CRA Consideration for Financial Literacy Initiatives

The Community Reinvestment Act (CRA) recognizes the importance of financial literacy programs in serving the credit needs of low- and moderate-income (LMI) individuals. In addition to opening new business opportunities through an expanded customer base, a bank's participation in, or support for, certain programs may receive positive consideration as qualified community development activities under CRA regulation.

Q: How do banks determine whether financial literacy programs qualify for positive CRA consideration?

A: To be considered under the CRA, programs must have a purpose consistent with the definition of community development (CD) provided under 12 CFR 25.12(g). In general, community services, including financial education or literacy programs, must be targeted to LMI individuals in order to be considered positively under the CRA [12 CFR 25.12(g)(2)].

Q: What specific activities can banks get involved in to receive CRA consideration?

A: Banks may receive positive CRA consideration for making qualified investments in, or funding community development loans to, organizations whose purpose is to provide financial literacy programs to LMI individuals or by directly providing financial literacy programs to LMI individuals. Funded activities or programs must have a CD purpose as defined in the CRA regulation [12 CFR 25.12(g)]. Interagency Q&As released January 6, 2009, provide examples of qualified CD activities. These include

• Developing or teaching financial education or literacy curricula for LMI individuals [Q&A ___ .12(i) – 3];
• Providing investments and grants to nonprofit organizations serving LMI housing or other CD needs, such as counseling for credit, homeownership, home maintenance, and other financial literacy programs [Q&A ___ .12(t) – 4]; and
• Providing credit counseling, home-buyer and home-maintenance counseling, financial planning, or other financial services education to promote CD and affordable housing, including credit counseling to assist LMI borrowers in avoiding foreclosure on their homes [Q&A ___ .12(i) – 3].

Banking regulatory agencies have indicated that bank examiners may consider capital investments, loan participations, and other ventures undertaken by the institutions in cooperation with minority- or women-owned financial institutions and low-income credit unions (MWLI), if these activities help meet the credit needs of local communities in which MWLIs are chartered. For example, majority-owned institutions may provide financial support to enable an MWLI to partner with schools or universities to offer financial literacy education to members of its local community [Q&A ___ .12(g) –4].

Q: Do all banks receive CRA consideration for participating in, or providing support for, qualified financial literacy programs?

A: Yes. Large banks are evaluated under lending, investment, and service tests. The extent to which large banks provide CD loans, qualified investments, or CD services and the extent to which those activities are responsive to community needs are evaluated separately under each test. In addition, examiners consider the innovativeness and complexity of CD loans and qualified investments, along with the innovativeness of CD services.

Intermediate-small banks are subject to a lending test and a CD test. Agencies consider the extent to which intermediate-small banks provide CD loans, qualified investments, and CD services and how these activities are responsive to CD needs and opportunities under the community development test.

Small banks are not subject to CD requirements but can request consideration if they are seeking an "outstanding" rating.

Q: Can loans to organizations that provide financial literacy programs for LMI individuals qualify as CD?

A: Yes. The Interagency Q&As provide examples of CD loans that include

• Loans to nonprofit organizations serving CD needs;
• Loans to financial intermediaries, including MWLIs, CD financial institutions, new markets tax credit-eligible CD entities, CD corporations and community loan funds that primarily lend or facilitate lending to promote CD; and
• Loans to local, state, and tribal governments for CD activities.

Q: Is providing bank staff to serve as educators in financial literacy programs targeted to LMI individuals considered under the service test?

A: Yes. The Interagency Q&As state that developing or teaching financial education or literacy curricula for LMI individuals is an example of a CD service. Refer to §§____.12(i)-3 in the Q&As for additional examples of community development services.