Community Reinvestment Act (CRA) Compliance Flashcards

What is the primary purpose of the Community Reinvestment Act (CRA)?

Answer: To encourage banks to help meet the credit needs of the entire community, including low- and moderate-income areas

The CRA was enacted to encourage depository institutions to meet the credit needs of all segments of their communities, with particular emphasis on low- and moderate-income neighborhoods.

Under the CRA, a bank's assessment area is primarily defined by:

Answer: The geographies surrounding the bank's main office, branches, and deposit-taking ATMs

Assessment areas must include the geographies where the bank maintains its main office, branches, and deposit-taking ATMs, reflecting where it has a physical retail presence.

Which of the following is NOT one of the three performance tests applied to large banks under CRA?

Answer: Capital Adequacy Test

Large banks are evaluated under the Lending Test, Investment Test, and Service Test; there is no Capital Adequacy Test under CRA.

A bank that receives a CRA rating of 'Needs to Improve' is MOST likely to face which consequence?

Answer: Increased regulatory scrutiny and potential delays or denials on applications for expansion

A 'Needs to Improve' CRA rating subjects the bank to heightened regulatory scrutiny and can result in delays or denial of merger, acquisition, or branching applications.

The four CRA performance rating categories are:

Answer: Outstanding, Satisfactory, Needs to Improve, Substantial Noncompliance

The CRA uses exactly four ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance.

Which type of bank is evaluated solely under a community development test rather than the standard lending, investment, and service tests?

Answer: Wholesale or limited purpose bank

Wholesale and limited purpose banks do not offer retail products to the general public, so they are evaluated only on a community development test rather than the standard three-part test.

Under CRA, a 'low- and moderate-income' (LMI) census tract generally refers to one where median family income is:

Answer: Less than 80% of the area median income

LMI areas are defined as census tracts where median family income is less than 80% of the area median income (AMI), with 'low income' below 50% AMI and 'moderate income' between 50-79% AMI.