What Does the New Illinois CRA Law Mean for Mortgage Companies & Credit Unions?
Illinois state-chartered credit unions and mortgage brokers are starting off the New Year with new Community Reinvestment Act (CRA) requirements.
Passed last year, Illinois’ state-level CRA law took effect January 1—making it just the second state to subject non-depository state mortgage bankers to CRA. (Massachusetts was the first state and New York state’s law is expected to take effect later this year.)
While banks have long complied with CRA, the rules enforced by the Illinois Division of Banking and Division of Financial Institutions are unchartered territory for other institutions. To help make it easier, we have broken down some of your biggest questions to explain what it means. This includes:
- What is the purpose of the Illinois CRA law?
- What types of financial institutions must comply with the Illinois CRA law?
- How will banks, credit unions, and mortgage companies be evaluated under the Illinois CRA law?
- What does CRA mean for heavily digital institutions?
- What will Illinois CRA exams look like?
- What are the potential consequences of violating the Illinois CRA law?
What is the purpose of the Illinois CRA law?
The goal of CRA is to encourage financial institutions to meet the credit needs of every community they serve, especially low-to-moderate Income (LMI) income neighborhoods. It helps combat redlining, a form of illegal disparate treatment in which a lender provides unequal access to credit or credit terms because of a borrower’s race, color, national origin, or other prohibited characteristic(s).
What types of financial institutions must comply with the Illinois CRA law?
The Illinois CRA law covers three types of institutions:
- State-chartered banks. Banks chartered under the Illinois Banking Act and savings banks chartered under the Illinois Savings Bank Act.
- Credit unions. Credit union incorporated under the Illinois Credit Union Act.
- Non-bank mortgage providers. Entities licensed under the Illinois RMLA of 1987 that lent or originated 50 or more residential mortgage loans in the previous calendar year.
How will banks, credit unions, and mortgage companies be evaluated under the Illinois CRA law?
Examiners will consider several factors when assessing an institution’s CRA compliance. This includes whether the institution:
- Communicated with the community to understand its financial services needs
- Marketed to consumers to make them aware of services offered
- Originated mortgage loans to low- and moderate-income residents to allow them to remain in affordable housing in their neighborhood (includes home improvement and rehab loans)
- Originated loans to businesses with revenues of $1 million or less (particularly in low- and moderate-income neighborhoods)
- Participated and invested in community development and redevelopment programs, small business technical assistance programs, minority-owned depository institutions (MDFI), community development financial institutions (CDFIs), and mutually owned financial institutions
- Worked with delinquent customers
- Avoided an undue concentration and systemic pattern of lending resulting in the loss of affordable housing
- Avoided discriminatory and prohibited practices
- Met the financial services needs of its entire community, including responsiveness to community needs as reported in public comments
- Posted public notice about CRA in institution’s lobbies and on their website.
How can I be sure my institution is complying with the Illinois CRA law?
If you are looking for more detailed information the state website has provided a form that you can fill out, based on financial institution type.
Wondering if your CRA program measures up?
Make sure to pay close attention to the areas below:
Marketing. Pay attention to where your institution advertises, and what those advertisements offer. If you are advertising only in specific zip codes or on websites where you will only reach the affluent segment of your market, examiners may come down on you for exclusionary practices. Make sure you are aligned with your designated assessment area. CRA is all about meeting the needs of your communities. Marketing campaigns need to be inclusive of the community and should feature products and services that are attractive for the neighborhood receiving the messaging to avoid discouraging consumers.
Loan data analysis. The only way to know if your lending practices comply with CRA is to evaluate your performance. Look at your loan origination and deposit data to make sure that your institution is making an effort to provide financial services to all communities in your area. Data analytics can help you understand your FIs performance and lead to proactive change. It also prepares you to tell your story when examiners or special interest groups come to visit
M&A. If you have a merger or acquisition planned, take some time to evaluate both institutions' CRA performance to ensure compliance and prevent a roadblock to your M&A activity. Should you go through with M&A, make sure you re-evaluate your new CRA area and re-assess compliance.
What does CRA mean for heavily digital institutions?
If an institution provides most of its products and services via mobile or other digital channels it still needs to help meet the needs of low- to moderate-income neighborhoods and areas where there is a lack of safe and affordable banking and lending services.
What will Illinois CRA exams look like?
Examiners may look at books, records, documents, and operations of financial institutions plus its parent company, subsidiaries, affiliates, or agents. They may also review the entities’ officers, directors, employees, and agents under oath.
The written exam evaluation will include a public section.
What are the potential consequences of violating the Illinois CRA law?
The state of Illinois will consider an institution’s CRA performance when evaluating applications for a branch, office, relocation, license renewal, merger, or acquisition. A poor CRA performance can be grounds for denial.
Conclusion: Illinois CRA Takeaways
The best way to comply with the new Illinois CRA law is with a strong fair lending compliance program that includes CRA. The Consumer Financial Protection Bureau (CFPB) already enforces fair lending laws at mortgage companies while the National Credit Union Administration (NCUA) enforces them at credit unions so it should not be a new concept.
Want to learn more about complying with CRA? Ncontracts can help you meet your CRA obligation so you can serve the community and improve the overall compliance profile of your financial institution.
CRA Compliance Management Software | Ncommunity