Prep for a CRA Compliance Exam: 9 Steps to Success
If you have a CRA compliance exam in your future, here are 9 key steps that you need to take. These elements will ensure that you have strong CRA compliance program, and that you're prepared when the regulators arrive.
In today's challenging compliance environment, managing all the various areas of compliance can seem overwhelming - especially if the regulators are on their way. That's why clear steps and key best practices are so helpful when evaluating risks and setting priorities. In Community Reinvestment Act (CRA) compliance, this is certainly true.
Experience has identified a few patterns and key best practices to building a strong CRA compliance program and preparing for a CRA exam.
Below, we've organized these best practices into 9 Essential Steps for CRA Compliance Success:
Step 1: Maintain a CRA Training Program for Employees
As you know, compliance is a team sport and regulators will assess your institution's culture of compliance. Training is an important tool for increasing compliance awareness and improving culture. Consider both general compliance training for all employees, and role-specific training (particularly in high-risk roles).
If you've never implemented training, know that it doesn't have to be overly costly or invasive; a simple slide presentation may be adequate. Remember that all training should include two key components:
- Attendance record, and
- Assessment of comprehension and retention.
Interested in learning more about CRA and/or Fair Lending training? Click here to get in touch.
Step 2: Know the Performance Evaluation Criteria for your Institution
Different institutions are evaluated by the regulators using different criteria. Understand how your institution will be evaluated as you prepare for an exam. The FFIEC provides the CRA exam procedures on the website. We're also including these 2014 thresholds and exam procedures below.
- Small Institutions: https://www.ffiec.gov/cra/pdf/cra_exsmall.pdf
- Intermediate Small Institutions: https://www.ffiec.gov/cra/pdf/isbank.pdf
- Large Institutions: https://www.ffiec.gov/cra/pdf/cra_exlarge.pdf
- Wholesale/Limited Purpose Institutions: https://www.ffiec.gov/cra/pdf/cra_exwhole.pdf
- Institutions w/ Strategic Plans: https://www.ffiec.gov/cra/pdf/cra_exsplan.pdf
Step 3: Gather Performance Context Data
When evaluating your CRA performance, the regulators will review the unique performance context of your institution. That data will likely include the institution's background (including year established, structure, business strategy, and historical performance), financial capacity, assessment area description (including geographic data, demographics and economic conditions), and CRA-related complaints received by either the institution or the regulators.
Every institution is unique, and establishing your performance context is essential to understanding the story your data tells.
Step 4: Review Your Strategy and Goals
Best practices indicate that an effective CRA strategy is built on an understanding of the unique business attributes of your institution as well as the needs of the community. As you review your strategy and set goals, make sure to consider the following:
- Type of Institution
- Products and Services Offered
- Business Trends
- Branch and Service Center Locations
- Needs of your Assessment Area(s)
- Past Goals and Performance
Make sure that your goals are aligned with the objectives of the Board and senior management. Consider also training your staff on CRA goals. The regulators don't require that you set CRA goals or measure performance against them, but the exercise will help you develop your CRA program.
Step 5: Review Documented Policies and Procedures
Review your institution's written policies and procedures to determine whether they are effectively aligned with your CRA goals.
Step 6: Review, Update and Organize Your Public File
Before the regulators arrive, make sure that you've reviewed, updated and organized your institution's CRA public file. This important file contains a copy of the public section of the most recent CRA performance evaluation, as well as a list of services provided by your branch and a map of the markets served.
Step 7: Test the Integrity of the Data
Data integrity is essential to any quantitative analysis. Test the quality and integrity of your data by pulling samples, and comparing those samples to the source data.
It's much better to identify data integrity issues before the regulators arrive, and show that you're working to resolve them, than to let the regulators identify them for you.
Step 8: Compute Performance Tests
The regulators will assess your institution's CRA performance with lending, investment and service tests. We've included the FDIC's definitions below as an example:
- Lending Test: "The lending test evaluates a bank's record of helping to meet the credit needs of its assessment area(s) through its lending activities by considering a bank's home mortgage, small business, small farm, and community development lending. If consumer lending constitutes a substantial majority of a bank's business, the FDIC will evaluate the bank's consumer lending in one or more of the following categories: motor vehicle, credit card, home equity, other secured, and other unsecured loans."
- Investment Test: "The investment test evaluates a bank's record of helping to meet the credit needs of its assessment area(s) through qualified investments that benefit its assessment area(s) or a broader statewide or regional area that includes the bank's assessment area(s)."
- Service Test: "The service test evaluates a bank's record of helping to meet the credit needs of its assessment area(s) by analyzing both the availability and effectiveness of a bank's systems for delivering retail banking services and the extent and innovativeness of its community development services."
Step 9: Review and Discuss Monitored Data (Goals vs. Results)
Monitoring your institution's CRA data is an essential aspect of any CRA compliance program. It can be up to five years between CRA exams, so analysis is a great way to ensure that you're staying on track.
Regular monitoring and discussion will also provide historical perspective and context, rather than just a snapshot.
If you're not analyzing and geocoding your CRA data, know that it's an essential part of CRA compliance. That said, it doesn't have to be difficult or stressful. We offer CRA geocoding, and each report comes with a free guided review that will identify risks and provide actionable advice.
At their core, these steps are designed to help empower you to tell your story to the regulators. There is no one better able to provide the context and clarity the regulators need to understand your unique institution both qualitatively and quantitatively. With a proactive approach to CRA compliance, you can help shape that dialogue.
Preparing for an exam this quarter? Ncontracts can help you understand your CRA data and prepare it.