Incentives to Improve CRA Ratings

The importance of improving your financial institution’s CRA rating has perhaps never been more keenly felt. Between the rumblings about updating the Community Reinvestment Act from Comptroller Joseph Otting and the U.S. Department of Treasury to the growing advocacy within American communities for more banking solutions, investing in and bettering CRA ratings has risen to the top of every local banker’s to-do list.

Recent news should do nothing to deter the trend. The Consumer Financial Protection Bureau (CFPB) just announced a rule to both clarify and govern the implementation of banks’ potential exemptions from the Home Mortgage Disclosure Act (HDMA). And guess what? Lending institutions that have received either a rating of “needs to improve record of meeting community credit needs” in its previous two CRA examinations or a rating of “substantial noncompliance in meeting community credit needs” in its most recent exam won’t qualify for the reporting exemption.

What does that mean in lay terms? Regardless of how many (or how few) loans or HELOCs your institution has originated, if you don’t have good CRA ratings, your team is going to be bogged down in reporting loan application registers (LARs), and no one wants that.

How to Improve CRA Ratings

Even if you don’t qualify for the exemption this year, there are steps to take to improve your CRA ratings so that you can be sure to qualify in 2019. Key among them are:

  • Focusing on communications with your customers and community
  • Auditing your current CRA activities and costs
  • Researching what low ratings are costing you and your staff in terms of lost time and opportunities
  • Researching (and embracing!) new “fintech” solutions to help you on your quest

If you’d like more detailed steps, download our recent white paper, Preparing for Changes to the CRA, to learn more. The analysis goes into a bit of detail about how you can improve CRA standings to ensure your bank – and your community – gain all the benefits they can from the program.

Why the CRA and Why Now

The CRA has been around since 1977, so why the sudden interest now?

Well, for one, there seems to be little question in the federal government’s mind that the Act needs to amended to fit current financial and societal situations. But even more interesting is the increase in the number of bank mergers between small banks and the leverage that a good (or a bad!) CRA rating can bring to either party. During any merger approval process, regulators must take into consideration each banks’ CRA ratings, and what they find definitely has an impact on the process.

Also of note – and not as commonly known – is that during a merger, the law gives community groups the chance to make specific demands attached to the merger. While banks that have never been through a merger might not know about that part of the law, local housing authorities, nonprofits, and other agencies do. And they’re ready to make requests to improve what they consider to be lack of available credit in their communities — requests that might delay or derail the merger. So if your bank is considering a merger at any point in the near (or far) future, be ready to go to bat for your CRA ratings in more than one game.

Ready to take action? Contact us if you’d like to discuss how our innovative, turnkey Patient Lending platform is linking banks like yours with healthcare providers to open up new sources of interest revenue – and improve CRA ratings. Our low-risk, high-reward offering has already been implemented at more than 1,000 banks nationwide. Will yours be next?