Community Developments Investments (November 2013)

Community Reinvestment Act and Rural Economic Development and Finance

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Vonda Eanes, Community Affairs, OCC

In 2005, the bank regulatory agencies expanded the types of activities that could receive Community Reinvestment Act (CRA) consideration. The agencies amended the definition of community development to include loans, investments, and services that revitalize or stabilize nonmetropolitan middle-income geographies (census tracts) designated as distressed or underserved.

The agencies made the change to increase the effectiveness of regulations encouraging rural community development, and in response to comments from community banks and federal savings associations (collectively, banks) and community organizations that the definition of community development had been too narrow.

Until 2005, most activities considered to have a primary purpose of community development were those that benefited low- or moderate-income individuals or geographies. The income level of an individual or geography is defined as low-, moderate-, middle-, or upper-income based on the area median family income. Because of the way median family income is calculated, many rural counties are defined as middle-income even though they may lack access to essential community services or are economically distressed. Activities in many rural areas with high rates of poverty, unemployment, and loss of population were excluded from CRA consideration because these areas were not recognized as low- or moderate-income, but instead were defined as middle-income geographies.

Distressed or Underserved Nonmetropolitan Middle-Income Geographies

The 2005 regulatory revision allows loans, investments, and services that revitalize or stabilize a designated distressed or underserved nonmetropolitan middle-income geography to receive consideration as a community development activity.

Underserved middle-income, nonmetropolitan census tracts are those that meet specific criteria for population size, density, and dispersion that indicate the area's population is sufficiently small, thin, and distant from a population center that the tract is likely to have difficulty financing the fixed costs of meeting essential community needs. (See "Interagency Questions and Answers Regarding Community Reinvestment" 75 FR 11642, 11647 (March 11, 2010) (Q&A § __.12(g)(4)(iii) – 1).) Activities that may help revitalize or stabilize underserved nonmetropolitan middle-income areas are those that help meet essential community needs, including needs of low- or moderate-income individuals, such as health services, education, public safety, public services, industrial parks, affordable housing, or infrastructure. Examples may include financing essential infrastructure or facilities, such as building a new hospital or clinic, that serve the entire county, including low- and moderate-income families; rehabilitating an elementary school; or developing mixed-income housing that includes affordable housing for low- or moderate-income families (Q&A § __.12(g)(4)(iii) – 4).

A nonmetropolitan middle-income geography is designated as distressed if it is in a county that meets one or more of the following conditions:

  • An unemployment rate of at least 1.5 times the national average.
  • A poverty rate of 20 percent or more.
  • A population loss of 10 percent or more between the previous and most recent decennial U.S. census.
  • A net migration loss of 5 percent or more of the population over the five-year period preceding the most recent U.S. census (Q&A § __.12(g)(4)(iii) – 1).

Activities that help revitalize or stabilize distressed nonmetropolitan middle-income geographies are those that help attract new or retain existing businesses or residents. Activities to revitalize or stabilize a designated disaster area include providing financing to attract a major new employer to the area that will create long-term job opportunities, including for low- and moderate-income individuals, and developing or improving essential community-wide infrastructure or facilities, such as water and sewer lines. Activities can also improve health care access and facilities to retain present residents or to draw new residents.

In general, bank examiners presume that activities revitalize or stabilize the area if the activities are consistent with a government revitalization or stabilization plan for these designated areas (Q&A § __.12(g)(iii) – 3).

Activities in the Broader Statewide or Regional Area

Rural areas are largely served by community banks, but the vast majority of banking assets are held by large banks (those with assets greater than $10 billion) that operate primarily in metropolitan areas (see Federal Deposit Insurance Corporation, "Community Banking Study," December 2012). To address concerns expressed by bankers and community organizations and further encourage rural community development, the agencies recently made changes to the "Interagency Questions and Answers Regarding Community Reinvestment " (Q&As) to clarify how activities in broader statewide or regional areas may be considered.

The new interagency CRA Q&As continue the previous policy of allowing banks to receive consideration for community development activities in the broader statewide or regional area that includes their assessment area(s) that benefit, or have the potential to benefit, one or more of their assessment areas. However, the recently issued Q&As clarify that banks will receive CRA consideration for activities in the broader statewide or regional area that includes their assessment area even if those activities do not benefit their assessment areas, provided that the bank has been responsive to the community development needs and opportunities in its assessment areas. These changes will provide banks greater flexibility to serve rural communities in need of community development loans and investments—even if those communities are beyond the banks' branch-based footprint.

Bankers should contact their supervisory office with any questions.

This publication is part of:

Collection: Community Developments Investments

Deputy Comptroller
Barry Wides

Staff Writers
Ted Wartell
Bill Reeves
Letty Ann Shapiro
Dianne Davenport

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Articles by non-OCC authors represent the authors' own views and not necessarily the views of the OCC.