Summary of CRA Opinion Letters
The Department receives numerous inquiries from banking institutions and community development organizations, regarding the applicability of CRA to a bank’s support for one or another type of organization, program or activity. Of particular concern has been whether the Department would give favorable consideration for such initiatives, as “community development,” in the context of a CRA Performance Evaluation. In response to these inquiries, the Department has issued a number of written opinions in an effort to alleviate uncertainty and encourage institutions to support CRA-eligible activities.
The following is a brief summary of issues on which the Department has opined, together with a review of the key rationale on which the finding regarding CRA eligibility was based:
Affordable Housing
A financial institution’s support of a nonprofit sponsored Affordable Housing and Community Development Conference was deemed to merit favorable CRA consideration as a “qualified investment.” The conference included training sessions to help build the capacity of nonprofits in the housing and community development field. Those organizations are principally engaged in the revitalization and stabilization of low- and moderate-income areas (LMI), and in the development of affordable housing for low and moderate-income individuals.
A financial institution’s participation in funding the Affordable Housing Program of the Federal Home Loan Bank of New York (FHLB) was deemed to be consistent with the definition of a “qualified investment,” as a grant. The program, which is funded through an annual set-aside equivalent to 10% of the bank’s profits, is utilized to finance the purchase, construction and/or rehabilitation of owner-occupied or rental housing, geared towards low- and moderate-income participants. A member institution would receive favorable consideration for its prorated share of funding the program (based on its stock ownership in the FHLB), so long as its assessment area falls within the region it serves. Furthermore, the institution’s role in disbursing and monitoring the subsidies provided by the Federal Home Loan Bank (typically through a nonprofit, local government or other entity) is consistent with the definition of a “community development service.”
Economic Development
Financial institutions may receive favorable consideration for investments in Small Business Investment Companies (SBICs). Licensed by the U.S. Small Business Administration, SBICs are privately owned and operated investment companies that must invest exclusively in eligible small business. The SBIC program is a private sector led partnership with the U.S. Government, established to meet the long-term financing needs of smaller, growth-oriented companies that are typically unable to attract venture capital funds. By definition, SBICs meet the size test of a “qualified investment,” and are deemed to have a “community development purpose” by virtue of their role in promoting economic development.
Financial Institutions may receive favorable consideration for investments in a fund that provides equity type financing (small business mezzanine loans) to growing small businesses and minority-owned enterprises. In this instance, the fund is organized as a for-profit LLC, and borrowers must meet the size eligibility standards of the U.S. Small Business Administration. The fund also documents that at least 51% of any jobs created are for low or moderate-income persons. A financial institution’s investment in this entity was found to have a “primary purpose of community development,” provided that the fund continues to target small businesses that primarily serve LMI communities and/or provide employment for LMI individuals. Such an investment would help an institution to meet the credit needs of the community and also constitute funding that private investors do not routinely provide.
Community Services
Education
Financial institutions may receive favorable consideration for grants to support the programs of a not-for-profit organization with a primary purpose of improving the education of low- and moderate-income children, who are at-risk of academic failure or simply to enhance child development among LMI children. The program targets students who are in danger of dropping out of school with intensive counseling and support services. Such grants would meet the definitions of “community development” and “community services,” targeted to low- and moderate-income families.
Health Care
A financial institution’s support of a children’s hospital that provides comprehensive health services to low- and moderate-income children may receive favorable CRA consideration. By expanding access to quality pediatric health care services for this population, the hospital is helping to prevent and/or treat many of the common health challenges facing at-risk children living in predominately LMI communities.
Child Care
Institutions may receive favorable CRA consideration when they provide support to child care/community development “programs,” or “intermediaries” that provide financing and technical assistance to help expand the supply and capacity of child care providers in low- and moderate-income communities. When such assistance is provided in the form of long-term multi-year, multi-faceted support that includes loans, grants and technical assistance (such as staff training), a child care partnership initiative would be considered “complex, innovative and highly responsive to community development needs.”
Pro bono Legal Services and Legal Related Social Services
A financial institution may receive favorable consideration for contributions to the programs of a nonprofit organization that has a primary purpose of providing pro bono legal representation and legal related social services to low- and moderate-income individuals and geographies. In this instance, the program was found to constitute “community development,” by providing community services to help build the capacity of low-income women to ultimately advocate for themselves and plan for their future.
Revitalization/Stabilization of Low- to Moderate-income Communities
Multifamily Housing/Community Economic Development
A financial institution’s support to a neighborhood fund that acquires and improves multi-family housing stock in low- and moderate-income neighborhoods may receive favorable CRA consideration. Equity investments in the fund would meet the definitions of “community development” and “qualified investment,” by helping to revitalize and stabilize the targeted multifamily housing properties and the LMI communities in which they are located. These investments would also likely be viewed as “innovative,” since there are very few, if any, existing models to raise equity investments for multifamily properties outside of the Federal Low Income Housing Tax Credit Program.
A financial institution providing loans, investments or services to a comprehensive, multi-faceted community development project was deemed to have a “community development purpose” by virtue of its role in revitalizing and stabilizing a low- and moderate-income area (south central Harlem). In this instance, the development project is a broad economic development initiative that involves transforming vacant lots and creating jobs for local residents, and the project has a large degree of local support. The project is consistent with an “innovative” and “complex” initiative, in light of its mixed residential/commercial/public space composition and its multi-layered financing structure.
A financial institution’s investment in a Zone Capital Corporation (including the Statewide Zone Capital Corporation) was deemed to be consistent with the definition of a “qualified investment.” A Zone Capital Corporation (designated by NY State) makes loans or investments in businesses with the express purpose of creating or retaining jobs within State Empire Zones, areas that are typically comprised of LMI communities. Investments in such entities not only fuel business development in general, they specifically promote the revitalization or stabilization of a distressed community.
Public Affairs/Policy/Organizational Development
A financial institution was deemed to receive favorable CRA consideration for contributions to a cultural institution’s program to develop a “planning center,” a resource for neighborhood groups and community-based organizations to plan for the future. Through the program, the institution provides direct technical assistance to low-income community residents on grassroots planning and development. These activities were determined to have a “community development purpose,” by building the capacity of low-income community-based organizations to better plan for the future and revitalize and stabilize a low- and moderate-income area. The opinion was limited to the planning center, and not for grants to support the cultural institution, in general.
A financial institution’s support of an urban affairs magazine was deemed to merit favorable consideration as a “qualified investment.” The magazine targets community development practitioners and focuses on community development issues such as housing and economic development. The magazine helps revitalize and stabilize low- and moderate-income communities by advancing dialogue around community development issues and bringing critical issues to the attention of policy makers and the public.
Cultural Institutions
With respect to a museum, a financial institution may receive favorable CRA consideration for contributions to programs that are deemed to have a “community development purpose.” In this case, the museum runs an educational program that focuses on building job skills for low- to moderate-income individuals and enhancing neighborhood drug prevention efforts. These community services for LMI persons also help revitalize or stabilize the LMI area. The museum’s establishment of a visitor’s center was also seen to have a “community development purpose,” serving as a vehicle to help spur an increase in tourists and economic activity, thereby helping to revitalize a low- and moderate-income area. The opinion was limited to the educational program and the visitor’s center of the museum, and not grants to support the museum, in general.
Climate Change
A financial institution may receive favorable CRA consideration for financing activities that reduce or prevent the emission of greenhouse gases that cause climate change (“climate mitigation”), and adapt to life in a changing climate (“climate adaptation”) (together with climate mitigation, “climate resiliency”). LMI communities can benefit from climate adaptation. LMI communities tend to be more susceptible to flooding and heat waves, risks exacerbated by climate change. Compounding the problem, LMI communities also have fewer resources to recover from natural disasters which are, in turn, more frequent and severe due to climate change. LMI communities also can benefit from climate mitigation actions, such as improving energy efficiency. LMI households on average face a higher energy burden than other communities, spending more on gas, electric, and heating fuel as a percentage of household income.
Ensuring access to credit in LMI communities and underserved rural geographies for climate resiliency actions may help mitigate climate change risks and at the same time revitalize or stabilize those geographic areas. Accordingly, banking institutions may be credited in their CRA examinations for financing certain climate resiliency activities that assume the form of community development lending or qualified investments that revitalize or stabilize or otherwise serve as community development in these areas. For example, a banking institution may receive credit for financing projects such as installing solar panels, geothermal heat pumps, and lighting, window and appliance upgrades for affordable housing, where the project reduces LMI tenants’ utility bills. In addition to potential credit for community development, banking institutions’ activities promoting climate resiliency may qualify for credit under the lending test or as innovative investments.
Please see the Department’s Industry Letter of February 9, 2021 for more guidance, including examples of financing activities that support climate resiliency and may qualify for CRA credit.
Miscellaneous/multi-category
Financial Services/Financial Literacy for LMI individuals
Under appropriate circumstances, financial institutions may receive favorable consideration for the provision of individual development accounts (IDAs) in low-income areas. IDAs are long-term savings accounts where both the account owner and the financial institution make incremental contributions to the account. Account owners do not have free access to account funds until a pre-contracted amount of time has elapsed, and at that time, withdrawals may be restricted in their use for college tuition, home purchase or small business.
An IDA is consistent with the definition of a “community development service,” as it is a retail banking service that is tailored to meet the needs of low- or moderate-income areas or individuals. Additionally, matching contributions by the bank to an LMI individual’s IDA would receive favorable consideration as a “qualified investment,” designed to help LMI individuals to invest in their futures.
Banks may also receive favorable CRA consideration for the provision of special accounts for low-income welfare recipients to receive their benefits via Electronic Benefits Transfer (EBT), provided that it is an “approved” account under Section 14-f of the Banking Law. The provision of these accounts is consistent with the definition of a “community development service,” as a retail banking service that is tailored to meet the needs of low- or moderate-income geographies or individuals. Such accounts have more advantageous features than those required by law (Basic Business Account), or the bank already provides an account that complies with Section 14-f, and the account that will receive the EBT is a separate account which otherwise addressed low-income banking needs.
Banks offering a service to facilitate the reporting of rental payment data to credit bureau agencies on behalf of apartment renters may receive favorable CRA consideration as a “community development service,” since the institution is utilizing its technical expertise to benefit LMI individuals. The software in question enables a bank to accept rental payments from the tenants of apartment complexes that have deposit relationships with them, and then to make the records of such payments available to credit reporting agencies. These services appear to specifically target LMI individuals and may help this population build credit. Furthermore, given the uniqueness of this service and its relative complexity (banks must coordinate the efforts of multiple lines of business), an institution that becomes actively involved in such an undertaking may likely receive consideration as an “innovative” community development service.
Financial institutions’ support of programs with a primary purpose of developing and implementing a financial program for consumer debts in the federal bankruptcy system may receive favorable CRA consideration. In this case, the program empowers consumers (especially low- and moderate-income consumers) to make appropriate decisions regarding their finances, avoid repeating past mistakes and builds their capacity to invest in their futures. An institution’s financial literacy and education programs for LMI individuals may also be considered “community development services” and thus CRA eligible, as they are activities related to the provision of financial services. With regard to the particular forms of support that may be eligible, any type of grant support (either monetary or in-kind, including donations of space) would receive favorable consideration, as would donations of time for teaching, organizing educational seminars, or meeting with local community organizations to develop support for the program.
Publications
A financial institution’s support of a nonprofit’s publication of resource guides for homeowners and small businesses was deemed eligible for favorable CRA consideration as a “qualified investment.” The publications enhance home purchase and ownership skills in LMI areas, and encourage and improve small businesses that help revitalize and stabilize neighborhoods.
Community Development Financial Institutions (CDFIs):
The Department has issued a number of opinions concerning financial institutions’ support of CDFIs. CDFIs are entities designated (after an application process) by the Community Development Financial Institution Fund of the U.S. Department of Treasury. They include community development banks, credit unions, venture capital funds, revolving loan funds and microloan funds. The CDFI Fund primarily provides grants, loans, equity investments, deposits, and technical assistance to new and existing CDFIs. Recipient CDFIs engage in lending and investment for affordable housing, small business and community development within underserved communities.
These opinions are limited to those instances in which the targeted population or investment area served by a CDFI are consistent with the criteria set forth in the CRA regulation.
- In determining eligibility for CRA credit, the Department does not assign a specific weight to, or differentiate between an institution lending to, or investing in not-for-profit or for-profit CDFIs. The Department considers whether the activity or organization in question has a primary purpose of community development, the dollar volume and amount of community development loans or qualified investments, their innovativeness or complexity, their responsiveness to the credit needs of the community and the degree to which a type of investment is not routinely provided by private investors.
- An institution may receive favorable CRA consideration both for its direct loan or investment in a project, and for its support for a CDFI that may be supporting the project, provided that the project meets the definition of community development.
- An institution that supports a statewide or regional program and includes the bank’s assessment area may receive credit for all of its support to that the organization, provided that the program’s purpose, mandate or function includes serving geographies or individuals located within the institution’s assessment area.
- The Department favorably considers a bank’s provision of financial counseling services to either the staff of a CDFI or directly to CDFI customers referred by the CDFI, under the “Service Test.”