by guest contributor Brian Waters, findCRA
As a not-for-profit, at some time in your bank outreach and relationship building efforts, you may have been told to seek out CRA funding or heard that the Community Reinvestment Act is a great way to talk to banks about supporting your organization. You may have wondered, “What is CRA?” or “Why does a bank regulation matter to me?”
What is the Community Reinvestment Act?
The Community Reinvestment Act is a federal regulation that was first passed in 1977 and has been updated several times over the years. It is designed to encourage insured financial institutions (i.e., banks) to help meet the credit and community development needs of all income levels in the communities where they operate. The regulation arose out of the discriminatory lending practices conducted by some lenders against low-income borrowers or low-income neighborhoods – a practice that has come to be known as “redlining.”
The CRA requires banks to demonstrate their performance in meeting the needs of everyone in their community. All banks are periodically evaluated by their federal banking regulator to ensure that their lending is meeting the needs and is inclusive of all income levels in their markets. Larger banks must also show how they support their communities through community development services and qualified investments. Once a bank’s regulator completes its CRA evaluation, the regulator issues a public report that assigns the bank an overall CRA rating.
Cycle of Support
CRA is simply a regulation that in practice has created a continual cycle of support in communities throughout the nation. Banks are key players, ensuring that they have established the products and services to meet the needs of people throughout their market area. However, banks also rely on organizations in their communities to help spread the word and identify specific needs that can be supported.
Not-for-profit organizations are important partners in bank community development. They understand the areas of need in a community and are on the front line of meeting those needs through their own programs and services. Banks often partner with and support local not-for-profits as part of their overall CRA strategy.
The Right Fit
The Community Reinvestment Act outlines certain types of community development activities that will qualify for “CRA credit” during bank evaluations. At the most basic level, community development activities include:
- Affordable housing for low- and moderate-income individuals,
- Community services targeted to low- and moderate-income individuals,
- Economic development to small businesses and small farms, and
- Revitalization or stabilization of low- and moderate-income geographies or certain other underserved, distressed, or disaster areas designed by the government.
Using these basic criteria, banks evaluate potential not-for-profit relationships to determine if they are the right fit for their CRA strategy. There are numerous guidance documents and reference materials that banks can rely on to help determine the CRA applicability of nonprofit activities. Banks are charged with ensuring that they have appropriately evaluated and documented the community development purpose and impacts of activities they support in order to receive credit during their upcoming examinations.
Telling Your Organization’s CRA Story
It is important for your organization to be able to explain how it aligns with CRA and share your story with banks. Taking the time to develop a clear understanding of how your community activities might meet the requirements of the Community Reinvestment Act will provide insight for ways to discuss how a bank may be able to support your project(s).
The first step in telling your CRA story is to evaluate the individuals you support and the activities you conduct to see if they match one or more of the community development activities of the CRA. Once you’ve determined the general CRA category that your not-for-profit fits, you can then spend time digging deeper into the requirements and best practices for that category to gain a fuller understanding about how your project(s) may be right for bank partners.
There are many great tools to help you in your research, including the free resources we provide at www.learnCRA.com. Spending the time to understand your CRA alignment and develop your CRA narrative will be worth the investment when you reach out to banks.
Join us for a free Lunch & Learn event on August 29, sponsored by DMLO CPAs in partnership with CNPE. Read more and register here.
Brian Waters is the President and Co-Founder of findCRA, an online service supporting banks and nonprofits in optimizing their CRA activities. Learn more at www.findCRA.com.