Lets say either is to a school district where more than 50% of the students are eligible for free or reduced meals or to a municipality that consists of distressed and LMI census tracts. Would these be CDL?
I thought I heard a regulator say "NO TANS, BANS, or RANS" for CDL credit. However, I did find a CRA PE on the FDIC website where the examiner gave the financial institution lending credit for a TAN.
You are correct. I have observed to my surprise that in several FDIC CRA Performance Evaluations, examiners have given credit for tax anticipation financing. The PE did not make it clear why the TAN was considered legitimate CD lending, but in the instances I have read, the municipality was in distressed or underserved areas and that may have been a consideration.
The PE I read gave the financial institution CDL credit for a TAN to a school district.
We do a considerable amount of this type of lending, at least three or four during a quarter that I would give CDL lending consideration. I don't want to elevate my CDL numbers and dollars then have the examiners throw out the loans...wouldn't make me look real good.
Len, what would you advise your clients (include or not include these notes in CDL totals)?
If the loans are to a municipality that is within a LMI tract or group of LMI tracts or distressed or underserved tracts (many rural towns occupy only a part of one census tract) then I think you have grounds to claim the loan for CD credit and, if the examiner objects, show him/her the PE's that have given such credit for similar circumstances. Interpretations in the field can be inconsistent on issues when there is no official Agency position. However, I wouldn't heavily rely on these loans to get you to a satisfactory rating. Also, sometimes you can get CD credit for an activity that will count toward an outstanding rating only after you have achieved a satisfactory rating based on your other CD activity. This was a point of confusion regarding the Hurricane Relief back a few years ago and the Agencies had to clarify that banks outside those disaster areas could get credit for their efforts but only after they had established that they had satisfied their own AA CD needs.