Although CRA and fair lending are (2) distinct issues each with their own nuances, the two concerns involved in each often overlap. Especially for smaller banks, it often makes sense to examine these simultaneously when conducting an analysis. Doing so can enhance efficiency and provide a holistic approach with regard to the institution’s regulatory performance.
Below is a sample of such an analysis that combines both CRA an fair lending concerns. This can provide a template to guide an institution’s analysis in terms of the key pressure points.
Sample CRA and Fair Lending Analysis
Community Reinvestment Act (CRA) Performance:
- Geographic Distribution: The institution's assessment area is divided into two parts: a non-MSA (Metropolitan Statistical Area) portion consisting of two counties, and an MSA portion consisting of two counties.
- Loan Activity: The institution originated 1,968 loans totaling $116.2 million in the calendar year. Within its assessment area, 52.4% of loans were originated in one county, 19.3% in another, 17.0% in a third and 11.4% in the fourth.
- Income Levels: The analysis showed that the institution is lending to borrowers of all income categories within the assessment area. In moderate-income census tracts within the assessment area, 862 loans totaling $43.3 million were originated.
- Market Share: The institution holds the 6th position in market share out of 22 banks in the assessment area, with 6.10% of total deposits.
- Loan-to-Deposit Ratio: The institution's loan-to-deposit ratio was estimated to be 89% at the end of 2014, which is considered strong and in line with regulatory expectations.
- Assessment Area: The institution's assessment area consists of four counties with a combined population of 232,888. The area is roughly 43% minority with the dominant minority group being African American. One of the assessment areas has a 63.3% minority population, while the other has 35.7%.
- Competition: The institution faces competition from both smaller, local banks and larger competitors.
Fair Lending Analysis:
- Statistical Analysis: A statistical analysis of Home Mortgage Disclosure Act (HMDA) data was conducted to check for potential disparities based on prohibited bases such as race and gender. No patterns of discrimination were identified.
- Denial Incidences: The analysis compared denial rates by race and gender for different types of loans. While some differences were noted, these differences were statistically insignificant. For example, for home purchase applications, the denial rate was 17.24% for white applicants and 37.50% for Black applicants. However, this difference was not statistically significant.
- Targeted File Review: A targeted file review was conducted on first-lien, 1-4 family, owner-occupied home purchase applications to examine potential disparities. There was no evidence of disparate treatment or gender preference in the data. Loan decisions appeared to be based on relevant credit criteria.
- File Review Sample: In the file review, 1 of 8 male applicants was denied, while 3 of 5 female applicants were denied. Upon review, the reasons for denial were related to credit scores and other factors.
Key Findings:
- The institution appears to be meeting its regulatory obligations with regard to the Community Reinvestment Act and fair lending.
- The institution’s CRA lending activity is considered reasonable, particularly in low- and moderate-income areas.
- There was no evidence of disparate treatment based on protected classes.
Recommendations:
The assessment concludes that no immediate action is required, and any additional guidance will be provided in subsequent discussions with the management.
Conclusion
This sample assessment offers an analysis of the institution's lending practices. By acknowledging the connection between CRA and fair lending, efficiencies can be achieved, providing a comprehensive view of regulatory performance.
