighborhood cleanups, do not involvethe provision of financial services.

Q2. Are personal charitable activitiesprovided by an institution’s employeesor directors outside the ordinary courseof their employment consideredcommunity development services?

A2. No. Services must be provided asa representative of the institution. Forexample, if a financial institution’sdirector, on her own time and not as a


representative of the institution,volunteers one evening a week at a localcommunity development corporation’sfinancial counseling program, theinstitution may not consider thisactivity a community developmentservice.

Q3. What are examples of communitydevelopment services?

A3. Examples of communitydevelopment services include, but arenot limited to, the following:

• Providing technical assistance onfinancial matters to nonprofit, tribal orgovernment organizations serving low-and moderate-income housing oreconomic revitalization anddevelopment needs;

• Providing technical assistance onfinancial matters to small businesses orcommunity development organizations;

• Lending employees to providefinancial services for organizationsfacilitating affordable housingconstruction and rehabilitation ordevelopment of affordable housing;

• Providing credit counseling, homebuyers and home maintenancecounseling, financial planning or otherfinancial services education to promotecommunity development and affordablehousing;

• Establishing school savingsprograms for low- or moderate-incomeindividuals;

• Providing electronic benefitstransfer and point of sale terminalsystems to improve access to financialservices, such as by decreasing costs, forlow- or moderate-income individuals;and

• Providing other financial serviceswith the primary purpose of communitydevelopment, such as low-cost bankaccounts or free government checkcashing that increases access tofinancial services for low- or moderate-income individuals.

Examples of technical assistanceactivities that might be provided tocommunity development organizationsinclude:

• Serving on a loan reviewcommittee;

• Developing loan application andunderwriting standards;

• Developing loan processingsystems;

• Developing secondary marketvehicles or programs;

• Assisting in marketing financialservices, including development ofadvertising and promotions,publications, workshops andconferences;

• Furnishing financial servicestraining for staff and management;

• Contributing accounting/bookkeeping services; and

• Assisting in fund raising, includingsoliciting or arranging investments.

Sectionsl.12(k) & 563e.12(j)Consumer Loan

Q1. Are home equity loans considered‘‘consumer loans’’?

A1. Home equity loans made forpurposes other than home purchase,home improvement or refinancing homepurchase or home improvement loansare consumer loans if they are extendedto one or more individuals forhousehold, family, or other personalexpenditures.

Q2. May a home equity line of creditbe considered a ‘‘consumer loan’’ evenif part of the line is for homeimprovement purposes?

A2. If the predominant purpose of theline is home improvement, the line mayonly be reported under HMDA and maynot be considered a consumer loan.However, the full amount of the linemay be considered a ‘‘consumer loan’’ ifits predominant purpose is forhousehold, family, or other personalexpenditures, and to a lesser extenthome improvement, and the full amountof the line has not been reported underHMDA. This is the case even thoughthere may be ‘‘double counting’’ becausepart of the line may also have beenreported under HMDA.

Q3. How should an institution collector report information on loans theproceeds of which will be used formultiple purposes?

A3. If an institution makes a singleloan or provides a line of credit to acustomer to be used for both consumerand small business purposes, consistentwith the Call Report and TFRinstructions, the institution shoulddetermine the major (predominant)component of the loan or the credit lineand collect or report the entire loan orcredit line in accordance with theregulation’s specifications for that loantype.

Sectionsl.12(m) & 563e.12(l) HomeMortgage Loan

Q1. Does the term ‘‘home mortgageloan’’ include loans other than ‘‘homepurchase loans’’?

A1. Yes. ‘‘Home mortgage loan’’includes a ‘‘home improvement loan’’ aswell as a ‘‘home purchase loan,’’ as bothterms are defined in the HMDAregulation, Regulation C, 12 CFR part203. This definition also includesmultifamily (five-or-more families)dwelling loans, loans for the purchase ofmanufactured homes, and refinancingsof home improvement and homepurchase loans.

Q2. Some financial institutions brokerhome mortgage loans. They typically

take the borrower’s application andperform other settlement activities;however, they do not make the creditdecision. The broker institutions mayalso initially fund these mortgage loans,then immediately assign them toanother lender. Because the brokerinstitution does not make the creditdecision, under Regulation C (HMDA),they do not record the loans on theirHMDA–LARs, even if they fund theloans. May an institution receive anyconsideration under CRA for its homemortgage loan brokerage activities?

A2. Yes. A financial institution thatfunds home mortgage loans butimmediately assigns the loans to thelender that made the credit decisionsmay present information about theseloans to examiners for considerationunder the lending test as ‘‘other loandata.’’ Under Regulation C, the brokerinstitution does not record the loans onits HMDA–LAR because it does notmake the credit decisions, even if itfunds the loans. An institution electingto have these home mortgage loansconsidered must maintain informationabout all of the home mortgage loansthat it has funded in this way.Examiners will consider this other loandata using the same criteria by whichhome mortgage loans originated orpurchased by an institution areevaluated.

Institutions that do not providefunding but merely take applicationsand provide settlement services foranother lender that makes the creditdecisions will receive consideration forthis service as a retail banking service.Examiners will consider an institution’smortgage brokerage services whenevaluating the range of servicesprovided to low-, moderate-, middle-and upper-income geographies and thedegree to which the services are tailoredto meet the needs of those geographies.Alternatively, an institution’s mortgagebrokerage service may be considered acommunity development service if theprimary purpose of the service iscommunity development. An institutionwishing to have its mortgage brokerageservice considered as a communitydevelopment service must providesufficient information to substantiatethat its primary purpose is communitydevelopment and to establish the extentof the services provided.

Sections l.12(n) & 563e.12(m) IncomeLevel

Q1. Where do institutions find incomelevel data for geographies andindividuals?

A1. The income levels forgeographies, i.e., census tracts and blocknumbering areas, are derived from


Census Bureau information and areupdated every ten years. Institutionsmay contact their regional CensusBureau office or the Census Bureau’sIncome Statistics Office at (301) 763–8576 to obtain income levels forgeographies. See Appendix A of theseInteragency Questions and Answers fora list of the regional Census Bureauoffices. The income levels forindividuals are derived frominformation calculated by theDepartment of Housing and UrbanDevelopment (HUD) and updatedannually. Institutions may contact HUDat (800) 245–2691 to request a copy of‘‘FY [year number, e.g., 1996] MedianFamily Incomes for States and theirMetropolitan and NonmetropolitanPortions.’’

Alternatively, institutions may obtaina list of the 1990 Census Bureau-calculated and the annually updatedHUD median family incomes formetropolitan statistical areas (MSAs)and statewide nonmetropolitan areas bycalling the Federal Financial InstitutionExamination Council’s (FFIEC’s) HMDAHelp Line at (202) 452–2016. A freecopy will be faxed to the caller throughthe ‘‘fax-back’’ system. Institutions mayalso call this number to have ‘‘faxed-back’’ an order form, from which theymay order a list providing the medianfamily income level, as a percentage ofthe appropriate MSA ornonmetropolitan median family income,of every census tract and blocknumbering area (BNA). This list costs$50. Institutions may also obtain the listof MSA and statewide nonmetropolitanarea median family incomes or an orderform through the FFIEC’s home page onthe Internet at ‘‘http://www.ffiec.gov/’.

Sectionsl.12(o) & 563e.12(n) LimitedPurpose Institution

Q1. What constitutes a ‘‘narrowproduct line’’ in the definition of‘‘limited purpose institution’’?

A1. An institution offers a narrowproduct line by limiting its lendingactivities to a product line other than atraditional retail product line requiredto be evaluated under the lending test(i.e., home mortgage, small business,and small farm loans). Thus, aninstitution engaged only in makingcredit card or motor vehicle loans offersa narrow product line, while aninstitution limiting its lending activitiesto home mortgages is not offering anarrow product line.

Q2. What factors will the agenciesconsider to determine whether aninstitution that, if limited purpose,makes loans outside a narrow productline, or, if wholesale, engages in retaillending, will lose its limited purpose or

wholesale designation because of toomuch other lending?

A2. Wholesale institutions mayengage in some retail lending withoutlosing their designation if this activity isincidental and done on anaccommodation basis. Similarly, limitedpurpose institutions continue to meetthe narrow product line requirement ifthey provide other types of loans on aninfrequent basis. In reviewing otherlending activities by these institutions,the agencies will consider the followingfactors:

• Is the other lending provided as anincident to the institution’s wholesalelending?

• Are the loans provided as anaccommodation to the institution’swholesale customers?

• Are the loans made onlyinfrequently to the limited purposeinstitution’s customers?

• Does only an insignificant portionof the institution’s total assets andincome result from the other lending?

• How significant a role does theinstitution play in providing that type(s)of loan(s) in the institution’s assessmentarea(s)?

• Does the institution hold itself outas offering that type(s) of loan(s)?

• Does the lending test or thecommunity development test present amore accurate picture of theinstitution’s CRA performance?

Q3. Do ‘‘niche institutions’’ qualify aslimited purpose (or wholesale)institutions?

A3. Generally, no. Institutions that arein the business of lending to the public,but specialize in certain types of retailloans (for example, home mortgage orsmall business loans) to certain types ofborrowers (for example, to high-endincome level customers or tocorporations or partnerships of licensedprofessional practitioners) (‘‘nicheinstitutions’’) generally would notqualify as limited purpose (orwholesale) institutions.

Sectionsl.12(s) & 563e.12(r) QualifiedInvestment

Q1. Does the CRA regulation provideauthority for institutions to makeinvestments?

A1. No. The CRA regulation does notprovide authority for institutions tomake investments that are not otherwiseallowed by Federal law.

Q2. Are mortgage-backed securities ormunicipal bonds ‘‘qualifiedinvestments’’?

A2. As a general rule, mortgage-backed securities and municipal bondsare not qualified investments becausethey do not have as their primarypurpose community development, as

defined in the CRA regulations.Nonetheless, mortgage-backed securitiesor municipal bonds designed primarilyto finance community developmentgenerally are qualified investments.Municipal bonds or other securitieswith a primary purpose of communitydevelopment need not be housing-related. For example, a bond to fund acommunity facility or park or to providesewage services as part of a plan toredevelop a low-income neighborhoodis a qualified investment. Housing-related bonds or securities mustprimarily address affordable housing(including multifamily rental housing)needs in order to qualify.

Q3. Are Federal Home Loan Bankstocks and membership reserves withthe Federal Reserve Banks ‘‘qualifiedinvestments’’?

A3. No. Federal Home Loan Bankstock and membership reserves with theFederal Reserve Banks do not have asufficient connection to communitydevelopment to be qualifiedinvestments.

Q4. What are examples of qualifiedinvestments?

A4. Examples of qualifiedinvestments include, but are not limitedto, investments, grants, deposits orshares in or to:

• Financial intermediaries (including,Community Development FinancialInstitutions (CDFIs), CommunityDevelopment Corporations (CDCs),minority- and women-owned financialinstitutions, community loan funds, andlow-income or community developmentcredit unions) that primarily lend orfacilitate lending in low- and moderate-income areas or to low- and moderate-income individuals in order to promotecommunity development, such as aCDFI that promotes economicdevelopment on an Indian reservation;

• Organizations engaged in affordablehousing rehabilitation and construction,including multifamily rental housing;

• Organizations, including, forexample, Small Business InvestmentCompanies (SBICs) and specializedSBICs, that promote economicdevelopment by financing smallbusinesses;

• Facilities that promote communitydevelopment in low- and moderate-income areas for low- and moderate-income individuals, such as youthprograms, homeless centers, soupkitchens, health care facilities, batteredwomen’s centers, and alcohol and drugrecovery centers;

• Projects eligible for low-incomehousing tax credits;

• State and municipal obligations,such as revenue bonds, that specifically


support affordable housing or othercommunity development;

• Not-for-profit organizations servinglow- and moderate-income housing orother community development needs,such as counseling for credit, home-ownership, home maintenance, andother financial services education; and

• Organizations supporting activitiesessential to the capacity of low- andmoderate-income individuals orgeographies to utilize credit or tosustain economic development, such as,for example, day care operations and jobtraining programs that enable people towork.

Q5. Will an institution receiveconsideration for charitablecontributions as ‘‘qualifiedinvestments’’?

A5. Yes, provided they have as theirprimary purpose communitydevelopment as defined in theregulations. A charitable contribution,whether in cash or an in-kindcontribution of property, is included inthe term ‘‘grant.’’ A qualified investmentis not disqualified because aninstitution receives favorable treatmentfor it (for example, as a tax deductionor credit) under the Internal RevenueCode.

Q6. An institution makes orparticipates in a communitydevelopment loan. The institutionprovided the loan at below-marketinterest rates or ‘‘bought down’’ theinterest rate to the borrower. Is the lostincome resulting from the lower interestrate or buy-down a qualifiedinvestment?

A6. No. The agencies will, however,consider the innovativeness andcomplexity of the communitydevelopment loan within the bounds ofsafe and sound banking practices.

Q7. Will the agencies consider as aqualified investment the wages or othercompensation of an employee ordirector who provides assistance to acommunity development organizationon behalf of the institution?

A7. No. However, the agencies willconsider donated labor of employees ordirectors of a financial institution in theservice test if the activity is acommunity development service.

Sectionl.12(t) Small institution

Q1. How are the ‘‘total bank and thriftassets’’ of a holding companydetermined?

A1. ‘‘Total banking and thrift assets’’of a holding company are determined bycombining the total assets of all banksand/or thrifts that are majority-ownedby the holding company. An institutionis majority-owned if the holdingcompany directly or indirectly owns

more than 50 percent of its outstandingvoting stock.

Q2. How are Federal and State branchassets of a foreign bank calculated forpurposes of the CRA?

A2. A Federal or State branch of aforeign bank is considered a smallinstitution if the Federal or State branchhas less than $250 million in assets andthe total assets of the foreign bank’s orits holding company’s U.S. bank andthrift subsidiaries that are subject to theCRA are less than $1 billion. Thiscalculation includes not only FDIC-insured bank and thrift subsidiaries, butalso the assets of any FDIC-insuredbranch of the foreign bank and theassets of any uninsured Federal or Statebranch (other than a limited branch ora Federal agency) of the foreign bankthat results from an acquisitiondescribed in section 5(a)(8) of theInternational Banking Act of 1978 (12U.S.C. § 3103(a)(8)).

Sectionl.12(u) Small business loan

Q1. Are loans to nonprofitorganizations considered small businessloans or are they considered communitydevelopment loans?

A1. To be considered a small businessloan, a loan must meet the definition of‘‘loan to small business’’ in theinstructions in the ‘‘ConsolidatedReports of Conditions and Income’’ (CallReport) and ‘‘Thrift Financial Reports’’(TFR). In general, a loan to a nonprofitorganization, for business or farmpurposes, where the loan is secured bynonfarm nonresidential property andthe original amount of the loan is $1million or less, if a business loan, or$500,000 or less, if a farm loan, wouldbe reported in the Call Report and TFRas a small business or small farm loan.If a loan to a nonprofit organization isreportable as a small business or smallfarm loan, it cannot also be consideredas a community development loan,except by a wholesale or limitedpurpose institution. Loans to nonprofitorganizations that are not small businessor small farm loans for Call Report andTFR purposes may be considered ascommunity development loans if theymeet the regulatory definition.

Q2. Are loans secured by commercialreal estate considered small businessloans?

A2. Yes, depending on their principalamount. Small business loans includeloans secured by ‘‘nonfarmnonresidential properties,’’ as defined inthe Call Report and TFR, in amountsless than $1 million.

Q3. Are loans secured by nonfarmresidential real estate to finance smallbusinesses ‘‘small business loans’’?

A3. No. Loans secured by nonfarmresidential real estate that are used tofinance small businesses are notincluded as ‘‘small business’’ loans forCall Report and TFR purposes. Theagencies recognize that many smallbusinesses are financed by loanssecured by residential real estate. Ifthese loans promote communitydevelopment, as defined in theregulation, they may be considered ascommunity development loans.Otherwise, at an institution’s option, theinstitution may collect and maintaindata separately concerning these loansand request that the data be consideredin its CRA evaluation as ‘‘Other SecuredLines/Loans for Purposes of SmallBusiness.’’

Q4. Are credit cards issued to smallbusinesses considered ‘‘small businessloans’’?

A4. Credit cards issued to a smallbusiness or to individuals to be used,with the institution’s knowledge, asbusiness accounts are small businessloans if they meet the definitionalrequirements in the Call Report or TFRinstructions.

Sectionl.12(w) Wholesale Institution

Q1. What factors will the agenciesconsider in determining whether aninstitution is in the business ofextending home mortgage, smallbusiness, small farm, or consumer loansto retail customers?

A1. The agencies will considerwhether:

• The institution holds itself out tothe retail public as providing suchloans; and

• The institution’s revenues fromextending such loans are significantwhen compared to its overalloperations.

A wholesale institution may makesome retail loans without losing itswholesale designation as describedabove in Q&A2 addressing §§ l.12(o)and 563e.12(n).

Sectionl.21—Performance tests,Standards, and Ratings, in General

Sectionl.21(a) Performance Tests andStandards

Q1. Are all community developmentactivities weighted equally byexaminers?

A1. No. Examiners will consider theresponsiveness to credit and communitydevelopment needs, as well as theinnovativeness and complexity of aninstitution’s community developmentlending, qualified investments, andcommunity development services.These criteria include consideration ofthe degree to which they serve as a


catalyst for other communitydevelopment activities. The criteria aredesigned to add a qualitative element tothe evaluation of an institution’sperformance.

Sectionl.21(b) Performance ContextQ1. Is the performance context

essentially the same as the formerregulation’s needs assessment?

A1. No. The performance context is abroad range of economic, demographic,and institution-and community-specificinformation that an examiner reviews tounderstand the context in which aninstitution’s record of performanceshould be evaluated. The agencies willprovide examiners with much of thisinformation prior to the examination.The performance context is not a formalor written assessment of communitycredit needs.

Sectionl.21(b)(2) InformationMaintained by the Institution orObtained From Community Contacts

Q1. Will examiners considerperformance context informationprovided by institutions?

A1. Yes. An institution may provideexaminers with any information itdeems relevant, including informationon the lending, investment, and serviceopportunities in its assessment area(s).This information may include data onthe business opportunities addressed bylenders not subject to the CRA.Institutions are not required, however,to prepare a needs assessment. If aninstitution provides information toexaminers, the agencies will not expectinformation other than what theinstitution normally would develop toprepare a business plan or to identifypotential markets and customers,including low-and moderate-incomepersons and geographies in itsassessment area(s). The agencies willnot evaluate an institution’s efforts toascertain community credit needs orrate an institution on the quality of anyinformation it provides.

Q2. Will examiners conductcommunity contact interviews as part ofthe examination process?

A2. Yes. Examiners will considerinformation obtained from interviewswith local community, civic, andgovernment leaders. These interviewsprovide examiners with knowledgeregarding the local community, itseconomic base, and communitydevelopment initiatives. To ensure thatinformation from local leaders isconsidered—particularly in areas wherethe number of potential contacts may belimited—examiners may useinformation obtained through aninterview with a single community

contact for examinations of more thanone institution in a given market. Inaddition, the agencies will considerinformation obtained from interviewsconducted by other agency staff and bythe other agencies. In order to augmentcontacts previously used by the agenciesand foster a wider array of contacts, theagencies will share community contactinformation.

Sectionl.21(b)(4) InstitutionalCapacity and Constraints

Q1. Will examiners consider factorsoutside of an institution’s control thatprevent it from engaging in certainactivities?

A1. Yes. Examiners will take intoaccount statutory and supervisorylimitations on an institution’s ability toengage in any lending, investment, andservice activities. For example, a savingsassociation that has made few or noqualified investments due to its limitedinvestment authority may still receive alow satisfactory rating under theinvestment test if it has a strong lendingrecord.

§ l.21(b)(5) Institution’s PastPerformance and the Performance ofSimilarly Situated Lenders

Q1. Can an institution’s assignedrating be adversely affected by poor pastperformance?

A1. Yes. The agencies will consideran institution’s past performance in itsoverall evaluation. For example, aninstitution’s past performance maysupport a rating of ‘‘substantialnoncompliance’’ if the institution hasnot improved performance rated as‘‘needs to improve.’’

Q2. How will examiners consider theperformance of similarly situatedlenders?

A2. The performance context sectionof the regulation permits theperformance of similarly situatedlenders to be considered, for example,as one of a number of considerations inevaluating the geographic distribution ofan institution’s loans to low-, moderate-,middle-, and upper-income geographies.This analysis, as well as other analyses,may be used, for example, where groupsof contiguous geographies within aninstitution’s assessment area(s) exhibitabnormally low penetration. In thisregard, the performance of similarlysituated lenders may be analyzed if suchan analysis would provide accurateinsight into the institution’s lack ofperformance in those areas. Theregulation does not require the use of aspecific type of analysis under thesecircumstances. Moreover, no ratio

developed from any type of analysis islinked to any lending test rating.

§ l.22—Lending Test

§ l.22(a) Scope of test

§ l.22(a)(1) Types of LoansConsidered

Q1. If a large retail institution is notrequired to collect and report homemortgage data under the HMDA, will theagencies still evaluate the institution’shome mortgage lending performance?

A1. Yes. The agencies will sample theinstitution’s home mortgage loan files inorder to assess its performance underthe lending test criteria.

Q2. When will examiners considerconsumer loans as part of aninstitution’s CRA evaluation?

A2. Consumer loans will be evaluatedif the institution so elects; and aninstitution that elects not to have itsconsumer loans evaluated will not beviewed less favorably by examiners thanone that does. However, if consumerloans constitute a substantial majority ofthe institution’s business, the agencieswill evaluate them even if theinstitution does not so elect. Theagencies interpret ‘‘substantial majority’’to be so significant a portion of theinstitution’s lending activity by numberor dollar volume of loans that thelending test evaluation would notmeaningfully reflect its lendingperformance if consumer loans wereexcluded.

§ l.22(a)(2) Other Loan Data

Q1. How are lending commitments(such as letters of credit) evaluatedunder the regulation?

A1. The agencies consider lendingcommitments (such as letters of credit)only at the option of the institution.Commitments must be legally bindingbetween an institution and a borrowerin order to be considered. Informationabout lending commitments will beused by examiners to enhance theirunderstanding of an institution’sperformance.

Q2. Will examiners review applicationdata as part of the lending test?

A2. Application activity is not aperformance criterion of the lendingtest. However, examiners may considerthis information in the performancecontext analysis because thisinformation may give examiners insighton, for example, the demand for loans.

Q3. May a financial institution receiveconsideration under CRA formodification, extension, andconsolidation agreements (MECAs), inwhich it obtains loans from otherinstitutions without actually purchasing


or refinancing the loans, as those termshave been interpreted under CRA?

A3. Yes. In some states, MECAs,which are not considered loanrefinancings because the existing loanobligations are not satisfied andreplaced, are common. Although thesetransactions are not considered to bepurchases or refinancings, as thoseterms have been interpreted under CRA,they do achieve the same results. Aninstitution may present informationabout its MECA activities to examinersfor consideration under the lending testas ‘‘other loan data.’’

Section l.22(b) Performance Criteria

Q1. How will examiners apply theperformance criteria in the lending test?

A1. Examiners will apply theperformance criteria reasonably andfairly, in accord with the regulations,the examination procedures, and thisGuidance. In doing so, examiners willdisregard efforts by an institution tomanipulate business operations orpresent information in an artificial lightthat does not accurately reflect aninstitution’s overall record of lendingperformance.

Section l.22(b)(1) Lending Activity

Q1. How will the agencies apply thelending activity criterion to discouragean institution from originating loansthat are viewed favorably under CRA inthe institution itself and referring otherloans, which are not viewed asfavorably, for origination by an affiliate?

A1. Examiners will review closelyinstitutions with (1) a small number andamount of home mortgage loans with anunusually good distribution among low-and moderate-income areas and low-and moderate-income borrowers and (2)a policy of referring most, but not all, oftheir home mortgage loans to affiliatedinstitutions. If an institution is makingloans mostly to low-and moderate-income individuals and areas andreferring the rest of the loan applicantsto an affiliate for the purpose ofreceiving a favorable CRA rating,examiners may conclude that theinstitution’s lending activity is notsatisfactory because it hasinappropriately attempted to influencethe rating. In evaluating an institution’slending, examiners will considerlegitimate business reasons for theallocation of the lending activity.

Section l.22(b)(2) & (3) GeographicDistribution and BorrowerCharacteristics

Q1. How do the geographicdistribution of loans and thedistribution of lending by borrower

characteristics interact in the lendingtest?

A1. Examiners generally will considerboth the distribution of an institution’sloans among geographies of differentincome levels and among borrowers ofdifferent income levels and businessesof different sizes. The importance of theborrower distribution criterion,particularly in relation to the geographicdistribution criterion, will depend onthe performance context. For example,distribution among borrowers withdifferent income levels may be moreimportant in areas without identifiablegeographies of different incomecategories. On the other hand,geographic distribution may be moreimportant in areas with the full range ofgeographies of different incomecategories.

Q2. Must an institution lend to allportions of its assessment area?

A2. The term ‘‘assessment area’’describes the geographic area withinwhich the agencies assess how well aninstitution has met the specificperformance tests and standards in therule. The agencies do not expect thatsimply because a census tract or blocknumbering area is within aninstitution’s assessment area(s) theinstitution must lend to that census tractor block numbering area. Rather theagencies will be concerned withconspicuous gaps in loan distributionthat are not explained by theperformance context. Similarly, if aninstitution delineated the entire countyin which it is located as its assessmentarea, but could have delineated itsassessment area as only a portion of thecounty, it will not be penalized forlending only in that portion of thecounty, so long as that portion does notreflect illegal discrimination orarbitrarily exclude low- or moderate-income geographies. The capacity andconstraints of an institution, its businessdecisions about how it can best help tomeet the needs of its assessment area(s),including those of low- and moderate-income neighborhoods, and otheraspects of the performance context, areall relevant to explain why theinstitution is serving or not servingportions of its assessment area(s).

Q3. Will examiners take into accountloans made by affiliates whenevaluating the proportion of aninstitution’s lending in its assessmentarea(s)?

A3. Examiners will not take intoaccount loans made by affiliates whendetermining the proportion of aninstitution’s lending in its assessmentarea(s), even if the institution elects tohave its affiliate lending considered inthe remainder of the lending test

evaluation. However, examiners mayconsider an institution’s businessstrategy of conducting lending throughan affiliate in order to determinewhether a low proportion of lending inthe assessment area(s) should adverselyaffect the institution’s lending testrating.

Q4. When will examiners considerloans (other than communitydevelopment loans) made outside aninstitution’s assessment area(s)?

A4. Favorable consideration will begiven for loans to low- and moderate-income persons and small business andfarm loans outside of an institution’sassessment area(s), provided theinstitution has adequately addressed theneeds of borrowers within itsassessment area(s). The agencies willapply this consideration not only toloans made by large retail institutionsbeing evaluated under the lending test,but also to loans made by smallinstitutions being evaluated under thesmall institution performance standards.Loans to low-and moderate-incomepersons and small businesses and farmsoutside of an institution’s assessmentarea(s), however, will not compensatefor poor lending performance within theinstitution’s assessment area(s).

Q5. Under the lending test, how willexaminers evaluate home mortgageloans to middle- or upper-incomeindividuals in a low- or moderate-income geography?

A5. Examiners will consider thesehome mortgage loans under theperformance criteria of the lending test,i.e., by number and amount of homemortgage loans, whether they are insideor outside the financial institution’sassessment area(s), their geographicdistribution, and the income levels ofthe borrowers. Examiners will useinformation regarding the financialinstitution’s performance context todetermine how to evaluate the loansunder these performance criteria.Depending on the performance context,examiners could view home mortgageloans to middle-income individuals in alow-income geography very differently.For example, if the loans are for homeslocated in an area for which the local,state, tribal, or Federal government or acommunity-based developmentorganization has developed arevitalization or stabilization plan (suchas a Federal enterprise community orempowerment zone) that includesattracting mixed-income residents toestablish a stabilized, economicallydiverse neighborhood, examiners maygive more consideration to such loans,which may be viewed as serving thelow- or moderate-income community’sneeds as well as serving those of the


middle-or upper-income borrowers. If,on the other hand, no such plan existsand there is no other evidence ofgovernmental support for arevitalization or stabilization project inthe area and the loans to middle- orupper-income borrowers significantlydisadvantage or primarily have theeffect of displacing low- or moderate-income residents, examiners may viewthese loans simply as home mortgageloans to middle- or upper-incomeborrowers who happen to reside in alow- or moderate-income geography andweigh them accordingly in theirevaluation of the institution.

Sectionl.22(c) Affiliate Lending

Sectionl.22(c)(1) In General

Q1. If an institution elects to haveloans by its affiliate(s) considered, mayit elect to have only certain categories ofloans considered?

A1. Yes. An institution may elect tohave only a particular category of itsaffiliate’s lending considered. The basiccategories of loans are home mortgageloans, small business loans, small farmloans, community development loans,and the five categories of consumerloans (motor vehicle loans, credit cardloans, home equity loans, other securedloans, and other unsecured loans).

Sectionl.22(c)(2) Constraints onAffiliate Lending

Sectionl.22(c)(2)(i) No Affiliate mayClaim a Loan Origination or LoanPurchase if Another Institution Claimsthe Same Loan Origination or Purchase

Q1. How is this constraint on affiliatelending applied?

A1. This constraint prohibits oneaffiliate from claiming a loan originationor purchase claimed by another affiliate.However, an institution can count as apurchase a loan originated by anaffiliate that the institutionsubsequently purchases, or count as anorigination a loan later sold to anaffiliate, provided the same loans arenot sold several times to inflate theirvalue for CRA purposes.

Sectionl.22(c)(2)(ii) If an InstitutionElects To Have its Supervisory AgencyConsider Loans Within a ParticularLending Category Made by one or Moreof the Institution’s Affiliates in aParticular Assessment Area, theInstitution Shall Elect to Have theAgency Consider all Loans Within ThatLending Category in That ParticularAssessment Area Made by all of theInstitution’s Affiliates

Q1. How is this constraint on affiliatelending applied?

A1. This constraint prohibits ‘‘cherry-picking’’ affiliate loans within any onecategory of loans. The constraintrequires an institution that elects tohave a particular category of affiliatelending in a particular assessment areaconsidered to include all loans of thattype made by all of its affiliates in thatparticular assessment area. For example,assume that an institution has one ormore affiliates, such as a mortgage bankthat makes loans in the institution’sassessment area. If the institution electsto include the mortgage bank’s homemortgage loans, it must include all ofmortgage bank’s home mortgage loansmade in its assessment area. Theinstitution cannot elect to include onlythose low- and moderate-income homemortgage loans made by the mortgagebank affiliate and not home mortgageloans to middle- and upper-incomeindividuals or areas.

Q2. How is this constraint applied ifan institution’s affiliates are alsoinsured depository institutions subjectto the CRA?

A2. Strict application of thisconstraint against ‘‘cherry-picking’’ toloans of an affiliate that is also aninsured depository institution coveredby the CRA would produce theanomalous result that the otherinstitution would, without its consent,not be able to count its own loans.Because the agencies did not intend todeprive an institution subject to theCRA of receiving consideration for itsown lending, the agencies read thisconstraint slightly differently in casesinvolving a group of affiliatedinstitutions, some of which are subjectto the CRA and share the sameassessment area(s). In thosecircumstances, an institution that electsto include all of its mortgage affiliate’shome mortgage loans in its assessmentarea would not automatically berequired to include all home mortgageloans in its assessment area of anotheraffiliate institution subject to the CRA.However, all loans of a particular typemade by any affiliate in the institution’sassessment area(s) must either becounted by the lending institution or byanother affiliate institution that issubject to the CRA. This reading reflectsthe fact that a holding company may, forbusiness reasons, choose to transactdifferent aspects of its business indifferent subsidiary institutions.However, the method by which loansare allocated among the institutions forCRA purposes must reflect actualbusiness decisions about the allocationof banking activities among theinstitutions and should not be designedsolely to enhance their CRA evaluations.

Sectionl.22(d) Lending by aConsortium or a Third Party

Q1. Will equity and equity-typeinvestments in a third party receivepositive consideration under the lendingtest?

A1. If an institution has made anequity or equity-type investment in athird party, loans made by the thirdparty may be considered under thelending test. On the other hand, asset-backed and debt securities that do notrepresent an equity-type interest in athird party will not be considered underthe lending test unless the securities arebooked by the purchasing institution asa loan. For example, if an institutionpurchases stock in a communitydevelopment corporation (‘‘CDC’’) thatprimarily lends in low- and moderate-income areas or to low-and moderate-income individuals in order to promotecommunity development, the institutionmay claim a pro rata share of the CDC’sloans as community development loans.The institution’s pro rata share is basedon its percentage of equity ownership inthe CDC.

Q&A1 addressing § l.23(b) providesinformation concerning consideration ofan equity or equity-type investmentunder the investment test and both thelending and investment tests.

Q2. How will examiners evaluateloans made by consortia or third partiesunder the lending test?

A2. Loans originated or purchased byconsortia in which an institutionparticipates or by third parties in whichan institution invests will only beconsidered if they qualify as communitydevelopment loans and will only beconsidered under the communitydevelopment criterion of the lendingtest. However, loans originated directlyon the books of an institution orpurchased by the institution areconsidered to have been made orpurchased directly by the institution,even if the institution originated orpurchased the loans as a result of itsparticipation in a loan consortium.These loans would be considered underall the lending test criteria appropriateto them depending on the type of loan.

Q3. In some circumstances, aninstitution may invest in a third party,such as a community developmentbank, that is also an insured depositoryinstitution and is thus subject to CRArequirements. If the investing institutionrequests its supervisory agency toconsider its pro rata share of communitydevelopment loans made by the thirdparty, as allowed under 12 CFR§ l.22(d), may the third party alsoreceive consideration for these loans?


A3. Yes, as long as the financialinstitution and the third party are notaffiliates. The regulations state, at 12CFR § l.22(c)(2)(i), that two affiliatesmay not both claim the same loanorigination or loan purchase. However,if the financial institution and the thirdparty are not affiliates, the third partymay receive consideration for thecommunity development loans itoriginates, and the financial institutionthat invested in the third party may alsoreceive consideration for its pro ratashare of the same communitydevelopment loans under 12 CFR§ l.22(d).

Sectionl.23—Investment Test

Sectionl.23(b) Exclusion

Q1. Even though the regulations statethat an activity that is considered underthe lending or service tests cannot alsobe considered under the investment test,may parts of an activity be consideredunder one test and other parts beconsidered under another test?

A1. Yes, in some instances the natureof an activity may make it eligible forconsideration under more than one ofthe performance tests. For example,certain investments and related supportprovided by a large retail institution toa CDC may be evaluated under thelending, investment, and service tests.Under the service test, the institutionmay receive consideration for anycommunity development services that itprovides to the CDC, such as service byan executive of the institution on theCDC’s board of directors. If theinstitution makes an investment in theCDC that the CDC uses to makecommunity development loans, theinstitution may receive considerationunder the lending test for its pro-ratashare of community development loansmade by the CDC. Alternatively, theinstitution’s investment may beconsidered under the investment test,assuming it is a qualified investment. Inaddition, an institution may elect tohave a part of its investment consideredunder the lending test and theremaining part considered under theinvestment test. If the investinginstitution opts to have a portion of itsinvestment evaluated under the lendingtest by claiming a share of the CDC’scommunity development loans, theamount of investment considered underthe investment test will be offset by thatportion. Thus, the institution wouldonly receive consideration under theinvestment test for the amount of itsinvestment multiplied by the percentageof the CDC’s assets that meet thedefinition of a qualified investment.

Sectionl.24—Service test

Sectionl.24(d) Performance Criteria—Retail Banking Services

Q1. How do examiners evaluate theavailability and effectiveness of aninstitution’s systems for delivering retailbanking services?

A1. Convenient access to full servicebranches within a community is animportant factor in determining theavailability of credit and non-creditservices. Therefore, the service testperformance standards place primaryemphasis on full service branches whilestill considering alternative systems,such as automated teller machines(‘‘ATMs’’). The principal focus is on aninstitution’s current distribution ofbranches; therefore, an institution is notrequired to expand its branch networkor operate unprofitable branches. Underthe service test, alternative systems fordelivering retail banking services, suchas ATMs, are considered only to theextent that they are effective alternativesin providing needed services to low-and moderate-income areas andindividuals.

Sectionl.24(d)(3) Availability andEffectiveness of Alternative Systems forDelivering Retail Banking Services

Q1. How will examiners evaluatealternative systems for delivering retailbanking services?

A1. The regulation recognizes themultitude of ways in which aninstitution can provide services, forexample, ATMs, banking by telephoneor computer, and bank-by-mailprograms. Delivery systems other thanbranches will be considered positivelyunder the regulation to the extent thatthey are effective alternatives tobranches in providing needed servicesto low-and moderate-income areas andindividuals. The list of systems in theregulation is not intended to beinclusive.

Q2. Are debit cards considered underthe service test as an alternative deliverysystem?

A2. By themselves, no. However, ifdebit cards are a part of a largercombination of products, such as acomprehensive electronic bankingservice, that allows an institution todeliver needed services to low- andmoderate-income areas and individualsin its community, the overall deliverysystem that includes the debit cardfeature would be considered analternative delivery system.

Sectionl.25 Community DevelopmentTest for Wholesale or Limited PurposeInstitutions

Sectionl.25(d) Indirect Activities

Q1. How are investments in thirdparty community developmentorganizations considered under thecommunity development test?

A1. Similar to the lending test forretail institutions, investments in thirdparty community developmentorganizations may be considered asqualified investments or as communitydevelopment loans or both (providedthere is no double counting), at theinstitution’s option, as described abovein the discussion regarding §§ l.22(d)and l.23(b).

Section l.25(f) CommunityDevelopment Performance Rating

Q1. Must a wholesale or limitedpurpose institution engage in all threecategories of community developmentactivities (lending, investment andservice) to perform well under thecommunity development test?

A1. No, a wholesale or limitedpurpose institution may perform wellunder the community development testby engaging in one or more of theseactivities.

Section l.26—Small InstitutionPerformance Standards

Section l.26(a) Performance Criteria

Q1. May examiners consider, underone or more of the performance criteriaof the small institution performancestandards, lending-related activities,such as community development loansand lending-related qualifiedinvestments, when evaluating a smallinstitution?

A1. Yes. Examiners can consider‘‘lending-related activities,’’ includingcommunity development loans andlending-related qualified investments,when evaluating the first fourperformance criteria of the smallinstitution performance test. Althoughlending-related activities are specificallymentioned in the regulation inconnection with only the first threecriteria (i.e., loan-to-deposit ratio,percentage of loans in the institution’sassessment area, and lending toborrowers of different incomes andbusinesses of different sizes), examinerscan also consider these activities whenthey evaluate the fourth criteria—geographic distribution of theinstitution’s loans.

Q2. What is meant by ‘‘asappropriate’’ when referring to the factthat lending-related activities will beconsidered, ‘‘as appropriate,’’ under the


various small institution performancecriteria?

A2. ‘‘As appropriate’’ means thatlending-related activities will beconsidered when it is necessary todetermine whether an institution meetsor exceeds the standards for asatisfactory rating. Examiners will alsoconsider other lending-related activitiesat an institution’s request.

Q3. When evaluating a smallinstitution’s lending performance, willexaminers consider, at the institution’srequest, community development loansoriginated or purchased by a consortiumin which the institution participates orby a third party in which the institutionhas invested?

A3. Yes. However, a small institutionthat elects to have examiners considercommunity development loansoriginated or purchased by a consortiumor third party must maintain sufficientinformation on its share of thecommunity development loans so thatthe examiners may evaluate these loansunder the small institution performancecriteria.

Q4. Under the small institutionperformance standards, will examinersconsider both loan originations andpurchases?

A4. Yes, consistent with the otherassessment methods in the regulation,examiners will consider both loansoriginated and purchased by theinstitution. Likewise, examiners mayconsider any other loan data the smallinstitution chooses to provide,including data on loans outstanding,commitments and letters of credit.

Q5. Under the small institutionperformance standards, how willqualified investments be considered forpurposes of determining whether asmall institution receives a satisfactoryCRA rating?

A5. The small institution performancestandards focus on lending and otherlending-related activities. Therefore,examiners will consider only lending-related qualified investments for thepurposes of determining whether thesmall institution receives a satisfactoryCRA rating.

Section l .26(a)(1) Loan-to-DepositRatio

Q1. How is the loan-to-deposit ratiocalculated?

A1. A small institution’s loan-to-deposit ratio is calculated in the samemanner that the Uniform BankPerformance Report/Uniform ThriftPerformance Report (UBPR/UTPR)determines the ratio. It is calculated bydividing the institution’s net loans andleases by its total deposits. The ratio isfound in the Liquidity and Investment

Portfolio section of the UBPR andUTPR. Examiners will use this ratio tocalculate an average since the lastexamination by adding the quarterlyloan-to-deposit ratios and dividing thetotal by the number of quarters.

Q2. How is the ‘‘reasonableness’’ of aloan-to-deposit ratio evaluated?

A2. No specific ratio is reasonable inevery circumstance, and each smallinstitution’s ratio is evaluated in light ofinformation from the performancecontext, including the institution’scapacity to lend, demographic andeconomic factors present in theassessment area, and the lendingopportunities available in theassessment area(s). If a smallinstitution’s loan-to-deposit ratioappears unreasonable after consideringthis information, lending performancemay still be satisfactory under thiscriterion taking into consideration thenumber and the dollar volume of loanssold to the secondary market or thenumber and amount and innovativenessor complexity of communitydevelopment loans and lending-relatedqualified investments.

Q3. If an institution makes a largenumber of loans off-shore, willexaminers segregate the domestic loan-to-deposit ratio from the foreign loan-to-deposit ratio?

A3. No. Examiners will look at theinstitution’s net loan-to-deposit ratio forthe whole institution, without anyadjustments.

Section l .26(a)(2) Percentage ofLending Within Assessment Area(s)

Q1. Must a small institution have amajority of its lending in its assessmentarea(s) to receive a satisfactoryperformance rating?

A1. No. The percentage of loans and,as appropriate, other lending-relatedactivities located in the bank’sassessment area(s) is but one of theperformance criteria upon which smallinstitutions are evaluated. If thepercentage of loans and other lendingrelated activities in an institution’sassessment area(s) is less than amajority, then the institution does notmeet the standards for satisfactoryperformance only under this criterion.The effect on the overall performancerating of the institution, however, isconsidered in light of the performancecontext, including informationregarding economic conditions, loandemand, the institution’s size, financialcondition and business strategies, andbranching network and other aspects ofthe institution’s lending record.

Section l.26(a) (3) & (4) Distributionof Lending Within Assessment Area(s)by Borrower Income and GeographicLocation

Q1. How will a small institution’sperformance be assessed under theselending distribution criteria?

A1. Distribution of loans, like othersmall institution performance criteria, isconsidered in light of the performancecontext. For example, a small institutionis not required to lend evenlythroughout its assessment area(s) or inany particular geography. However, inorder to meet the standards forsatisfactory performance under thiscriterion, conspicuous gaps in a smallinstitution’s loan distribution must beadequately explained by performancecontext factors such as lendingopportunities in the institution’sassessment area(s), the institution’sproduct offerings and business strategy,and institutional capacity andconstraints. In addition, it may beimpracticable to review the geographicdistribution of the lending of aninstitution with few demographicallydistinct geographies within anassessment area. If sufficientinformation on the income levels ofindividual borrowers or the revenues orsizes of business borrowers is notavailable, examiners may use proxiessuch as loan size for estimatingborrower characteristics, whereappropriate.

Section l.26(b) Performance Rating

Q1. How can a small institutionachieve an ‘‘outstanding’’ performancerating?

A1. A small institution that meetseach of the standards for a ‘‘satisfactory’’rating and exceeds some or all of thosestandards may warrant an‘‘outstanding’’ performance rating. Inassessing performance at the‘‘outstanding’’ level, the agenciesconsider the extent to which theinstitution exceeds each of theperformance standards and, at theinstitution’s option, its performance inmaking qualified investments andproviding services that enhance creditavailability in its assessment area(s). Insome cases, a small institution mayqualify for an ‘‘outstanding’’performance rating solely on the basis ofits lending activities, but only if itsperformance materially exceeds thestandards for a ‘‘satisfactory’’ rating,particularly with respect to thepenetration of borrowers at all incomelevels and the dispersion of loansthroughout the geographies in itsassessment area(s) that display incomevariation. An institution with a high


loan-to-deposit ratio and a highpercentage of loans in its assessmentarea(s), but with only a reasonablepenetration of borrowers at all incomelevels or a reasonable dispersion ofloans throughout geographies ofdiffering income levels in its assessmentarea(s), generally will not be rated‘‘outstanding’’ based only on its lendingperformance. However, the institution’sperformance in making qualifiedinvestments and its performance inproviding branches and other servicesand delivery systems that enhancecredit availability in its assessmentarea(s) may augment the institution’ssatisfactory rating to the extent that itmay be rated ‘‘outstanding.’’

Q2. Will a small institution’s qualifiedinvestments, community developmentloans, and community developmentservices be considered if they do notdirectly benefit its assessment area(s)?

A2. Yes. These activities are eligiblefor consideration if they benefit abroader statewide or regional area thatincludes a small institution’sassessment area(s), as discussed morefully in Q&A6 addressing §§ l.12(i) and563e.12(h).

Section l.27—Strategic plan

Section l.27(c) Plans in GeneralQ1. To what extent will the agencies

provide guidance to an institutionduring the development of its strategicplan?

A1. An institution will have anopportunity to consult with and provideinformation to the agencies on aproposed strategic plan. Through thisprocess, an institution is providedguidance on procedures and on theinformation necessary to ensure acomplete submission. For example, theagencies will provide guidance onwhether the level of detail as set out inthe proposed plan would be sufficient topermit agency evaluation of the plan.However, the agencies’ guidance duringplan development and, particularly,prior to the public comment period, willnot include commenting on the meritsof a proposed strategic plan or on theadequacy of measurable goals.

Q2. How will a joint strategic plan bereviewed if the affiliates have differentprimary Federal supervisors?

A2. The agencies will coordinatereview of and action on the joint plan.

Each agency will evaluate themeasurable goals for those affiliates forwhich it is the primary regulator.

Section l.27(f) Plan Content

Section l.27(f)(1) Measurable Goals

Q1. How should ‘‘measurable goals’’be specified in a strategic plan?

A1. Measurable goals (e.g., number ofloans, dollar amount, geographiclocation of activity, and benefit to low-and moderate-income areas orindividuals) must be stated withsufficient specificity to permit thepublic and the agencies to quantify whatperformance will be expected. However,institutions are provided flexibility inspecifying goals. For example, aninstitution may provide ranges oflending amounts in different categoriesof loans. Measurable goals may also belinked to funding requirements ofcertain public programs or indexed toother external factors as long as thesemechanisms provide a quantifiablestandard.

Section l.27(g) Plan Approval

Section l.27(g)(2) Public Participation

Q1. How will the public receive noticeof a proposed strategic plan?

A1. An institution submitting astrategic plan for approval by theagencies is required to solicit publiccomment on the plan for a period ofthirty (30) days after publishing noticeof the plan at least once in a newspaperof general circulation. The notice shouldbe sufficiently prominent to attractpublic attention and should make clearthat public comment is desired. Aninstitution may, in addition, providenotice to the public in any other mannerit chooses.

Section l.28—Assigned Ratings

Section l.28(a) Ratings in General

Q1. How are institutions withdomestic branches in more than onestate assigned a rating?

A1. The evaluation of an institutionthat maintains domestic branches inmore than one state (‘‘multistateinstitution’’) will include a writtenevaluation and rating of its CRA recordof performance as a whole and in eachstate in which it has a domestic branch.The written evaluation will contain aseparate presentation on a multistate

institution’s performance for eachmetropolitan statistical area and thenonmetropolitan area within each state,if it maintains one or more domesticbranch offices in these areas. Thisseparate presentation will containconclusions, supported by facts anddata, on performance under theperformance tests and standards in theregulation. The evaluation of amultistate institution that maintains adomestic branch in two or more statesin a multistate metropolitan area willinclude a written evaluation (containingthe same information described above)and rating of its CRA record ofperformance in the multistatemetropolitan area. In such cases, thestatewide evaluation and rating will beadjusted to reflect performance in theportion of the state not within themultistate metropolitan statistical area.

Q2. How are institutions that operatewithin only a single state assigned arating?

A2. An institution that operateswithin only a single state (‘‘single-stateinstitution’’) will be assigned a rating ofits CRA record based on its performancewithin that state. In assigning thisrating, the agencies will separatelypresent a single-state institution’sperformance for each metropolitan areain which the institution maintains oneor more domestic branch offices. Thisseparate presentation will containconclusions, supported by facts anddata, on the single-state institution’sperformance under the performancetests and standards in the regulation.

Q3. How do the agencies weightperformance under the lending,investment and service test for largeretail institutions?

A3. A rating of ‘‘outstanding,’’ ‘‘highsatisfactory,’’ ‘‘low satisfactory,’’ ‘‘needsto improve,’’ or ‘‘substantialnoncompliance,’’ based on a judgmentsupported by facts and data, will beassigned under each performance test.Points will then be assigned to eachrating as described in the first matrix setforth below. A large retail institution’soverall rating under the lending,investment and service tests will thenbe calculated in accordance with thesecond matrix set forth below, whichincorporates the rating principles in theregulation.

POINTS ASSIGNED FOR PERFORMANCE UNDER LENDING, INVESTMENT, AND SERVICE TESTS

Lending Service Investment

Outstanding .............................................................................................................................................. 12 6 6High Satisfactory ...................................................................................................................................... 9 4 4Low Satisfactory ....................................................................................................................................... 6 3 3Needs to Improve ..................................................................................................................................... 3 1 1


POINTS ASSIGNED FOR PERFORMANCE UNDER LENDING, INVESTMENT, AND SERVICE TESTS—Continued

Lending Service Investment

Substantial Noncompliance ...................................................................................................................... 0 0 0

COMPOSITE RATING POINTREQUIREMENTS

[Add points from three tests]

Rating Total points

Outstanding ............... 20 or over.Satisfactory ............... 11 through 19.Needs to Improve ..... 5 through 10.Substantial Non-

compliance.0 through 4.

Note: There is one exception to theComposite Rating matrix. An institution maynot receive a rating of ‘‘satisfactory’’ unlessit receives at least ‘‘low satisfactory’’ on thelending test. Therefore, the total points arecapped at three times the lending test score.

Section l.29—Effect of CRAPerformance on Applications

Section l.29(a) CRA Performance

Q1. What weight is given to aninstitution’s CRA performanceexamination in reviewing anapplication?

A1. In cases in which CRAperformance is a relevant factor,information from a CRA performanceexamination of the institution is aparticularly important consideration inthe applications process because itrepresents a detailed evaluation of theinstitution’s CRA performance by itsFederal supervisory agency. In thislight, an examination is an important,and often controlling factor in theconsideration of an institution’s record.In some cases, however, theexamination may not be recent or aspecific issue raised in the applicationprocess, such as progress in addressingweaknesses noted by examiners,progress in implementing commitmentspreviously made to the reviewingagency, or a supported allegation froma commenter, is relevant to CRAperformance under the regulation andwas not addressed in the examination.In these circumstances, the applicantshould present sufficient information tosupplement its record of performanceand to respond to the substantive issuesraised in the application proceeding.

Q2. What consideration is given to aninstitution’s commitments for futureaction in reviewing an application bythose agencies that consider suchcommitments?

A2. Commitments for future actionare not viewed as part of the CRA recordof performance. In general, institutionscannot use commitments made in the

applications process to overcome aseriously deficient record of CRAperformance. However, commitmentsfor improvements in an institution’sperformance may be appropriate toaddress specific weaknesses in anotherwise satisfactory record or toaddress CRA performance when afinancially troubled institution is beingacquired.

Section l.29(b) Interested Parties

Q1. What consideration is given tocomments from interested parties inreviewing an application?

A1. Materials relating to CRAperformance received during theapplications process can providevaluable information. Writtencomments, which may express eithersupport for or opposition to theapplication, are made a part of therecord in accordance with the agencies’procedures, and are carefullyconsidered in making the agencies’decision. Comments should besupported by facts about the applicant’sperformance and should be as specificas possible in explaining the basis forsupporting or opposing the application.These comments must be submittedwithin the time limits provided underthe agencies’ procedures.

Q2. Is an institution required to enterinto agreements with private parties?

A2. No. Although communicationsbetween an institution and members ofits community may provide a valuablemethod for the institution to assess howbest to address the credit needs of thecommunity, the CRA does not requirean institution to enter into agreementswith private parties. These agreementsare not monitored or enforced by theagencies.

Section l.41—Assessment AreaDelineation

Section l ——.41(a) In General

Q1. How do the agencies evaluate‘‘assessment areas’’ under the revisedCRA regulations compared to how theyevaluated ‘‘local communities’’ thatinstitutions delineated under theoriginal CRA regulations?

A1. The revised rule focuses on thedistribution and level of an institution’slending, investments, and servicesrather than on how and why aninstitution delineated its ‘‘localcommunity’’ or assessment area(s) in aparticular manner. Therefore, the

agencies will not evaluate aninstitution’s delineation of itsassessment area(s) as a separateperformance criterion as they did underthe original regulation. Rather, theagencies will only review whether theassessment area delineated by theinstitution complies with the limitationsset forth in the regulations at § l.41(e).

Q2. If an institution elects to have theagencies consider affiliate lending, willthis decision affect the institution’sassessment area(s)?

A2. If an institution elects to have thelending activities of its affiliatesconsidered in the evaluation of theinstitution’s lending, the geographies inwhich the affiliate lends do not affectthe institution’s delineation ofassessment area(s).

Q3. Can a financial institutionidentify a specific ethnic group ratherthan a geographic area as its assessmentarea?

A3. No, assessment areas must bebased on geography.

Section l.41(c) Geographic Area(s) forInstitutions Other Than Wholesale orLimited Purpose Institutions

Section l.41(c)(1) Generally Consistof one or More MSAs or one or MoreContiguous Political Subdivisions

Q1. Besides cities, towns, andcounties, what other units of localgovernment are political subdivisionsfor CRA purposes?

A1. Townships and Indianreservations are political subdivisionsfor CRA purposes. Institutions shouldbe aware that the boundaries oftownships and Indian reservations maynot be consistent with the boundaries ofthe census tracts or block numberingareas (‘‘geographies’’) in the area. Inthese cases, institutions must ensurethat their assessment area(s) consistsonly of whole geographies by addingany portions of the geographies that lieoutside the political subdivision to thedelineated assessment area(s).

Q2. Are wards, school districts, votingdistricts, and water districts politicalsubdivisions for CRA purposes?

A2. No. However, an institution thatdetermines that it predominantly servesan area that is smaller than a city, townor other political subdivision maydelineate as its assessment area thelarger political subdivision and then, inaccordance with § l.41(d), adjust theboundaries of the assessment area to


include only the portion of the politicalsubdivision that it reasonably can beexpected to serve. The smaller area thatthe institution delineates must consistof entire geographies, may not reflectillegal discrimination, and may notarbitrarily exclude low-or moderate-income geographies.

Section l.41(d) Adjustments toGeographic Area(s)

Q1. When may an institution adjustthe boundaries of an assessment area toinclude only a portion of a politicalsubdivision?

A1. Institutions must include wholegeographies (i.e., census tracts or blocknumbering areas) in their assessmentareas and generally should includeentire political subdivisions. Becausecensus tracts and block numbering areasare the common geographic areas usedconsistently nationwide for datacollection, the agencies require thatassessment areas be made up of wholegeographies. If including an entirepolitical subdivision would create anarea that is larger than the area theinstitution can reasonably be expectedto serve, an institution may, but is notrequired to, adjust the boundaries of itsassessment area to include only portionsof the political subdivision. Forexample, this adjustment is appropriateif the assessment area would otherwisebe extremely large, of unusualconfiguration, or divided by significantgeographic barriers (such as a river,mountain, or major highway system).When adjusting the boundaries of theirassessment areas, institutions must notarbitrarily exclude low- or moderate-income geographies or set boundariesthat reflect illegal discrimination.

Sectionl.41(e) Limitations onDelineation of an Assessment Area

Sectionl.41(e)(3) May not ArbitrarilyExclude Low- or Moderate-IncomeGeographies

Q1. How will examiners determinewhether an institution has arbitrarilyexcluded low- or moderate-incomegeographies?

A1. Examiners will make thisdetermination on a case-by-case basisafter considering the facts relevant tothe institution’s assessment areadelineation. Information that examinerswill consider may include:

• Income levels in the institution’sassessment area(s) and surroundinggeographies;

• Locations of branches and deposit-taking ATMs;

• Loan distribution in theinstitution’s assessment area(s) andsurrounding geographies;

• The institution’s size;• The institution’s financial

condition; and• The business strategy, corporate

structure and product offerings of theinstitution.

Sectionl.41(e)(4) May not ExtendSubstantially Beyond a CMSA Boundaryor Beyond a State Boundary UnlessLocated in a Multistate MSA

Q1. What are the maximum limits onthe size of an assessment area?

A1. An institution shall not delineatean assessment area extendingsubstantially across the boundaries of aconsolidated metropolitan statisticalarea (CMSA) or the boundaries of anMSA, if the MSA is not located in aCMSA. Similarly, an assessment areamay not extend substantially acrossstate boundaries unless the assessmentarea is located in a multistate MSA. Aninstitution may not delineate a wholestate as its assessment area unless theentire state is contained within a CMSA.These limitations apply to wholesaleand limited purpose institutions as wellas other institutions.

An institution shall delineate separateassessment areas for the areas insideand outside a CMSA (or MSA if theMSA is not located in a CMSA) if thearea served by the institution’s branchesoutside the CMSA (or MSA) extendssubstantially beyond the CMSA (orMSA) boundary. Similarly, theinstitution shall delineate separateassessment areas for the areas insideand outside of a state if the institution’sbranches extend substantially beyondthe boundary of one state (unless theassessment area is located in amultistate MSA). In addition, theinstitution should also delineateseparate assessment areas if it hasbranches in areas within the same statethat are widely separate and not at allcontiguous. For example, an institutionthat has its main office in New YorkCity and a branch in Buffalo, New York,and each office serves only theimmediate areas around it, shoulddelineate two separate assessment areas.

Q2. Can an institution delineate oneassessment area that consists of an MSAand two large counties that abut theMSA but are not adjacent to each other?

A2. As a general rule, an institution’sassessment area should not extendsubstantially beyond the boundary of anMSA if the MSA is not located in aCMSA. Therefore, the MSA would be aseparate assessment area, and becausethe two abutting counties are notadjacent to each other and, in thisexample, extend substantially beyondthe boundary of the MSA, theinstitution would delineate each county

as a separate assessment area (so, in thisexample, there would be threeassessment areas). However, if the MSAand the two counties were in the sameCMSA, then the institution coulddelineate only one assessment areaincluding them all.

Sectionl.42—Data Collection,Reporting, and Disclosure

Q1. When must an institution collectand report data under the CRAregulations?

A1. All institutions except smallinstitutions are subject to data collectionand reporting requirements. A smallinstitution is a bank or thrift that, as ofDecember 31 of either of the prior twocalendar years, had total assets of lessthan $250 million and was independentor an affiliate of a holding companythat, as of December 31 of either of theprior two calendar years, had totalbanking and thrift assets of less than $1billion.

For example:

DateInstitution’sasset size(millions)

Data collec-tion re-

quired forfollowingcalendar

year?

12/31/94 ............ $240 No.12/31/95 ............ $260 No.12/31/96 ............ $230 No.12/31/97 ............ $280 No.12/31/98 ............ $260 Yes,

beginning 1/01/99.

All institutions that are subject to thedata collection and reportingrequirements must report the data for acalendar year by March 1 of thesubsequent year. In the example, above,the institution would report the datacollected for calendar year 1999 byMarch 1, 2000.

The Board of Governors of the FederalReserve System is handling theprocessing of the reports for all of theprimary regulators. The reports shouldbe submitted in a prescribed electronicformat on a timely basis. The mailingaddress for submitting these reports is:Attention: CRA Processing, Board ofGovernors of the Federal ReserveSystem, 1709 New York Avenue, N.W.,5th Floor, Washington, DC 20006.

Q2. Should an institution develop itsown program for data collection, or willthe regulators require a certain format?

A2. An institution may use the freesoftware that is provided by the FFIECto reporting institutions for datacollection and reporting or develop itsown program. Those institutions thatdevelop their own programs mustfollow the precise format for the new


CRA data collection and reporting rules.This format may be obtained bycontacting the CRA Assistance Line at(202) 872–7584.

Q3. How should an institution reportdata on lines of credit?

A3. Institutions must collect andreport data on lines of credit in the sameway that they provide data on loanoriginations. Lines of credit areconsidered originated at the time theline is approved or increased; and anincrease is considered a neworigination. Generally, the full amountof the credit line is the amount that isconsidered originated. In the case of anincrease to an existing line, the amountof the increase is the amount that isconsidered originated and that amountshould be reported.

Q4. Should renewals of lines of creditbe reported?

A4. No. Similar to loan renewals,renewals of lines of credit are notconsidered loan originations and shouldnot be reported.

Q5. When should merging institutionscollect data?

A5. Three scenarios of data collectionresponsibilities for the calendar year ofa merger and subsequent data reportingresponsibilities are described below.

• Two institutions are exempt fromCRA collection and reportingrequirements because of asset size. Theinstitutions merge. No data collection isrequired for the year in which themerger takes place, regardless of theresulting asset size. Data collectionwould begin after two consecutive yearsin which the combined institution hadyear-end assets of at least $250 millionor was part of a holding company thathad year-end banking and thrift assets ofat least $1 billion.

• Institution A, an institutionrequired to collect and report the data,and Institution B, an exempt institution,merge. Institution A is the survivinginstitution. For the year of the merger,data collection is required for InstitutionA’s transactions. Data collection isoptional for the transactions of thepreviously exempt institution. For thefollowing year, all transactions of thesurviving institution must be collectedand reported.

• Two institutions that each arerequired to collect and report the datamerge. Data collection is required forthe entire year of the merger and forsubsequent years so long as thesurviving institution is not exempt. Thesurviving institution may file either aconsolidated submission or separatesubmissions for the year of the mergerbut must file a consolidated report forsubsequent years.

Q6. Can small institutions get a copyof the data collection software eventhough they are not required to collector report data?

A6. Yes. Any institution that isinterested in receiving a copy of thesoftware may send a written request to:Attn.: CRA Processing, Board ofGovernors of the Federal ReserveSystem, 1709 New York Ave, N.W., 5thFloor, Washington, DC 20006.

They may also call the CRAAssistance Line at (202) 872–7584 orsend Internet e-mail [email protected].

Q7. If a small institution is designateda wholesale or limited purposeinstitution, must it collect data that itwould not otherwise be required tocollect because it is a small institution?

A7. No. However, small institutionsmust be prepared to identify thoseloans, investments and services to beevaluated under the communitydevelopment test.

Sectionl.42(a) Loan InformationRequired to be Collected andMaintained

Q1. Must institutions collect andreport data on all commercial loansunder $1 million at origination?

A1. No. Institutions that are notexempt from data collection andreporting are required to collect andreport only those commercial loans thatthey capture in the Call Report,Schedule RC–C, Part II, and in the TFR,Schedule SB. Small business loans aredefined as those whose originalamounts are $1 million or less and thatwere reported as either ‘‘Loans securedby nonfarm or nonresidential realestate’’ or ‘‘Commercial and Industrialloans’’ in Part I of the Call Report orTFR.

Q2. For loans defined as smallbusiness loans, what information shouldbe collected and maintained?

A2. Institutions that are not exemptfrom data collection and reporting arerequired to collect and maintain in astandardized, machine readable formatinformation on each small business loanoriginated or purchased for eachcalendar year:

• A unique number or alpha-numericsymbol that can be used to identify therelevant loan file;

• The loan amount at origination;• The loan location; and• An indicator whether the loan was

to a business with gross annualrevenues of $1 million or less.

The location of the loan must bemaintained by census tract or blocknumbering area. In addition,supplemental information contained inthe file specifications includes a date

associated with the origination orpurchase and whether a loan wasoriginated or purchased by an affiliate.The same requirements apply to smallfarm loans.

Q3. Will farm loans need to besegregated from business loans?

A3. Yes.Q4. Should institutions collect and

report data on all agricultural loansunder $500,000 at origination?

A4. Institutions are to report thosefarm loans that they capture in the CallReport, Schedule RC–C, Part II andSchedule SB of the TFR. Small farmloans are defined as those whoseoriginal amounts are $500,000 or lessand were reported as either ‘‘Loans tofinance agricultural production andother loans to farmers’’ or ‘‘Loanssecured by farmland’’ in Part I of theCall Report and TFR.

Q5. Should institutions collect andreport data about small business andsmall farm loans that are refinanced orrenewed?

A5. An institution collects and reportsinformation about refinancings but doesnot collect and report information aboutrenewals. A refinancing typicallyinvolves the satisfaction of an existingobligation that is replaced by a newobligation undertaken by the sameborrower. When an institutionrefinances a loan, it is considered a neworigination and loan data should becollected and reported if otherwiserequired. Consistent with HMDA,however, if under the original loanagreement, the institution isunconditionally obligated to refinancethe loan, or is obligated to refinance theloan subject to conditions within theborrower’s control, the institutionwould not report these events asoriginations.

For purposes of the CRA datacollection and reporting requirements,an extension of the maturity of anexisting loan is a renewal, and is notconsidered a loan origination.Therefore, institutions should notcollect and report data on loanrenewals.

Q6. Does a loan to the ‘‘fishingindustry’’ come under the definition ofa small farm loan?

A6. Yes. Instructions for Part I of theCall Report and Schedule SB of the TFRinclude loans ‘‘made for the purpose offinancing fisheries and forestries,including loans to commercialfishermen’’ as a component of thedefinition for ‘‘Loans to financeagricultural production and other loansto farmers.’’ Part II of Schedule RC–C ofthe Call Report and Schedule SB of theTFR, which serve as the basis of the


definition for small business and smallfarm loans in the revised regulation,capture both ‘‘Loans to financeagricultural production and other loansto farmers’’ and ‘‘Loans secured byfarmland.’’

Q7. How should an institution reporta home equity line of credit, part ofwhich is for home improvementpurposes, but the predominant part ofwhich is for small business purposes?

A7. The institution has the option ofreporting the portion of the home equityline that is for home improvementpurposes under HMDA. That portion ofthe loan would then be consideredwhen examiners evaluate homemortgage lending. If the line meets theregulatory definition of a ‘‘communitydevelopment loan,’’ the institutionshould collect and report informationon the entire line as a communitydevelopment loan. If the line does notqualify as a community developmentloan, the institution has the option ofcollecting and maintaining (but notreporting) the entire line of credit as‘‘Other Secured Lines/Loans forPurposes of Small Business.’’

Q8. When collecting small businessand small farm data for CRA purposes,may an institution collect and reportinformation about loans to smallbusinesses and small farms locatedoutside the United States?

A8. At an institution’s option, it maycollect data about small business andsmall farm loans located outside theUnited States; however, it cannot reportthis data because the CRA datacollection software will not accept dataconcerning loan locations outside theUnited States.

Q9. Is an institution that has no smallfarm or small business loans required toreport under CRA?

A9. Each institution subject to datareporting requirements must, at aminimum, submit a transmittal sheet,definition of its assessment area(s), anda record of its community developmentloans. If the institution does not havecommunity development loans toreport, the record should be sent with‘‘0’’ in the community developmentloan composite data fields. Aninstitution that has not purchased ororiginated any small business or smallfarm loans during the reporting periodwould not submit the composite loanrecords for small business or small farmloans.

Q10. How should an institutioncollect and report the location of a loanmade to a small business or farm if theborrower provides an address thatconsists of a post office box number ora rural route and box number?

A10. Prudent banking practicesdictate that an institution know thelocation of its customers or loancollateral. Therefore, institutionstypically will know the actual locationof their borrowers or loan collateralbeyond an address consisting only of apost office box.

Many borrowers have street addressesin addition to post office box numbersor rural route and box numbers.Institutions should ask their borrowersto provide the street address of the mainbusiness facility or farm or the locationwhere the loan proceeds otherwise willbe applied. Once the institution receivesthis information from the borrower, itshould assign a census tract or blocknumbering area to that location(geocode) and report that information asrequired under the regulation.

There may be cases in which aborrower cannot provide a streetaddress because of the rural nature ofthe community. If a borrower canprovide only a rural route and boxnumber, or in those rare instances inwhich a borrower reports a post officebox and the institution cannotdetermine the location of the business,the following guidance will apply,depending on the date the loan isoriginated or purchased:

• For loans originated or purchasedin 1997, if an institution cannotdetermine the borrower’s street address,the institution should geocode thelocation of the loan using the town,state, and zip code of the location of thepost office as a proxy for the location ofthe borrower. In cases where theassigned location of the zip code for therural route and box number or postoffice box encompasses more than onecensus tract or block numbering area,the institution should be able to providea specific rationale for the census tractor block numbering area selected forgeocoding purposes.

• For loans originated or purchasedin 1998 or later, if the institution cannotdetermine the borrower’s street address,the institution should report theborrower’s state, county, MSA, ifapplicable, and ‘‘NA,’’ for ‘‘notavailable,’’ in lieu of a census tract orblock numbering area code.

Section l.42(a)(2) Loan Amount atOrigination

Q1. When an institution purchases asmall business or small farm loan,which amount should the institutioncollect and report—the original amountof the loan or the amount at purchase?

A1. When collecting and reportinginformation on purchased smallbusiness and small farm loans, aninstitution collects and reports the

amount of the loan at origination, not atthe time of purchase. This is consistentwith the Call Report’s and TFR’s use ofthe ‘‘original amount of the loan’’ todetermine whether a loan should bereported as a ‘‘loan to a small business’’or a ‘‘loan to a small farm’’ and in whichloan size category a loan should bereported. When assessing the volume ofsmall business and small farm loanpurchases for purposes of evaluatinglending test performance under CRA,however, examiners will evaluate aninstitution’s activity based on theamounts at purchase.

Q2. How should an institution collectdata about multiple loan originations tothe same business?

A2. If an institution makes multipleoriginations to the same business, theloans should be collected and reportedas separate originations rather thancombined and reported as they are onthe Call Report or TFR, which reflectloans outstanding, rather thanoriginations. However, if institutionsmake multiple originations to the samebusiness solely to inflate artificially thenumber or volume of loans evaluated forCRA lending performance, the agenciesmay combine these loans for purposesof evaluation under the CRA.

Q3. How should an institution collectdata pertaining to credit cards issued tosmall businesses?

A3. If an institution agrees to issuecredit cards to a business’ employees,all of the credit card lines opened on aparticular date for that single businessshould be reported as one smallbusiness loan origination rather thanreporting each individual credit cardline, assuming the criteria in the ‘‘smallbusiness loan’’ definition in theregulation are met. The credit cardprogram’s ‘‘amount at origination’’ is thesum of all of the employee/businesscredit cards’’ credit limits opened on aparticular date. If subsequently issuedcredit cards increase the small businesscredit line, the added amount isreported as a new origination.

Sectionl.42(a)(3) The Loan LocationQ1. Which location should an

institution record if a small businessloan’s proceeds are used in a variety oflocations?

A1. The institution should record theloan location by either the location ofthe business headquarters or thelocation where the greatest portion ofthe proceeds are applied, as indicatedby the borrower.

Sectionl.42(a)(4) Indicator of GrossAnnual Revenue

Q1. When indicating whether a smallbusiness borrower had gross annual


revenues of $1 million or less, uponwhat revenues should an institutionrely?

A1. Generally, an institution shouldrely on the revenues that it consideredin making its credit decision. Forexample, in the case of affiliatedbusinesses, such as a parent corporationand its subsidiary, if the institutionconsidered the revenues of the entity’sparent or a subsidiary corporation of theparent as well, then the institutionwould aggregate the revenues of bothcorporations to determine whether therevenues are $1 million or less.Alternatively, if the institutionconsidered the revenues of only theentity to which the loan is actuallyextended, the institution should relysolely upon whether gross annualrevenues are above or below $1 millionfor that entity. However, if theinstitution considered and relied onrevenues or income of a cosigner orguarantor that is not an affiliate of theborrower, the institution should notadjust the borrower’s revenues forreporting purposes.

Q2. If an institution that is not exemptfrom data collection and reporting doesnot request or consider revenueinformation to make the credit decisionregarding a small business or small farmloan, must the institution collectrevenue information in connection withthat loan?

A2. No. In those instances, theinstitution should enter the codeindicating ‘‘revenues not known’’ on theindividual loan portion of the datacollection software or on an internallydeveloped system. Loans for which theinstitution did not collect revenueinformation may not be included in theloans to businesses and farms with grossannual revenues of $1 million or lesswhen reporting this data.

Q3. What gross revenue should aninstitution use in determining the grossannual revenue of a start-up business?

A3. The institution should use theactual gross annual revenue to date(including $0 if the new business hashad no revenue to date). Although astart-up business will provide theinstitution with pro forma projectedrevenue figures, these figures may notaccurately reflect actual gross revenue.

Sectionl.42(b) Loan InformationRequired To Be Reported

Sectionl.42(b)(1) Small Business andSmall Farm Loan Data

Q1. For small business and smallfarm loan information that is collectedand maintained, what data should bereported?

A1. Each institution that is notexempt from data collection and

reporting is required to report inmachine-readable form annually byMarch 1 the following information,aggregated for each census tract or blocknumbering area in which the institutionoriginated or purchased at least onesmall business or small farm loanduring the prior year:

• The number and amount of loansoriginated or purchased with originalamounts of $100,000 or less;

• The number and amount of loansoriginated or purchased with originalamounts of more than $100,000 but lessthan or equal to $250,000;

• The number and amount of loansoriginated or purchased with originalamounts of more than $250,000 but notmore than $1 million; and

• To the extent that information isavailable, the number and amount ofloans to businesses and farms with grossannual revenues of $1 million or less(using the revenues the institutionconsidered in making its creditdecision).

Section l.42(b)(2) CommunityDevelopment Loan Data

Q1. What information aboutcommunity development loans mustinstitutions report?

A1. Institutions subject to datareporting requirements must report theaggregate number and amount ofcommunity development loansoriginated and purchased during theprior calendar year.

Q2. If a loan meets the definition ofa home mortgage, small business, orsmall farm loan AND qualifies as acommunity development loan, whereshould it be reported? Can FHA, VA andSBA loans be reported as communitydevelopment loans?

A2. Except for multifamily affordablehousing loans, which may be reportedby retail institutions both under HMDAas home mortgage loans and ascommunity development loans, in orderto avoid double counting, retailinstitutions must report loans that meetthe definitions of home mortgage, smallbusiness, or small farm loans only inthose respective categories even if theyalso meet the definition of communitydevelopment loans. As a practicalmatter, this is not a disadvantage forretail institutions because any affordablehousing mortgage, small business, smallfarm or consumer loan that wouldotherwise meet the definition of acommunity development loan will beconsidered elsewhere in the lendingtest. Any of these types of loans thatoccur outside the institution’sassessment area can receive favorableconsideration under the borrower

characteristic criteria of the lending test.See Q&A4 under § l.22(b) (2) & (3).

Limited purpose and wholesaleinstitutions also must report loans thatmeet the definitions of home mortgage,small business, or small farm loans inthose respective categories; however,they must also report any loans fromthose categories that meet the regulatorydefinition of ‘‘community developmentloans’’ as community developmentloans. There is no double countingbecause wholesale and limited purposeinstitutions are not subject to thelending test and, therefore, are notevaluated on their level and distributionof home mortgage, small business, smallfarm and consumer loans.

Section l.42(b)(3) Home MortgageLoans

Q1. Must institutions that are notrequired to collect home mortgage loandata by the HMDA collect homemortgage loan data for purposes of theCRA?

A1. No. If an institution is notrequired to collect home mortgage loandata by the HMDA, the institution neednot collect home mortgage loan dataunder the CRA. Examiners will samplethese loans to evaluate the institution’shome mortgage lending. If an institutionwants to ensure that examiners considerall of its home mortgage loans, theinstitution may collect and maintaindata on these loans.

Section l.42(c) Optional datacollection and maintenance

Section l.42(c)(1) Consumer loans

Q1. What are the data requirementsregarding consumer loans?

A1. There are no data reportingrequirements for consumer loans.Institutions may, however, opt to collectand maintain data on consumer loans. Ifan institution chooses to collectinformation on consumer loans, it maycollect data for one or more of thefollowing categories of consumer loans:motor vehicle, credit card, home equity,other secured, and other unsecured. Ifan institution collects data for loans ina certain category, it must collect datafor all loans originated or purchasedwithin that category. The institutionmust maintain these data separately foreach category for which it chooses tocollect data. The data collected andmaintained should include for eachloan:

• A unique number or alpha-numericsymbol that can be used to identify therelevant loan file;

• The loan amount at origination orpurchase;

• The loan location; and


• The gross annual income of theborrower that the institution consideredin making its credit decision.

Section l.42(c)(1)(iv) Income ofborrower

Q1. If an institution does not considerincome when making an underwritingdecision in connection with a consumerloan, must it collect incomeinformation?

A1. No. Further, if the institutionroutinely collects, but does not verify, aborrower’s income when making acredit decision, it need not verify theincome for purposes of datamaintenance.

Q2. May an institution list ‘‘0’’ in theincome field on consumer loans madeto employees when collecting data forCRA purposes as the institution wouldbe permitted to do under HMDA?

A2. Yes.

Section l.42(c)(2) Other Loan DataQ1. Schedule RC–C, Part II of the Call

Report and schedule SB of the TFR donot allow financial institutions to reportloans for commercial and industrialpurposes that are secured by residentialreal estate. Loans extended to smallbusinesses with gross annual revenuesof $1 million or less may, however, besecured by residential real estate. Isthere a way to collect this informationon the software to supplement aninstitution’s small business lending dataat the time of examination?

A1. Yes. If these loans promotecommunity development, as defined inthe regulation, the institution shouldcollect and report information aboutthese loans as community developmentloans. Otherwise, at an institution’soption, it may collect and maintain dataconcerning loans, purchases, and linesof credit extended to small businessesand secured by residential real estate forconsideration in the CRA evaluation ofits small business lending. To facilitatethis optional data collection, thesoftware distributed free-of-charge bythe FFIEC provides that an institutionmay collect this information tosupplement its small business lendingdata by choosing loan type, ‘‘OtherSecured Lines/Loans for Purposes ofSmall Business,’’ in the individual loandata. (The title of the loan type, ‘‘OtherSecured Lines of Credit for Purposes ofSmall Business,’’ which was found inthe instructions accompanying the 1996data collection software, is beingchanged to ‘‘Other Secured Lines/Loansfor Purposes of Small Business’’ in orderto accurately reflect that lines of creditand loans may be reported under thisloan type.) This information should bemaintained at the institution but should

not be submitted for central reportingpurposes.

Q2. Must an institution collect dataon loan commitments and letters ofcredit?

A2. No. Institutions are not requiredto collect data on loan commitmentsand letters of credit. Institutions may,however, provide for examinerconsideration information on letters ofcredit and commitments.

Q3. Are commercial and consumerleases considered loans for purposes ofCRA data collection?

A3. Commercial and consumer leasesare not considered small business orsmall farm loans or consumer loans forpurposes of the data collectionrequirements in 12 CFR § l.42(a) &(c)(1). However, if an institution wishesto collect and maintain data aboutleases, the institution may provide thisdata to examiners as ‘‘other loan data’’under 12 CFR § l.42(c)(2) forconsideration under the lending test.

Section l.42(d) Data on AffiliateLending

Q1. If an institution elects to have anaffiliate’s home mortgage lendingconsidered in its CRA evaluation, whatdata must the institution make availableto examiners?

A1. If the affiliate is a HMDA reporter,the institution must identify those loansreported by its affiliate under 12 CFRpart 203 (Regulation C, implementingHMDA). At its option, the institutionmay either provide examiners with theaffiliate’s entire HMDA DisclosureStatement or just those portionscovering the loans in its assessmentarea(s) that it is electing to consider. Ifthe affiliate is not required by HMDA toreport home mortgage loans, theinstitution must provide sufficient dataconcerning the affiliate’s home mortgageloans for the examiners to apply theperformance tests.

Section l.43—Content and Availabilityof Public File

Section l.43(a) Information Availableto the Public

Section l.43(a)(1) Public Comments

Q1. What happens to commentsreceived by the agencies?

A1. Comments received by a Federalfinancial supervisory agency will be onfile at the agency for use by examiners.Those comments are also available tothe public unless they are exempt fromdisclosure under the Freedom ofInformation Act.

Q2. Is an institution required torespond to public comments?

A2. No. All institutions should reviewcomments and complaints carefully to

determine whether any response orother action is warranted. A smallinstitution subject to the smallinstitution performance standards isspecifically evaluated on its record oftaking action, if warranted, in responseto written complaints about itsperformance in helping to meet thecredit needs in its assessment area(s)(§ l.26(a)(5)). For all institutions,responding to comments may help tofoster a dialogue with members of thecommunity or to present relevantinformation to an institution’s Federalfinancial supervisory agency. If aninstitution responds in writing to aletter in the public file, the responsemust also be placed in that file, unlessthe response reflects adversely on anyperson or placing it in the public fileviolates a law.

Q3. May an institution include aresponse to its CRA PerformanceEvaluation in its public file?

A3. Yes. However, the format andcontent of the evaluation, as transmittedby the supervisory agency, may not bealtered or abridged in any manner. Inaddition, an institution that received aless than satisfactory rating during itmost recent examination must includein its public file a description of itscurrent efforts to improve itsperformance in helping to meet thecredit needs of its entire community.The institution must update thedescription on a quarterly basis.

Section l.43(b) AdditionalInformation Available to the Public

Section l.43(b)(1) Institutions OtherThan Small Institutions

Q1. Must an institution that elects tohave affiliate lending consideredinclude data on this lending in itspublic file?

A1. Yes. The lending data to becontained in an institution’s public filecovers the lending of the institution’saffiliates, as well as of the institutionitself, considered in the assessment ofthe institution’s CRA performance. Aninstitution that has elected to havemortgage loans of an affiliate consideredmust include either the affiliate’sHMDA Disclosure Statements for thetwo prior years or the parts of theDisclosure Statements that relate to theinstitution’s assessment area(s), at theinstitution’s option.

Sectionl.43(c) Location of PublicInformation

Q1. What is an institution’s ‘‘mainoffice’’?

A1. An institution’s main office is themain, home, or principal office asdesignated in its charter.


Sectionl.44—Public Notice byInstitutions

Q1. Are there any placement or sizerequirements for an institution’s publicnotice?

A1. The notice must be placed in theinstitution’s public lobby, but the sizeand placement may vary. The noticeshould be placed in a location and be ofa sufficient size that customers caneasily see and read it.

Sectionl.45—Publication of PlannedExamination Schedule

Q1. Where will the agencies publishthe planned examination schedule forthe upcoming calendar quarter?

A1. The agencies may use the FederalRegister, a press release, the Internet, orother existing agency publications fordisseminating the list of the institutionsscheduled to for CRA examinationsduring the upcoming calendar quarter.Interested parties should contact theappropriate Federal financialsupervisory agency for information onhow the agency is publishing theplanned examination schedule.

Q2. Is inclusion on the list ofinstitutions that are scheduled toundergo CRA examinations in the nextcalendar quarter determinative ofwhether an institution will be examinedin that quarter?

A2. No. The agencies attempt todetermine as accurately as possiblewhich institutions will be examinedduring the upcoming calendar quarter.However, whether an institution’s nameappears on the published list does notconclusively determine whether theinstitution will be examined during thatquarter. The agencies may need to defera planned examination or conduct anunforeseen examination because ofscheduling difficulties or othercircumstances.

Appendix B to PartlCRA Notice

Q1. What agency information shouldbe added to the CRA notice form?

A1. The following information shouldbe added to the form:

OCC-supervised institutions only: Theaddress of the deputy comptroller of thedistrict in which the institution islocated should be inserted in theappropriate blank. These addresses canbe found at 12 CFR § 4.5(a).

OCC-, FDIC-, and Board-supervisedinstitutions: ‘‘Officer in Charge ofSupervision’’ is the title of theresponsible official at the appropriateFederal Reserve Bank.

Appendix A

Regional Offices of the Bureau of theCensus

To obtain median family incomelevels of census tracts, MSAs, blocknumbering areas and statewidenonmetropolitan areas, contact theappropriate regional office of the Bureauof the Census as indicated below. Thelist shows the states covered by eachregional office.

Atlanta, (404) 730–3833

Alabama, Florida, Georgia

Boston, (617) 424–0510

Connecticut, Maine, Massachusetts,New Hampshire, Rhode Island, Vermont

Charlotte, (704) 344–6144

District of Columbia, Kentucky, NorthCarolina, South Carolina, Tennessee,Virginia

Chicago, (708) 562–1740

Illinois, Indiana, Wisconsin

Dallas, (214) 640–4470 or (800) 835–9752

Louisiana, Mississippi, Texas

Denver, (303) 969–7750

Arizona, Colorado, Nebraska, NewMexico, North Dakota, South Dakota,Utah, Wyoming

Detroit, (313) 259–1875

Michigan, Ohio, West Virginia

Kansas City, (913) 551–6711

Arkansas, Iowa, Kansas, Minnesota,Missouri, Oklahoma

Los Angeles, (818) 904–6339

California

New York, (212) 264–4730

New York, Puerto Rico

Philadelphia, (215) 597–8313 or (215)597–8312

Delaware, Maryland, New Jersey,Pennsylvania

Seattle, (206) 728–5314

Alaska, Hawaii, Idaho, Montana,Nevada, Oregon, Washington

Dated: September 29, 1997.Joe M. Cleaver,Executive Secretary, Federal FinancialInstitutions Examination Council.[FR Doc. 97–26206 Filed 10–3–97; 8:45 am]BILLING CODE 4810–33–P; 6714–01–P; 6210–01–P 6720–01–P

FEDERAL MARITIME COMMISSION

Notice of Agreement(s) Filed

The Commission hereby gives noticeof the filing of the followingagreement(s) under the Shipping Act of1984.

Interested parties can review or obtaincopies of agreements at the Washington,DC offices of the Commission, 800North Capitol Street, N.W., Room 962.Interested parties may submit commentson an agreement to the Secretary,Federal Maritime Commission,Washington, DC 20573, within 10 daysof the date this notice appears in theFederal Register.

Agreement No.: 224–201033Title: Broward County/Maritime

Entertainment Terminal AgreementParties:

Broward County, Florida (PortEverglades)

Maritime Entertainment, Ltd., Inc.Synopsis: The proposed Agreement

authorizes Broward County to provideberthing and related terminalfacilities, and passenger wharfage at areduced rate, to MaritimeEntertainment in exchange for itsagreement to provide daily passengercruise service from Port Everglades.Dated: September 30, 1997.By Order of the Federal Maritime

Commission.Joseph C. Polking,Secretary.[FR Doc. 97–26360 Filed 10–3–97; 8:45 am]BILLING CODE 6730–01–M

FEDERAL RESERVE SYSTEM

Change in Bank Control Notices;Acquisitions of Shares of Banks orBank Holding Companies

The notificants listed below haveapplied under the Change in BankControl Act (12 U.S.C. 1817(j)) and §225.41 of the Board’s Regulation Y (12CFR 225.41) to acquire a bank or bankholding company. The factors that areconsidered in acting on the notices areset forth in paragraph 7 of the Act (12U.S.C. 1817(j)(7)).

The notices are available forimmediate inspection at the FederalReserve Bank indicated. The noticesalso will be available for inspection atthe offices of the Board of Governors.Interested persons may express theirviews in writing to the Reserve Bankindicated for that notice or to the officesof the Board of Governors. Commentsmust be received not later than October21, 1997.

Documents

Federal Register /Vol. 62, No. 193/Monday, October 6, 1997 ... · Federal Register/Vol. 62, No. 193/Monday, October 6, 1997/Notices 52105 ... Community Reinvestment Act (CRA)