February 26, 2021

Volume XI, Number 57

Advertisement

February 26, 2021

Subscribe to Latest Legal News and Analysis

February 25, 2021

Subscribe to Latest Legal News and Analysis

February 24, 2021

Subscribe to Latest Legal News and Analysis

February 23, 2021

Subscribe to Latest Legal News and Analysis
Advertisement

Federal Banking Regulators Update CRA Guidance for CDFIs and Historic Tax Credits

The OCC, Federal Reserve and FDIC recently adopted final revisions to the Interagency Questions and Answers Regarding Community Reinvestment (Q&A) based on proposals the agencies issued September 10, 2014. The revisions – which clarify nine Q&As, revise four Q&As and adopt two new Q&As – provide guidance as to how banks may receive credit under the Community Reinvestment Act (CRA) towards their obligation of meeting the credit needs of their communities.

Among other topics, the agencies clarified Q&As addressing community development related topics that qualify for CRA consideration. Currently, CRA regulations define community development activities as those that “promote economic development by financing businesses or farms that meet the size eligibility standards of the Small Business Administration’s Development Company (SBDC) or Small Business Investment Company (SBIC) programs (13 CFR 121.301) or have gross annual revenues of $1 million or less.”

To promote economic development, an activity must meet both (1) a size test – i.e., the beneficiary must meet the eligibility requirements of the SBDC or SBIC programs or have gross annual revenues of $1 million or less – and (2) a purpose test – i.e., the activity promotes job creation or retention for low-to-moderate income (LMI) persons or in LMI geographies. Currently, the agencies presume that any loan to or investment in a SBDC, SBIC, Rural Business Investment Company, New Markets Venture Capital Company, or New Markets Tax Credit-eligible Community Development Entity promotes economic development.

As part of the revised Q&As, the agencies added to this list that a loan to or investment in a Community Development Financial Institution (CDFI) which finances small business or small farms will be presumed to promote economic development. Within this CDFI qualification, the agencies made clear that the term “financing” not only means traditional bank financing (such as providing working capital), but also includes technical assistance and similar activities that readies a business who meets the size eligibility standards to obtain financing.

Finally, the agencies addressed the ability of banks to claim CRA credit for their loans to and investments in Historic Tax Credit (HTC) projects. Although the regulators stopped short of providing a clear presumption that activities related to HTC projects qualify for CRA consideration, they concurred that projects involving HTCs could qualify for CRA consideration if, for example, the project houses small businesses that support job creation for LMI individuals or the project revitalizes an LMI geography. Banks should consider the potential for increased CRA recognition when evaluating a HTC project and should consult with their examiners to point out ongoing HTC projects that may warrant CRA credit.

Advertisement
© 2020 Jones Walker LLPNational Law Review, Volume VI, Number 231
Advertisement

TRENDING LEGAL ANALYSIS

Advertisement
Advertisement

About this Author

Neal C. Wise, Jones Walker, Corporate Counsel Lawyer, financial institutions attorney
Associate

Neal Wise is an associate in the firm’s Banking & Financial Services and Business & Commercial Transactions Practice Groups. His practice focuses on the representation of financial institutions, such as banks and bank holding companies, and on the transactional and general corporate needs of other corporate clients. For his financial institution clients, Mr. Wise handles numerous transactions, including public and private mergers and acquisitions, public and private capital raises, branch acquisitions and dispositions, and general corporate needs. His practice...

601.949.4631
Advertisement
Advertisement