COVID-19 and CRA: Fed Issues Guidance on Helping Communities Through the Crisis
In the face of the global COVID-19 (coronavirus) pandemic, the Federal Reserve is working diligently to support our nation’s communities, economy and financial system. Along with other regulators, we are particularly concerned with helping low- and moderate-income (LMI) individuals and communities cope during this period of economic uncertainty. To help support economic resiliency, we are providing Community Reinvestment Act (CRA) consideration for banking and lending activities in response to COVID-19.
Since February, the Fed has made a number of policy decisions to support the flow of household and business credit and stimulate economic activity during this national emergency. As part of our community development and supervisory functions, we have participated in multiple actions to promote responsive relief directly for individuals, households and small businesses. On March 9, the Fed and other financial institution regulators issued a joint statement encouraging banks to work constructively with borrowers and customers to meet the financial needs of those affected by COVID-19.On March 19, the Fed joined the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency to issue CRA guidance regarding COVID-19.
How Banks Might Respond to COVID-19
This latest guidance is effective from March 19, 2020, until six months after the U.S. national emergency declaration is lifted. The time period is subject to extension at the determination of the interagency regulators.
As outlined in the statement, pursuant to the CRA, the regulators will favorably consider retail lending and banking services in a financial institution’s assessment areas that are responsive to the needs of LMI individuals, small businesses and small farms affected by COVID-19. These activities must be consistent with safe and sound banking practices and other applicable laws. Some examples of qualifying activities include:
- Waiving ATM, overdraft and late fees
- Easing non-customer and out-of-state check cashing restrictions
- Expanding the availability of other short-term, unsecured credit products for creditworthy borrowers
- Increasing credit card limits for creditworthy borrowers
- Providing alternative service delivery options to customers in light of limited ability to access bank branches
- Offering payment accommodations like deferred or skip payments, due date extensions and modifications that would avoid delinquencies and negative credit bureau reporting, which might have been caused by COVID-19-related issues
- Modifying new or existing loan terms for affected LMI customers, small businesses and small farms
- Restructuring debt obligations due to temporary hardships resulting from COVID-19-related issues
- Easing terms for new loans to affected LMI customers, small businesses and small farms, consistent with prudent banking practices
Community development activities that are responsive to the needs of particular individuals and communities affected by COVID-19 are also eligible to receive favorable CRA consideration. These qualifying activities are defined as those that support community services targeted to LMI individuals and help revitalize or stabilize LMI geographies as well as distressed or underserved nonmetropolitan middle-income geographies. Examples listed in the March 19 statement include:
- Investment or service activities that support the provision of food supplies and services for LMI individuals or communities
- Loans, investments and services that support access to health care and digital access, particularly for LMI individuals or communities
- Economic development activities that sustain small business operations, particularly in LMI communities
Due to the widespread nature of COVID-19, we recognize that the economic impact of the pandemic may reach beyond the defined geographic boundaries of a bank’s assessment area. After the bank has been responsive to the community development needs and opportunities that exist within its assessment area, it can look for community development opportunities that help stabilize communities affected by COVID-19 in the broader statewide or regional area that includes that bank’s CRA assessment area. These additional activities will also be eligible to receive favorable CRA consideration.
CRA and Disaster Recovery
Encouraging financial institutions to be responsive following natural disasters and national emergencies has been a core focus of CRA since 2005, when the definition of “community development” was expanded to include activities that revitalize or stabilize designated disaster areas. (For more information, see the Dallas Fed’s Weathering the Storm: A Framework for Meeting CRA Obligations.)
Over the past 15 years, our nation has seen an increase in the frequency and severity of disasters. This has reinforced the need to keep economic revitalization and stabilization as fundamental principles within CRA.
The Fed will continue to encourage banks, even during times of disaster and emergency, to engage in safe and sound lending, investment and services that provide critical access to credit for all Americans, including those who are LMI. These activities are essential to support economic resiliency and mobility within our communities. Our collective response to the current COVID-19 crisis is sure to provide additional insights in this regard.
Community Development Advisor, Federal Reserve Bank of Dallas
The views expressed are those of the author and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.