The Community Reinvestment Act (CRA) has been in place for over 40 years. Demographic shifts, bank mergers and the rise of online lending have caused challenges in meeting CRA performance standards.
Even if your bank is not required to report data under CRA, all banks are still required to perform within the standards outlined by the FFIEC. The only way to accurately measure your bank’s performance is to routinely analyze your lending data and compare your bank’s performance to your peers.
At a minimum, banks should analyze their lending data on an annual basis. Software such as CRA RELIEF and its associated Market Data & Instant Mapping modules, enables banks to run lending test reports that mirror the reports examiners run. This helps lenders evaluate assessment areas, while comparing their performance to the market.
One of the most important factors in a CRA exam is your assessment area. Your assessment area will dictate the performance standards you are measured against. Assessment areas can be optimized in a number of different ways, but there are 6 common mistakes you must avoid in order to pass your CRA exam and obtain a good rating.
Here are the 6 common CRA mistakes you must avoid:
1. Assessment area too big to service for your bank’s size
A bank in Los Angeles with only one branch should not choose the entire county as their assessment area. Loans are often concentrated near the branch location which in this case, would result in 95% of the census tracts in the county without lending. Examiners would view this as failure to lend throughout the assessment area and as a result of the demographics of the county, failure to lend to low to moderate-income tracts. You must always remember that the demographics of your assessment area drive the performance standards you are expected to meet.