We have a number of businesses within a local moderate income tract. We do a number of working lines of credit for these businesses, usually 1-yr in length. These have been previously counted as CD loans because they are revitalizing or stabilizing low- or moderate-income areas and providing jobs to the employees of these businesses.

The person who managed CRA previously was only counting renewals and refinances of these loans once per exam period, but I believe these can be counted once per year without regard to the exam period (and increases could be counted in addition to). For instance, in a 3-yr exam period, I could count an origination and 2 renewals as 3 loans on my CD loan log. Am I correct?

I would say it would depend on how the loan was written.

If a working line has a maturity date, we only report it the year it is originated. If a working line is a demand note, which is then reviewed by our credit dept on an annual basis and then renewed (i.e. collect updated financials), then we report it each year it is renewed.

So if we had a demand line originate last year, we reported it. If our credit dept collects updated financials and documents the renewal for this year, we will report it.

You can report a "renewed" loan subject to the once-per-year rule. But be sure the loan is qualified as a "renewal" which for CRA purposes is technically different from the usage of the word in the industry (this is a big complaint of mine that I've asked the regulators to revisit because it results in undercounting many loans).

So what's the definition of a renewal for CRA purposes and how does that differ from the industry version of a renewal?

A "renewal" according to CRA is an extension of the maturity date of the note. Many banks renew lines of credit evidenced by demand notes, especially loans secured by UCC filings to avoid disruption of the continuity of the lien. Since the loans are callable on demand, they are not considered to be renewals under CRA although common usage in banking would call them "renewed" lines of credit, for example.

So, we extend the maturity date, keep the same loan number, pull financials, and re-write the loan on new paper with a new note. Is this a "renewal" under CRA? Am I understanding the difference correctly?

A "refinance" is when you replace an old note with a new note and a "renewal" as defined for CRA purposes is when you extend the maturity date on the note.

Thanks Len. So can we count our "refinances"?

subject to the once per year rule

Hi everyone,

So demand lines are not be reportable because we are not extending a maturity date, just the review date? It sounds like some institutions are treating these as renewals and reporting annually and some are not. But the regulation does clearly state that "a demand loan that is merely reviewed annually is not reported as a renewal because the term of the loan has not been extended". Just wanted to get more thoughts on this as excluding these lines of credit could result in significant underreporting. Thanks!

Thoughts? Quit making demand loans.

I would suggest that, among other important issues in the 2022 CRA NPR, every banker should comment about this issue. It results in many legitimate small business loans not be counted (although you could capture them under CRA Loan type "3" and provide that to examiners for consideration during a CRA exam.

I have been commenting to the agencies about this for years and in 2020 the OCC finally changed the definition in their 2020 CRA Rule. But that rule has now been rescinded.

I am convinced this technicality disqualifies a very significant volume of small business loans and results in an understatement of the true credit needs of the small business community and the volume of many banks. So it should be corrected.

We are not a CRA reporter, and the last few CRA exams we have 'flunked' the data integrity test for small business/small farm loans so the examiners had to resort to sampling. I dislike sampling because it can either work for us or against us and I don't want a CRA issue because the sampling skewed in the wrong direction. So we are trying to look at our small business/small farm loans more often to make sure they are coded correctly and fix any issues before our next CRA exam.

I have looked at the CRA GIR and am unsure about renewals. The GIR doesn't appear to mention them, as the only action taken codes appear to be originated and purchased. Reading through this thread, would LOC renewals be coded as 3 - Other, rather than 1 - small business or 2 - small farm? Would the action taken date be the last renewal date (these are all annual renewals) and what action code would be used? For the GAR would you still keep the original GAR used in granting the original credit or would you use the GAR used for the most recent renewal?

I know for the last CRA data integrity test the examiners did test our renewal data as well as the new loan data so I am trying to make sure the renewed loan codes are accurate. Any assistance is welcome.

Thank you.

Refinances and Renewals
An institution should collect information
about small business and
small farm loans that it refinances or
renews as loan originations. When
reporting small business and small
farm data, however, an institution
may only report one origination
(including a renewal or refinancing
treated as an origination) per loan
per year, unless an increase in the
loan amount is granted.
If an institution increases the amount
of a small business or small farm
loan when it extends the term of
the loan, it should always report the
amount of the increase as a small
business or small farm loan origination.
The institution should report
only the amount of the increase if
the original or remaining amount of
the loan has already been reported
one time that year.
For example, a financial institution
makes a term loan for $25,000;
principal payments have resulted
in a present outstanding balance
of $15,000. In the next year, the
customer requests an additional
$5,000, which is approved, and a
new note is written for $20,000. In
this example, the institution should
report both the $5,000 increase and
the renewal or refinancing of the
$15,000 as originations for that
year.
However, the institution may report
the $5,000 increase together with
the renewal or refinancing of the
$15,000 as a single origination of
$20,000.

Just to point out, look back up at Len's post and if this is important to your bank, comment on it when you can. You have until Aug 5, 2022.