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Question & Answer
Question: How should we treat loans to small businesses that are community development loans?
Answer: The basic rule of CRA data reporting is that you get credit for each loan you make but you only get credit once. So the loan cannot go both places. This means you have to choose where it goes, but you must choose using the government's rules. In other words, they tell you where it goes. And the small business loan goes into the small business category, not the community development category.
The basic rule of thumb here is that one definition of a community development loan is that it does good stuff for the community but simply doesn't fit in any other category. In other words, the community development category is a catch-all category when all else has been tried and failed to fit.
Unfortunately for banks, this catch-all category became more or less mandatory so you have to put a great deal of effort into finding loans that are good for community development but don't fit into any other reporting category.
The single exception to this "report each loan only once" rule is that some multiple-dwelling loans count twice - sort of. These loans can be reported in two categories: the HMDA LAR, and community development loans in your CRA data report. What's the rationale for this? Probably public policy is the best one. Loans that support affordable housing for low-income families are a high political and social priority.
Copyright © 1998 Compliance Action. Originally appeared in Compliance Action, Vol. 3, No. 18, 12/98
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