Dear [ ]:
This letter responds to your correspondence of June 8, 1995, in which you requested an opinion about how loans and investments relating to the Corporation for National Service (CNS) will be considered under the revised regulation implementing the Community Reinvestment Act (CRA). As you explain in your letter, CNS directs the activities of the following projects: Learn and Serve America. National Senior Service Corps, and AmeriCorps. AmeriCorps provides funds to community programs to help meet education, public safety, environmental, and other unmet human needs. Among programs supported by AmeriCorps are Habitat for Humanity, Youth Build, and City Year, as well as programs for homeless shelter and child care. You ask the following questions in your letter:
As explained more fully below, the revisions to the regulation do not alter the opinions stated in Mr. Cross' letter. Loans that fund community development projects supported by CNS would be "community development loans" and would be considered under the "lending test" for retail institutions or the "community development test" for wholesale or limited purpose institutions. Grants to CNS to support community development projects would be "qualified investments" and would be considered under the "investment test" or community development test, as applicable.
Status of February 3, 1995, Letter From Stephen Cross
In his February 3, 1995. letter to you. Mr. Cross reached two principal conclusions.
Although these conclusions were based on the old regulation and interagency interpretations, they continue to be valid following the revisions to the CRA regulation. The application of the revised CRA regulation to CNS is described more fully below.
Bank and Thrift Participation in CNS Programs
The following describes two ways in which an institution may participate in CNS programs and provides general guidance on how such participation would be considered in an institution's assessment under the revised regulation.
A. Loans to community organizations for projects that also receive CNS funds
An institution may make a loan to a community organization to support a program that also receives financial support from CNS. Such a loan would qualify as a community development loan if it funds a community development project. The revised CRA regulation defines "community development" to include "community services targeted to low- or moderate income individuals; activities that promote economic development by financing businesses or firms that meet the eligibility standards of 13 C.F.R. §121.802(a)(2) or have gross annual revenues of $1 million or less; or activities that revitalize or stabilize low- or moderate-income geographies." See 60 FED. REG. 22190 (May 4, 1995).
As you point out in your letter, the Preamble to the revised regulation includes any examples of loans or services that have community development as their primary purpose many activities supported by CNS. 60 FED. REG. 22160, nn. 1-2 (May 4, 1995). Although examiners will make this determination on a case-by-case basis, it seems highly likely that loans to community groups to help finance CNS-supported programs would qualify as community development loans because most of these programs, as I understand it, are for community development purposes.
A retail institution's community development loans are generally considered under the lending test, and a wholesale or limited purpose institution's community development loans are generally considered under the community development test. An institution receives favorable consideration for community development loans if they benefit its assessment area or a broader statewide or regional area that includes the assessment area. See 60 FED. REG. 22192 (May 4, 1995). A wholesale or limited purpose institution also can receive favorable consideration for community development loan regardless of the area it benefits if the institution has adequately addressed the needs of its assessment area. See Id. at 22193.
B. Direct grants to CNS
An institution may make a grant directly to CNS. Depending on the circumstances the institution may receive favorable consideration for this grant under the investment test or, in the case of a wholesale or limited purpose institution, under the community development test of the revised regulation.
A retail institution receives favorable consideration under the investment test when it helps to meet credit needs "through qualified investments that benefit its assessment area or a broader statewide or regional area that includes the bank's assessment area." See 60 FED.REG. 22192 (May 4, 1995). A "qualified investment" also is a lawful investment, deposit, membership share, or grant that has as its primary purpose community development." See id at 22191 (emphasis added).
As discussed above, CNS programs generally support activities intended to promote community development. Assuming a grant by an institution supports a CANS program that has community development as its primary purpose, the grant would be treated as a qualified investment under the revised regulation. A qualified investment also could include a grant to CNS specifically targeted to community programs or to support an "umbrella" fund that supports many programs, which primarily have a community development focus.
Under the revised regulation, an institution only receives favorable consideration for a qualified investment if the investment has a demonstrable impact. 58 FED. REG. 67470 (December 21, 1993) (Preamble to first proposed revision). See also 59 FED. REG. 51238 (October 7, 1994) (Preamble to the second proposed revision). We understand that CNS-supported programs are subject to regular monitoring to ensure, among other things, that they are meeting their objectives (for example, community development). CNS staff, state commissions and independent auditors monitor and evaluate CNS-sponsored programs. In addition, there is Congressional oversight of the CNS program and annual reporting by CNS to the Congress on how well the program meets its objectives. Therefore, examiners reasonably may presume that qualified investments in CNS programs in fact provide the intended benefit.
Benefits need not be limited to an institution's assessment area. Under the investment test, a retail institution would receive consideration for a qualified investment even though the programs do not directly benefit the institution's assessment area -- if the programs benefit a broader geographic area that encompasses that assessment area. See 60 FED. REG. 22192 (May 4, 1995). Under the community development test, moreover, a wholesale or limited purpose institution would also receive favorable consideration for qualified investments that benefit any geographic area -- if the institution has adequately addressed the needs of its assessment area. See id. at 22193.
I trust that this letter has been responsive to your inquiry. I have shared this letter with my colleagues on the Task Force and they concur with its contents. If you have any additional questions, please feel free to contact me.
Tim R. Burniston
Chairman, FFIEC Task Force
on Consumer Compliance