CRCM Community Reinvestment Act (CRA) Compliance 1 — Questions and Answers
Question 1: What is the primary purpose of the Community Reinvestment Act (CRA)?
- To require banks to report loan data by race and gender
- To encourage banks to help meet the credit needs of the entire community, including low- and moderate-income areas (Correct answer)
- To establish minimum capital requirements for banks operating in underserved communities
- To mandate that banks offer accounts to all applicants regardless of creditworthiness
Correct 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.
Question 2: Under the CRA, a bank's assessment area is primarily defined by:
- All counties in the state where the bank is chartered
- Only the zip codes where loans were made in the past year
- The geographies surrounding the bank's main office, branches, and deposit-taking ATMs (Correct answer)
- The entire metropolitan statistical area of the bank's headquarters city
Correct 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.
Question 3: Which of the following is NOT one of the three performance tests applied to large banks under CRA?
- Lending Test
- Service Test
- Capital Adequacy Test (Correct answer)
- Investment Test
Correct 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.
Question 4: A bank that receives a CRA rating of 'Needs to Improve' is MOST likely to face which consequence?
- Immediate closure of all branches in low-income areas
- Loss of federal deposit insurance within 90 days
- Increased regulatory scrutiny and potential delays or denials on applications for expansion (Correct answer)
- Mandatory reduction of all loan interest rates to below-prime levels
Correct 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.
Question 5: The four CRA performance rating categories are:
- Exceptional, Outstanding, Satisfactory, Needs Improvement
- Outstanding, Satisfactory, Needs to Improve, Substantial Noncompliance (Correct answer)
- Superior, Acceptable, Marginal, Unsatisfactory
- Excellent, Good, Fair, Poor
Correct answer: Outstanding, Satisfactory, Needs to Improve, Substantial Noncompliance
The CRA uses exactly four ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance.
Question 6: Which type of bank is evaluated solely under a community development test rather than the standard lending, investment, and service tests?
- Small bank
- Intermediate small bank
- Large retail bank
- Wholesale or limited purpose bank (Correct answer)
Correct 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.
Question 7: Under CRA, a 'low- and moderate-income' (LMI) census tract generally refers to one where median family income is:
- Below 50% of the area median income
- Below the federal poverty level for a family of four
- Less than 80% of the area median income (Correct answer)
- Less than 120% of the national median income
Correct 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.
CRCM Community Reinvestment Act (CRA) Compliance 1
What is the primary purpose of the Community Reinvestment Act (CRA)?