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Federal reserve Bank of Dallas DALLAS, TEXAS 75222 Circular No. 79-22 February 1, 1979 REGULATION BB—THE COMMUNITY REINVESTMENT ACT Some Frequently Asked Questions About the Community Reinvestment Act and Regulation BB TO STATE MEMBER BANKS IN THE ELEVENTH FEDERAL RESERVE DISTRICT: The four Federal supervisors of financial institutions responsi ble for enforcing the Community Reinvestment Act have issued staff answers to the most frequently received inquiries about the Community Reinvestment Act, the implementing regulations, and related examination procedures. It should be noted that these questions and answers have been developed by agency staffs and should not be taken as official interpreta tions. The purpose is solely to be helpful to financial institutions and to the public by providing useful background information. A copy of these questions and answers is attached. Any addi tional questions you may have concerning the Community Reinvestment Act or Regulation BB may be directed to our Consumer Affairs Section, Ext. 6171. Si ncerely you r s , Robert H. Boykin First Vice President Attachment Banks and others are encouraged to use the following incoming W A T S numbers in contacting this Bank: 1-8 0 0 -4 9 2 -4 4 0 3 (intrastate) and 1 -8 00 -527 -49 70 (interstate). For calls placed locally, please use 651 plus the extension referred to above. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) C o m p tr o lle r of the C u rren cy F e d e r a l Deposit Insurance Corporation F e d e r a l Home Loan Bank Board F e d e r a l R e s e r v e Board On O ctober 12, 1977, the P r e s id e n t signed into law the Community R ein vestm en t A c t (C R A ). Under the A ct, the above-n am ed F e d e r a l financial s u p erviso ry agencies w e re given re s p o n s ib ility for w ritin g regulations to im p lem en t the C R A, the regulations to be e ffe c tiv e on N o vem b er 6, 1978. On October 12, 1978, the agen cies published their final regulations in the F e d e r a l R e g i s t e r . The regulations of the agencies a re substantively identical. The agencies a lso issued on N o vem b er 22, 1978, the examination p rocedu res that would be used in conducting ex a m inations to a sses s the re c o r d of financial institutions in helping to m eet the c r e d it needs of their community, including lo w - and m o d era te -in co m e neighborhoods. Since the final regulations and examination procedu res have been made public, a number of questions have been ra ise d about them by financial institutions and individuals. In o r d e r to a ssist financial institu tions in m eeting their re s p o n sib ilities under C R A and to in crea se public tinder standing of the regulations and the examination proced u res, the staffs of the agencies have prepared the attached paper which presents the m ost comm on questions about the C R A regulation and examination procedu res and the sta ffs' responses to those questions. The answers to the questions should not be regarded as o ffic ia l interpretations. T h e ir purpose is s o le ly to be helpful to financial institutions and the public by providing useful background inform ation. Additional questions and their answers w il l be issued by the agencies in the near future. The agencies v ie w the C R A regulations as giving regulated financial institutions considerable leew ay in determ in ing the means by which they w ill help to m e e t the c r e d it needs o f their comm unities. In c a rr y in g out their resp o n sib ilities under C R A , financial institutions should focus on the s p irit of the legisla tio n and try to avoid n arrow , le g a lis tic interpretations of the legislation or the regulations. The agencies b e lie v e that the financial institutions, re lyin g on their own re s o u r c e s , are -2 - capable of com plying with the requ irem ents of the regulations. While the agencies wish to provide helpful in form ation and guidance to the financial institutions, they want to keep o ffic ia l in terpretations of the regulations to a minimum. J o h i^ w Heimann, C o m p tr o lle r of the C u rrency and A ctin g Chairman, F e d e r a l Deposit Insurance C orp oration R obert H. M cKinney, C h a irm F e d e r a l Hom e Loan Bank Board jZ/Charles P a r t e e , M e m b e r , Board of G overn ors of the F e d e r a l R e s e r v e System January 8 , 1979 1. What does the term "o ffice" mean as used in the Regulation? Answer: Office refe rs generally to a facility of an institution that excepts deposits, including an electronic deposit facility., It does not, include purely administrative offices, agencies, loan production offices or facilities used, for example, only for the check collection process. In delineating a local community, however, an institution need not take into account shared electronic deposit facilities, unless otherwise directed by the appropriate Agency. 2. What is meant by " lo c a l community" and how detailed a map should be used to p o rtra y it? A nsw er; The term " lo c a l community" used in the regulation r e fe r s to the contiguous area surrounding each o ffic e o r group of o ffices of an institution. While it is recognized that the geographic areas s erved by an institution m ay v a r y with the type of s e r v ic e , only one lo ca l community is to be delineated fo r a particular office or group of o ffices . Any map which depicts an institution's local community or communities with reasonable c la r it y m ay be used. It need not, for example, be a detailed map showing each s tre e t in the community, nor need it be p ro fe ssio n a lly prepared by a ca rtograp h er. Low- and m o d era te -in co m e neighborhoods should not be s p e c ific a lly indicated on the map. The community delineation, however, must not unreasonably exclude such neighborhoods. An institu -2- tion having s e v e ra l local communities m ay delineate a ll of them on one map. It is important, howeve£, that each loca l community com prisin g the entire community be delineated with sufficient c la r it y so that it can be re a d ily determ ined which areas a r e being included in those local c o m munities. If the entire community is made up of m o re than a few local communities or the local communities are separated by significant distances, it may be ea sier and c le a r e r to use a separate map for each lo c a l community. F u rth erm o re, there is no requ irem ent that the locations of the institution's o ffices be shown on the maps. 3. How should an institution deal with low - and m o d erate-in com e neighborhoods in its local community delineation? Answer; The CRA regulation requ ires that low - and m oderate-incom e neighborhoods not be unreasonably excluded from a delineation of the lo c a l community. As the pream ble to the regulation states, "Institutions a re expected to be generally aware of low - and m oderate-incom e neighborhoods within their community, without undertaking extensive resea rch . " No attempt need be made to distinguish between low-income neighborhoods and m oderate-incom e neighborhoods. If institutions d e s ir e further information about low - and m odera te-in com e neighborhoods, they should consult such sources as: the guidance given examiners on page 12 of the A gen cies' joint C R A Examination P roce d u res released on N o vem b er 22, 197 8; and State and lo ca l community development and planning agencies. -3 4. What should be included in a C R A Statement? « i A n s w e r : A t a minimum, an institution's C R A Statement must include fo r each lo c a l community: a. a map delineating that lo ca l community; b. a lis t of the types of c r e d it it is prepared to extend in that community; and c. a copy of the Community Reinvestm ent Act Notice provided fo r in the regulation. A ls o , an institution's board of d ir e c to r s must, at lea st annually, re v ie w each C R A Statement, and act on any m a te r ia l changes in a Statement at the boa rd's fir s t regu lar meeting after the change. In addition, each institution is encouraged, but not requ ired in its Statement to: a. d es crib e how its current efforts help m eet community c r e d it needs; b. re p o r t on its re c o rd of helping to m eet community cred it needs; and c. d es crib e its efforts to ascertain community cred it needs, including communication with community m em b ers on this subject. How specific a lis t of the types of cred it o ffe r e d in a lo c a l community is needed fo r the C R A Statement? A n sw er: Each type of cred it the institution is prepared to extend in its lo ca l community should be listed. The regulation indicates that g rea ter sp e cificity is desired with respect to residen tial m ortgage and housing rehabilitation loans and loans to small businesses and fa rm s. In these gen eral c a te g o rie s , su b -categories, such as "re s id e n tia l loans fo r l- t o - 4 dwelling u n it s ," "res id en tia l loans for 5 dwelling units and o ver, should be used. If an institution is prepa red to o ffe r particular types of cred it only at some of its o ffices in a local community, should those types of cred it be listed on the CRA Statements of all of its o ffic e s in that community? A n sw er: Y e s. Because the institution is w illing to extend that type of c red it to any cre d it-w o rth y b o rrow er in the community, the institution should list the types of c red it on the C R A Statement of each o ffice even though a prosp ective b o rr o w e r at one o ffic e m ay be r e fe r r e d to another when seeking to make application. The institution should bear in mind, how ever, that public complaints may a r is e because of such p ractices; and the A gen cies w ill have to make a judgment as to whether the practic significantly discou rages applications fo r such c r e d it or otherw ise a d versely affects the institution's CR A p erform an ce. -5 7. What is a " s m a l l" business or farm ? A nsw er: F o r C R A purposes, the term " s m a l l" r e fe r s to the absolute size of the business and fa rm rather than the re la tiv e size in their industries. Because a m a jo r concern of CR A is that a ll c red it-w o rth y b o rro w e rs have reasonable access to loans fr o m banks and savings and loans, sm all businesses and farm s gen era lly a re view ed as those which do not have access to regional and national c r e d it markets. Put another way, sm all businesses and farm s are those that must r e ly on their local lending institutions fo r credit. 8. How should past C R A Statements, current C R A Statements and public comment file s be made available to the public in each o ffice of an institution, p a rticu la rly an institution that has offices in m o re than one lo ca l community? A n s w e r : An institution that has o ffices in m o re than one local community should maintain current C R A Statements fo r a ll its local communities at its head o ffice and current CRA Statements fo r each lo ca l community in each o ffice of the institution in that lo ca l community, except o ff-p re m is e s electronic deposit fa c ilitie s . Any CRA Statements that w ere in effect during the past two years should be retained with the public comment letters in the public comment file. A comment file fo r the e n t i r e ‘institution must be maintained at the head office, and a comment file pertaining to a particular lo ca l community must be retained at a designated office in that community. A re a ll signed, written C R A comment letters to be placed in the public comment ................................................ .......... file?, .. A n s w e r : Th e regulations say that the institution must put a ll signed, w ritten comments relating to the CRA Statement or to the institution's perform a n ce in helping m eet community cred it needs into a public file . The only exception to this is comments which r e fle c t a d v e r s e ly on the reputation o f any person, or which would viola te a law. The institution must use its own judgment, both as to what letters re la te to its perform an ce in m eeting community credit needs, and as to what comments might r e fle c t a d v e r s e ly on a person's reputation. Signed, w ritten comments which a re excluded from the public file because they might harm a • » p erso n 's reputation should be retained in a non-public file for inspection by the exam iner. If a letter is addressed in part to an institution's o v e r a ll C R A perform ance, but contains some information which is harmful to an individual or violates a law, should the institution withhold the entire letter fro m the public file ? A nsw er: Th e institution m ay do so. A ltern a tively the statement(s) which r e fle c t a d v e r s e ly on an individual or violate a law m ay be deleted fro m a copy of the le tte r and the balance of the letter included in the public file. In any event, the entire o rigin al letter should be retained for inspection by the exam iner. Under what circumstances w ill comments about an institution's CRA Statement(s) or perform ance in helping to m eet community credit needs and/or the institution's response(s) be made public? -7- A n s w e r : Any signed, w ritten comment re c e iv e d by a financial institution that is placed in the Public Comment F il e w ill be available for any interested person and the C R A examiner to inspect. Comments re c e iv e d by a su pervisory Agency w ill be on file at the Agency. These comments are available to m em bers of the public and the financial institutions unless exempted fro m disclosure under the F r e e d o m of Information Act. 12. Is the institution obligated to respond to any or a ll comments re ceived fr o m the public ? A n s w e r : Th ere is no requirem ent that the institution respond. H ow ever, the financial institution m ay find it helpful to respond to certain comments in o rd er to foster a dialogue with m em bers of the community or to present relevant information to the regu latory Agency. If an institution responds to a letter in the public file , the response must also be placed in the public file unless it re flects a d versely on any person o r violates a law. 13. A r e there any requirem ents relating to the size and placement of the Community Reinvestment A ct N otice? A n s w e r: The notice must be placed in the public lobby of the financial institution but there a re no specific requirem ents relating to size and placement. The Agencies b elie ve the rule of reason must apply depending on the fo rm of the notice. F o r example, if the notice is provided in the fo r m of a poster, the poster must be placed within the lobby where it w ill lik e ly be seen by custom ers and be of sufficient size to be ea s ily read -8- fr o m the distance at which it w ill n orm a lly be view ed. If the notice is provided in the fo r m of a fly e r , a supply of such fly e r s printed in e a s ily -re a d type and placed where they w ill lik ely be noticed w ill suffice. The notice requ irem en t may also be satisfied by making the C R A State ment, which includes the notice, available as a brochure in the lobby placed where it w ill be noticed. 14. What inform ation and avenues of communication a re available to m em bers of a community who a re concerned about the perform an ce of financial institutions in their community? A nsw er: Financial institutions are being encouraged to communicate with m em bers of their community. The C R A regulation requ ires financial institutions to make available to the public their "C R A Statement. " The Statement contains a map showing the boundaries of the lo c a l community delineated by the institution and lists the types of c r e d it that the institution is prepared to extend to m em bers of the community. The Statement also contains a copy of the "Pu blic N o tice" that a ll financial institutions must have in their o ffices . The Public Notice states that m em b ers of the public m ay w rite to the fina ncial institution or the appropriate regu latory C authority concerning the institution's perform an ce in helping to meet community c r e d it needs. M em bers of the community may also re v ie w letters fr o m the public re c e iv e d by a financial institution regarding such perform an ce. -9- Announcements of C R A - c o v e r e d applications m ay be obtained by w riting to an institution's su p erviso ry Agency. Anyone m ay com m ent on the filin g of an application co vered by the C R A by w ritin g to the appropriate .supervisory A gen cy listed either in the applicant's newspaper notice or its C R A N otice. applications. T h e A gen cies have v a ry in g com m ent p e rio d s fo r T h e r e fo r e , any questions regardin g the com m ent p eriod should be directed to the regional o ffic e of the appropriate A gen cy. Comments r e c e iv e d within the appropriate p e rio d w i l l be con sidered by the A gen cy in the applications p ro c e s s . 15. W ill an institution be requ ired to document that it is actu ally extending the types of c r e d it that it listed in its C R A Statement as being o ffered in the lo c a l community? A n sw er: The C R A regulations do not re q u ir e any documentation beyond ■ > the public comm ent file s . Exam iners w ill, h ow ever, r e v ie w information requ ired to be maintained under any applicable fa ir housing regulations, loan r e g is t e r s i f re q u ired by the Agency, and the application file s required to be kept under the F e d e r a l R e s e rv e Equal C r e d it Opportunity regulation r *■,. C and housing loan statements prepared under the H om e M o rtg a g e D isclosu re regulation. Exam iners w il l also use other ava ila b le m aterials (such as advertising copy) to determ ine i f the institution is o ffe r in g in > i -\ good faith to extend the types of c red it that it has listed on its C R A Statement.