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#80568 - 05/15/03 04:41 PM Consumer Loans for CRA
COMPLIcated Offline
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OK
Could anyone give reason(s) as to why or why not we would choose the option to have consumer loans included in our CRA Lending test assuming that it is left an option? This is our first large bank exam and our CRA Committee is not sure why we would not want to have them looked at and i do not know the pros/cons...

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Lending Compliance
#80569 - 05/15/03 05:01 PM Re: Consumer Loans for CRA
Don_Narup Offline

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Las Vegas Nevada
Ths is taken from the CRA Examination Procedure for Large Retail Institutions. Look at #B This is the examiners call and if you do a lot of consumer lending its very likely they will be reviewed.

a. the most recent HMDA and CRA Disclosure Statements, the interim HMDA LAR,and any interim CRA loan data collected by the institution;

b. a sample of consumer loans if consumer lending represents a substantial majority of the institution's business so that an accurate conclusion concerning the institutions lending record could not be reached without a review of consumer loans; and

c. any other information the institution chooses to provide, such as small business loans secured by non-farm residential real estate, home equity loans not reported for
HMDA, unfunded commitments, any information on loans outstanding, and loan distribution analyses conducted by or for the institution, including any explanations
for identified concerns or actions taken to address them.
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#80570 - 05/15/03 07:56 PM Re: Consumer Loans for CRA
BKB Offline
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Midwest
The biggest "con" will come from those folks required to collect, input and review the data. If given the choice, they will not want to collect it. I see one of the "pros" as already having the data ready for examiners and the bank to analyze, which may mean less files the examiners will want to review to collect the data themselves. At least after they have a good feeling on the bank's data integrity

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#80571 - 05/15/03 08:15 PM Re: Consumer Loans for CRA
HRH Dawnie Offline
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Anchorage Alaska
From Don's information you can see why you might "have to" report them, but I just wanted to add why you might not want to include or exclude the loans if you've not been told you must include them in your exam.

It is important to review the types of lending you're doing to consumers, and how you stand in the low and moderate income geographies and income categories. Are you essentially meeting the market base (ie you have 4% low income households in your AA and 4% of the banks loans to consumers were to low income households). Or are you way above the market? Way below? What percentage of the loans are in low income geographies?

I'm looking at Table 8 in a performance exam for a bank that chose to include consumer loans. This is how they stand.

1% of the population* in their AA's are in low income geographies. 2% of bank loans were in these geographies.

15% of the population are in moderate income geographies. 24% of the bank loans are in these geographies.

*The percentage of the population in the MSA/AA that resides in these geographies.

This shows that this bank is essentially doubling the population in these geographies. This would be labled "an excellent level of consumer lending". (The term excellent is used when a bank is in line for an Outstanding in lending).

Now for borrowers:

16% of the households in their AA's are low income. 32% of the bank's loans are to low income borrowers.

18% of the households are moderate income. 23% of the bank's loans are to moderate income borrowers.

This would garner another excellent line. This bank is obviously serving their low and moderate income consumers quite well. In fact, extreemly well. They received an Outstanding in the Lending Test, and an Outstanding rating all around.

How do you stack up against this bank? How do you stack up against other banks in the area? I am not a consumer lending bank. Yes we do almost as many consumer deals as small business deals, but the dollar amount is substantially lower. I'm not required to submit, and living in the land of oil barons, with state wide credit unions monopolizing the consumer market, my numbers aren't any where near this example. For this reason. I don't submit them to the examiners. This also saves me some time data integrity wise.

When choosing to submit your consumer portfolio, first make sure you look good. It's not suposed to ever detract from your rating if you aren't serving a huge low and moderate income sector, but why show the figures if thats the case? In my experience, showing some examiners negatives that aren't suposed to affect a bank...ends up leaving an impression in their minds that seems to stay, despite the theory it shouldn't.

But...if you totally ROCK like the above bank. SUBMIT! Consumer lending isn't suposed to detract from a rating, but can be used to boost a lending rating if the data is strong. While the above example is pretty extraordinary, even coming close to the market numbers is good, and exceeding is excellent.

If you're not doing a data integirity test on your consumer lending, do so before you include them. This is an area that can be overlooked easily. You don't want to turn in numbers and then have the examiner say you need to scrub because the figures are flawed.
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#80572 - 05/15/03 08:15 PM Re: Consumer Loans for CRA
swiggles Offline
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I agree fully with BKB. If it's not required, management and staff don't want to have to collect and submit the data. Then someone would also have to scrub it for accuracy. We've fought that battle! We DO collect the data but have yet to find the need to voluntarily submit it, and the examiners have not asked to see it. HOWEVER, imagine the nightmare that would ensue if the examiners asked for the data and you did not have it ready to give'em!!

We are now downloading our data from our mainframe system to our data collection software, Centrax. So, the input hours are reduced.
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#80573 - 05/15/03 08:36 PM Re: Consumer Loans for CRA
Bartman Offline
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Springfield
Here's a practical question - let me flesh out some detail first:

We hit large bank status a few years ago, and had our first CRA exam as a large bank in 2001. The preceding exam was 1997. Examiners looked at our consumer lending portfolio, recognized that we'd started indirect auto lending, and suggested that we provide consumer loan micro-loan data for their analysis due to the large volume of indirect loans.

Our 2001 rating was satisfactory, with the strength of the lending test on the consumer side based largely on strong lending to low and moderate income individuals, via the indirect program.

We're now expecting a 4th quarter 2003 CRA exam, and since 2001 we've gone from over 100 active dealers to less than two dozen and we're allowing about $15 million per year to run off the indirect portfolio. Two of the four key indirect lenders (the manager and the biggest producer) are both gone, and we're not interested in reestablishing that level of loan volume.

So if we're greatly reducing our activity in this portfolio, how do I stop providing this data if I so choose? I feel as though they asked me for it, so I must provide it - but the reasons behind the original asking are quickly running off...

If our CRA committee considers this approach, what's the best way (politically) to get out from under the burden?
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#80574 - 05/15/03 11:18 PM Re: Consumer Loans for CRA
HRH Dawnie Offline
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Anchorage Alaska
What you just posted is what you need to explain to your examiners. Just a technical question? Did they "require" you to include the information? Or just suggest it? SOmetimes examiners will suggest including data that they think might assist your standing (sounds like it did) but that isn't a direct requirement to provide the data. We've flip flopped, providing it one year, removing it the next. There has been absolutely no flack on the part of the OCC for doing so.

I'd probably come up with some explaination for why you're not providing the program as well...dealer loans, risk, etc. That will just boost your reason. But only give this to the examiners if they suggest you include consumer deals again. Great to have ready...just in case
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#80575 - 05/16/03 12:39 PM Re: Consumer Loans for CRA
Bartman Offline
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Springfield
In all honesty, this is mostly curiosity more than anything else. I keep reflecting on Chuck Woollery's line from the original Wheel of Fortune - "once you buy a prize, it's yours to keep"... In my market, I feel our consumer lending numbers really help us, and I can't imagine not providing them voluntarily in a CRA exam.

There's some comfort in hearing that other banks have gone back & forth on this without adverse reaction. That's mostly what I was looking for - thanks!
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#80576 - 05/19/03 02:43 PM Re: Consumer Loans for CRA
MAG Offline
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Posts: 101
We are a large bank under CRA located in northeast PA. Originally we collected consumer loan data for CRA because, due to a large number of indirect vehicle loans, our consumer loans represent the majority of the number of new loans. But we found that these loans actually helped us in our exam since our percentages of consumer loans to low and moderate income individuals were much better than our HMDA percentages - logically it would be easier for a low income individual to get a car loan than a mortgage loan. We use the CRA Wiz product, which is what the OCC also uses so that made it easier to provide the information.

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#80577 - 05/19/03 08:15 PM Re: Consumer Loans for CRA
upstateNY Offline
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Posts: 933
New York State
Your situation sounds very much like ours. Large bank, lots of indirect consumer lending. We also use PCI Wiz system. However, at the recommendation of our regulator, we discontinued gathering consumer data. Our volume made it prohibitive for us to continue. And, although the consumer loans showed good volumes of loans to low- to moderate-income individuals, the regulators didn't feel that it would either raise or lower our rating. Its one of those "is the juice worth the squeeze"?

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#80578 - 05/19/03 09:51 PM Re: Consumer Loans for CRA
Don_Narup Offline

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Joined: Jul 2001
Posts: 3,708
Las Vegas Nevada
Everyones situation is not the same. Some banks should include them and some don't need to. You need to do a good self assessment of the portfolio to see what the impact of including or not including would do.

If you originate 5,000 loans and only 100 are small business small farm, its not a good representation of how you are meeting the needs of LMI areas or borrowers. When its really lopsided as to a much larger percentage of consumer loans, examiners often will include them in the examination process and some times ask that they be included in your annual CRA submission.

If its to your advantage to include them then by all means do so, but you are not going to determine that unless the self assessment is done.
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#80579 - 05/27/03 07:03 PM Re: Consumer Loans for CRA
HRH Dawnie Offline
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Posts: 7,353
Anchorage Alaska
Quote:

However, at the recommendation of our regulator, we discontinued gathering consumer data. Our volume made it prohibitive for us to continue. And, although the consumer loans showed good volumes of loans to low- to moderate-income individuals, the regulators didn't feel that it would either raise or lower our rating. Its one of those "is the juice worth the squeeze"?




I hate to say it (but since my regulator would never say this I think I'm safe doing so )

What the heck was the regulator thinking?!!!! Not including the information in your exam is one thing...not knowing how it looks because you're not tracking it at all..is not (in my opinion of course) a sensible alternative. As Don mentions, there are many reasons to include the data or exclude it.

But if you don't track...how on earth do you know? Some day you may need it and find it's far too much to go back and gather now that you've completely droped the systems to data enter the loans. That...would scare me!
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CRA Rating is in...Oh who cares...I'm home with the baby.

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