Tell us
what you think
Our Sponsors
 |
Our Sponsors
|
CRA in the Sunshine
Proposed Regulations
The proposed regulations to implement the Gramm-Leach-Bliley Act provisions for CRA in the sunshine are out. The proposal takes a balanced approach, and stays in known territory as much as possible. Additional burdens for financial institutions should be minimal.
However the very fact of required disclosure and reporting threatens to change the balance of power in the uneasy triangle of regulators, financial institutions, and community organizations. Community groups are likely to resist this change. Their comments will be taken into account in shaping the final rule. Every financial institution should send a comment letter so that the agencies have a balanced set of comments to review.
Covered Agreements
An agreement must have all of four required elements. First, the agreement must be in writing. Verbal understandings, however detailed, won't count.
Second, the agreement must be between a financial institution subject to CRA and a non-governmental entity or person. This excludes by definition any agreement between government agencies, whether a regulatory agency or a state or local government. But it leaves the field wide open for the nature of the non-governmental group. It could be anything from a community activist group, a hospital, or the boy scouts.
Third, the agreement includes a provision that the financial institution will make cash payments of more than $10,000 in any calendar year or loans of more than $50,000 in any calendar year. This would not include agreements that are structured to come in under the minimum amount during any calendar year, such as an agreement to pay $9,999 per calendar year.
Finally, the agreement is made "pursuant to, or in connection with, the fulfillment of" CRA. Fulfillment of CRA is defined as any one of the products, services, or activities that is considered during a CRA examination. Pretty much anything that the examiners look at during a CRA examination would be considered. The proposal actually lists the factors that examiners review.
Exclusions
This rule is triggered by the existence of the agreement and the nature of the parties to the agreement. It is not in any way affected by the size of the organization or financial institution. Don't look for an exemption based on bank size.
There are several specific exclusions from covered agreements including loans to individuals and loans to specific entities such as businesses and farms if the loans are not substantially under market rates. The rule therefore calls attention to below-market rate loans as candidates for reporting.
Also excluded from required reporting are agreements without a "CRA contact." This means that arrangements or loans the bank enters into without a "CRA contact" would not trigger reporting. This provision provides relief to large institutions where branches or departments may enter into specific agreements or make donations without the participation or knowledge of the CRA manager. These agreements could be put forward for consideration during the CRA examination for CRA credit but would not trigger sunshine reporting.
The rule also includes a list of activities that would constitute a CRA contact. These all describe actions taken by an individual or organization in approaching either a federal agency or a financial institution. It does not include any actions that are initiated by the financial institution or a federal agency.
Multiple Agreements
If the same parties reach more than one agreement in a 12-month period and each agreement is in fulfillment of CRA, the agreements will be treated as a single agreement. This means that any funds involved in the agreements, whether grants or loans, will be aggregated to determine whether the amount triggers disclosure and reporting.
Disclosure and Reporting
The agencies are proposing a disclosure method that fits into the current system for CRA. Both parties to an agreement would be required to submit a copy of the agreement to the agency regulating the financial institution. The institution must automatically report the agreement within 30 days of reaching the agreement. The community organization would be required to disclose a copy of the agreement to the regulatory agency within 30 days of receiving a request from the agency for a copy.
Agreements must also be disclosed to the public. Financial institutions would accomplish this by making the agreement part of their CRA file. It must remain available for 12 months after the agreement expires. The institution would also have to make copies available to the public upon request but could charge reasonable fees to cover the costs of copying and mailing.
Organizations would have to file reports at least once during a fiscal year. The agencies have used the fiscal year for reporting to reduce burden by making reporting consistent with other financial analysis of the organization.
Report content is not complex. The proposed regulation does not even specify any format. The report would need to include information to identify the agreement to which it pertains and the name and address of the person filing the report. It must also specify the amount of funds or resources received for that reporting period (year) and how those funds were allocated or spent.
If the funds were not used for a specific purpose, the organization would have to report a detailed, itemized list of how the funds were used during the fiscal year including any amount used for staff or administrative expenses. This is likely to generate hostile comments from community and consumer organizations based on perceived regulatory burden and possibly on privacy grounds.
Financial institutions would also be required to report. The format for reporting would be flexible at the institution's convenience. The institution's reports would include its identity, agreement under which the report is filed, and the aggregate amounts of funds paid or loans made under the agreement together with a general description of the terms and conditions for those funds or loans under the agreement.
Financial institutions would also report the aggregate amount of loans, investments, and services provided under the agreement to any individual or entity that is not a party to the agreement.
Reports would be filed within 6 months of the end of the fiscal year to which they pertain.
Effective Dates
Disclosure requirements would apply only to agreements entered into after November 12, 1999 - the date of the act. Annual reports are required for agreements entered into on or after May 12, 2000.
The rule contains several important underlying concepts helpful in understanding the regulatory approach. First, the rule targets transactions or agreements that call for loans below market rates. A market rate transaction may not be covered. The underlying presumption is that a market rate transaction is reached without the pressures of "blackmail" or "arm twisting".
Second, the rule is triggered when a community group initiates action leading to an agreement or an activity. A CRA lending, service or investment program that a financial institution designs and implements without specific pressures from a community group would not trigger coverage of the disclosure rule.
On the whole, the proposed rule strikes a very careful balance between fairness to both financial institutions and community groups and burden minimization. This could change based on the comments the agencies receive. Your comments count.
ACTION STEPS
- Review your outstanding understandings with community organizations and determine what would be covered as an agreement under this proposal.
- Discuss the proposed rule with your lending departments and branch managers.
- Find out what they think the proposed rule would do to the relationships and contacts that they manage.
- Review what you learn and determine whether there are agreements that would be covered by the proposed rule. If so, what impact will the disclosure and reporting requirements have on your program?
- Write a comment letter, even if you only have good things to say. If you like the proposed rule, there are sure to be people who don't - and they'll be commenting!
Copyright © 2000 Compliance Action. Originally appeared in Compliance Action, Vol. 5, No. 6, 6/00
Rate This Article
Current Rating For the Feature:
| Total Ratings for this Feature: 0 |
|