Services and Technology: CRA Considerations
Advances in technology may benefit a bank in many ways: lower costs, reduced fees to customers, additional retail delivery methods, the potential for improved access to financial services for customers, and perhaps positive consideration under the Community Reinvestment Act (CRA). This issue of Community Developments features some of the technological advances that can bring more unbanked persons into the financial system. Here we will focus on how providing improved access to financial services for low- or moderate-persons can result in positive consideration under the CRA service test.
The service test is required in every large retail bank’s CRA evaluation. It is optional under the small bank test, however. The service test has two parts. First, it evaluates a bank’s record of helping to meet the credit needs of its assessment area(s) by analyzing both the availability and effectiveness of the bank’s systems for delivering retail banking services. Second, it evaluates the extent and innovation of a bank’s community development (CD) services. Let’s look at the latter.
Examiners will focus primarily on the responsiveness of the CD services to the needs of the community, considering the level of innovation involved in providing those services. The number of CD services provided is secondary. So, with that in mind, let’s take a closer look at what constitutes a CD service.
A CD service is a service that —
• Affordable housing (including multifamily rental housing) for low- and
A CD service is one that is of the type generally provided by the financial services industry. By contrast, activities that do not take advantage of the employees’ financial expertise, such as neighborhood cleanups, do not involve the provision of financial services.
c. In the case of personal charitable activities, is provided by a person as a representative of the bank.
For example, if a financial institution’s director, on her own time and not as a representative of the institution, volunteers one evening a week at a local community development corporation’s financial counseling program, the institution may not consider this activity a community development service.
d. Has not been considered in the evaluation of the bank’s retail banking service.
For example, branch distribution is considered under the retail services part of the service test.
Typical CD services include.
• Providing technical assistance on financial matters, such as service on a loan committee for a CD organization.• Informing community members about how to get or use credit or otherwise providing credit services or information to the community• Serving on the board of directors of an organization that promotes credit availability or finances affordable housing.• Providing technical assistance about financial services to community-based groups, local or tribal government agencies, or intermediaries that help to meet the credit needs of low- and moderate-income persons or small businesses and farms.• Providing credit counseling, homebuyer and home-maintenance counseling, financial planning, or other financial services education to promote CD and affordable housing.
When technological advances result in retail banking services that reduce the costs of, or otherwise improve access to, financial services for low- or moderate-income persons, they may be considered a CD service.
Increased use of technology may reduce consumers’ banking costs, improve security over their funds, and increase their access to financial services. However, to qualify as CD services, these financial services must be targeted to low- and moderate-income persons. For example, low-cost bank accounts or free government check cashing and similar services that increase access to financial services for low- or moderate-income persons would be considered CD services. Electronic benefit transfer and point-of-sale terminal systems that are designed to improve access to financial services, such as by decreasing costs for low- or moderate-income persons, would also receive favorable consideration as a CD service.
The electronic transfer account (ETA), is a low-cost account offered by participating federally insured financial institutions to people who receive federal benefit, wage, salary, or retirement payments. When the ETA increases access to these federal payments for low- or moderate-income persons, such as Supplemental Security Income (SSI) recipients, it qualifies as a CD service.
Expanding access to direct deposit, using accounts other than the ETA, especially to recipients of federal payments who do not presently have deposit accounts, is also relevant. When such an account is free or low-cost and improves access to financial services for low- or moderate-income persons, it would qualify as a CD service. For example, a direct deposit account receiving SSI payments generally would be targeted to low- or moderate-income persons. However, an account established to receive federal salary payments probably would not be targeted to low- or moderate-income persons and would not be considered a CD service.
Some banks now offer international remittances services to their customers, and many recent immigrants use these services to transfer funds safely to family members in other countries. Such remittances services would be considered under CRA as retail services. However, these remittances services also may qualify as CD services if they increase access to financial services for low- or moderate-income persons, for example, in connection with a low-cost bank account. An account, such as the low-cost Access Account offered by, when combined with the bank’s international funds transfer capability, may increase access to financial services by low- or moderate-income persons.
Prepaid debit cards also may offer some potential for service test credit. For example, a commercial customer may employ large numbers of people who may not have bank accounts. The company can provide the persons’ wages via prepaid debit cards, which can be used to access funds from ATMs or for point-of-sale transactions. To the extent that such cards are free or low-cost and improve access to financial services for low- or moderate-income persons, they would qualify as CD services.
Technology continues to provide more ways to deliver financial services, and bankers continue to evaluate the risks and rewards associated with these new financial services to ensure that they comply with applicable rules and regulations consistent with the safe and sound operation of their banks. Banks interested in seeking positive consideration under the CRA service test should be prepared to demonstrate how their products qualify as CD services.
For more information about the CRA service test and CD services, refer to the CRA regulation (12 CFR 25) and the Interagency CRA Questions and Answers (OCC Bulletin 2001-39, available on www.occ.treas.gov).