Community Reinvestment Act; Interagency Questions and Answers Regarding Community Reinvestment; Notice, 11642-11680 [2010-4903]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION
• FEDERAL RESERVE SYSTEM
• Office of the Comptroller of the Currency
• DEPARTMENT OF THE TREASURY
• Office of Thrift Supervision
• Comptroller of the Currency

[Federal Register Volume 75, Number 47 (Thursday, March 11, 2010)]
[Notices]
[Pages 11642-11680]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-4903]



[[Page 11641]]

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Part II





Department of the Treasury





Office of the Comptroller of the Currency





Federal Reserve System Federal Deposit Insurance Corporation Department 
of the Treasury





Office of Thrift Supervision



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Community Reinvestment Act; Interagency Questions and Answers Regarding 
Community Reinvestment; Notice

Federal Register / Vol. 75, No. 47 / Thursday, March 11, 2010 / 
Notices

[[Page 11642]]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket ID OCC-2010-0002]

FEDERAL RESERVE SYSTEM

[Docket No. OP-1349]

FEDERAL DEPOSIT INSURANCE CORPORATION

RIN--3064-AC97

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

[Docket ID OTS-2010-0004]


Community Reinvestment Act; Interagency Questions and Answers 
Regarding Community Reinvestment; Notice

AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC); 
Board of Governors of the Federal Reserve System (Board); Federal 
Deposit Insurance Corporation (FDIC); Office of Thrift Supervision, 
Treasury (OTS).

ACTION: Notice.

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SUMMARY: The OCC, Board, FDIC, and OTS (the agencies) are adopting as 
final the Interagency Questions and Answers Regarding Community 
Reinvestment (Questions and Answers) that were proposed on January 6, 
2009. In response to comments received, the agencies made minor 
clarifications to the new and revised questions and answers that were 
proposed.

DATES: Effective Date: March 11, 2010.

FOR FURTHER INFORMATION CONTACT:
    OCC: Gregory Nagel or Karen Tucker, National Bank Examiners, 
Compliance Policy Division, (202) 874-4428; or Margaret Hesse, Special 
Counsel, Community and Consumer Law Division, (202) 874-5750, Office of 
the Comptroller of the Currency, 250 E Street, SW., Washington, DC 
20219.
    Board: Cathy Gates, Senior Project Manager, (202) 452-3946; or 
Brent Lattin, Attorney, (202) 452-3667, Division of Consumer and 
Community Affairs, Board of Governors of the Federal Reserve System, 
20th Street and Constitution Avenue, NW., Washington, DC 20551.
    FDIC: Janet R. Gordon, Senior Policy Analyst, Division of 
Supervision and Consumer Protection, Compliance Policy Branch, (202) 
898-3850; or Susan van den Toorn, Counsel, Legal Division, (202) 898-
8707, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
    OTS: Stephanie M. Caputo, Senior Compliance Program Analyst, 
Compliance and Consumer Protection, (202) 906-6549; or Richard Bennett, 
Senior Compliance Counsel, Regulations and Legislation Division, (202) 
906-7409, Office of Thrift Supervision, 1700 G Street, NW., Washington, 
DC 20552.

SUPPLEMENTARY INFORMATION:

Background

    The OCC, Board, FDIC, and OTS implement the Community Reinvestment 
Act (CRA) (12 U.S.C. 2901 et seq.) through their CRA regulations. See 
12 CFR parts 25, 228, 345, and 563e. The agencies' regulations are 
interpreted primarily through the ``Interagency Questions and Answers 
Regarding Community Reinvestment'' (Questions and Answers), which 
provide guidance for use by agency personnel, financial institutions, 
and the public. The Questions and Answers were first published under 
the auspices of the Federal Financial Institutions Examination Council 
(FFIEC) in 1996 (61 FR 54647), and were last revised on January 6, 2009 
(2009 Questions and Answers) (74 FR 498).
    The supplementary information published with the 2009 Questions and 
Answers also proposed for comment one new question and answer (Q&A) and 
two revised Q&As. 74 FR 504-06. Together, the agencies received 
comments from 19 different parties. The commenters represented 
financial institutions and their trade associations, community 
development advocates and organizations, and others.
    As discussed below, this document adopts the three new and revised 
Q&As that were proposed in January 2009, with minor clarifications, as 
appropriate, in response to comments received. The agencies are also 
adopting conforming revisions to an existing Q&A.
    The Interagency Questions and Answers are grouped by the provision 
of the CRA regulations that they discuss, are presented in the same 
order as the regulatory provisions, and employ an abbreviated method of 
citing to the regulations. For example, the small bank performance 
standards for national banks appear at 12 CFR 25.26; for Federal 
Reserve System member banks supervised by the Board, they appear at 12 
CFR 228.26; for state nonmember banks, they appear at 12 CFR 345.26; 
and for thrifts, the small savings association performance standards 
appear at 12 CFR 563e.26. Accordingly, the citation would be to 12 CFR 
----.26. Each Q&A is numbered using a system that consists of the 
regulatory citation and a number, connected by a dash. For example, the 
first Q&A addressing 12 CFR ----.26 would be identified as Sec.  --
--.26--1.
    Although a particular Q&A may provide guidance on one regulatory 
provision, e.g., 12 CFR ----.22, which relates to the lending test 
applicable to large institutions, its content may also be applicable 
to, for example, small institutions, which are evaluated pursuant to 
small institution performance standards found at 12 CFR ----.26. Thus, 
readers with a particular interest in small institution issues, for 
example, should also consult the guidance that describes the lending, 
investment, and service tests.
    The Questions and Answers are indexed to aid readers in locating 
specific information in the document. The index contains keywords, 
listed alphabetically, along with numerical indicators of questions and 
answers that relate to that keyword. The list of Q&As addressing each 
keyword in the index is not intended to be exhaustive.

New and Revised Q&As

New Q&A: Community Services Targeted to Low- or Moderate-Income 
Individuals

    The agencies proposed a new Q&A, Sec.  ----.12(g)(2)--1, that would 
provide examples of ways an institution that provides community 
services could determine that the community services are targeted to 
low- and moderate-income individuals when the institution does not know 
the actual income of the individuals. Several comments were received 
from community groups and banking organizations that supported the 
examples in the proposal. In addition, one suggestion was made to 
clarify that community services can include those provided by an entity 
with a broad mission, provided that the activities themselves qualify 
as community services. This suggestion was incorporated into the Q&A 
examples as a new fourth bullet.
    Another commenter suggested that the definition of community 
services be broadened to cover financial literacy programs provided to 
school children of any income level in any school. Financial literacy 
programs are an example of community development services. See Q&A 
Sec.  ----.12(i)--3. The commenter's suggestion was not adopted because 
community development services must have a primary purpose of community 
development, which would require the financial literacy programs to be 
targeted to low- or moderate-income individuals.

[[Page 11643]]

    The new Q&A is being adopted as revised.

Revised Q&A Sec.  ----.12(h)--8: Primary Purpose of Community 
Development

    The regulations require community development activities to have a 
``primary purpose of community development.'' See 12 CFR ----.12(h), --
--.12(i), and ----.12(t). Q&A Sec.  ----.12(h)--8 historically has 
provided two methods of determining whether an activity has a primary 
purpose of community development: (1) If a majority of the dollars or 
beneficiaries of the activity are identifiable to one or more of the 
enumerated community development purposes, then an activity will be 
considered to possess the requisite primary purpose; and (2) if the 
express, bona fide intent of the activity, as stated, for example, in a 
prospectus, loan proposal, or community action plan, is primarily one 
or more of the enumerated community development purposes; the activity 
is specifically structured (given any relevant market or legal 
constraints or performance context factors) to achieve the expressed 
community development purpose; and the activity accomplishes, or is 
reasonably certain to accomplish, the community development purpose 
involved, then the requisite primary purpose may be found.
    To date, the agencies have generally indicated that if an activity 
has a primary purpose of community development (determined by either 
method above), the entire investment, loan, or service would be 
considered in an institution's CRA evaluation. However, if an activity 
does not have a primary purpose of community development applying these 
standards, then it would not be considered as a qualified investment, 
community development loan, or community development service.
    The agencies proposed to revise Q&A Sec.  ----.12(h)--8 to allow 
pro rata consideration for an activity that provides some affordable 
housing targeted to low- or moderate-income individuals, but when it 
would not be deemed to have a primary purpose of community development 
measured by a majority of the entire activity's beneficiaries or dollar 
value, or by relying on the express purpose of the activity. The 
proposed Q&A would specifically allow activities related to the 
provision of mixed-income housing, such as in connection with a 
development that has a mixed-income housing component or an affordable 
housing set-aside required by federal, state, or local government, to 
be eligible for consideration as an activity that has a ``primary 
purpose'' of community development at the election of the institution. 
In those cases, the proposed Q&A would allow an institution to receive 
pro rata consideration for the portion of the activity that provides 
affordable housing to low- or moderate-income individuals.
    Commenters generally supported the proposed revision. One commenter 
suggested that the agencies should allow only pro rata treatment in all 
situations where less than a majority of an activity's dollars will be 
used for community development. This commenter further suggested that 
the agencies should eliminate full consideration of activities that 
have an ``express, bona fide intent'' of community development when the 
measurable portion of any benefit bestowed or dollars applied is less 
than a majority of the entire activity's benefits or dollar value. The 
agencies decline to adopt this suggestion. If the express, bona fide 
intent of an activity is community development, even though the 
measurable portion of any benefit bestowed or dollars applied is less 
than a majority of the entire activity's benefits or dollar value, the 
agencies continue to believe that it is important that such activities, 
such as projects involving low-income housing tax credits, receive full 
consideration.
    Several commenters were concerned that the proposal would result in 
a reduction of the amount of CRA consideration provided to financial 
institutions' loans or investments in mixed-income properties. The 
agencies do not intend this result. In fact, the proposed revision 
should increase the amount of consideration available to institutions. 
Some commenters believed that all activities in connection with 
properties with a set-aside for affordable units received total 
quantitative CRA consideration. Although this is true if the express, 
bona fide intent of the entire project is community development, that 
is not always the intent. For example, a private development in which a 
developer is required to set aside a small percentage of the units as 
affordable housing in order to receive zoning approval would not have 
the requisite express, bona fide intent. As a result of the revision, 
however, the financial institution could receive consideration for the 
pro rata amount of the affordable housing set-aside.
    The agencies had asked whether allowing pro rata consideration 
would spur the construction and rehabilitation of housing for low- or 
moderate-income persons. Commenters provided mixed responses. A number 
of commenters believed that allowing pro rata consideration may provide 
an added incentive to financial institutions. A couple of commenters, 
however, believed that the revision would not spur additional 
construction and rehabilitation because, for example, the development 
of local housing is based on a local agency's determination of its 
community housing needs and is not influenced by a financial 
institution's CRA requirements.
    Commenters responded nearly unanimously that the pro rata treatment 
should not be restricted only to instances where a governmental entity 
requires a set-aside. Commenters believed that the voluntary inclusion 
of affordable housing components in development by private developers 
should also receive consideration. As one commenter stated, 
``Affordable housing is affordable housing.'' The final question and 
answer would allow pro rata treatment in connection with any project 
that provides affordable housing, regardless of whether a governmental 
entity requires a set-aside.
    In response to the agencies' question about how the amount of the 
pro rata share should be determined for reporting purposes (by units or 
by loan proceeds), several commenters urged flexibility. Several 
commenters believed that the entire amount of the loan should be 
reported. Other commenters suggested that when the actual amount of 
funds attributed to the affordable units is readily apparent, for 
example in connection with a construction loan, the actual dollar 
amount should be considered. However, in other cases, where the actual 
amount of funds is not readily apparent, the pro rata share should be 
determined based on the percentage of set-aside units.
    The final question and answer has been clarified. Institutions will 
determine the pro rata share of the activity that provides affordable 
housing to low- or moderate-income individuals based on the percentage 
of units set-aside for affordable housing for low- or moderate-income 
individuals. The Agencies believe that this method of determining the 
portion of a loan or investment that provides affordable housing for 
low- or moderate-income individuals imposes the least amount of burden 
on developers and lenders to differentiate the construction costs, 
including the proportional share of costs related to infrastructure, 
common areas, and site amenities, between market and affordable units.
    The proposed revision restricted the pro rata treatment only to 
affordable housing activities by financial

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institutions. The agencies asked whether the pro rata treatment should 
apply only to affordable housing or whether the pro rata treatment 
should also apply to loans or investments with other community 
development purposes.
    Since the CRA regulations were revised in 1995, affordable housing 
initiatives have included more and more mixed-income housing. Fewer new 
or rehabilitated housing projects provide primarily low-income housing. 
Mixed-income housing is an important goal in government housing 
assistance programs. Because of the compelling public interest in 
affordable housing programs, the agencies believe that it is 
appropriate that the pro rata treatment be adopted with regard to 
affordable housing. However, the agencies decline to expand the 
coverage of this treatment to activities other than those providing 
affordable housing at this time. The agencies will keep abreast of 
developments in other types of community development activities and 
evaluate the effectiveness of the pro rata treatment in connection with 
affordable housing programs. We will reassess whether such treatment 
should be afforded other types of community development activities at a 
later date. The agencies have added clarifying language to the final 
answer to emphasize that the pro rata treatment applies only to 
affordable housing activities.
    Finally, the agencies asked for comment on whether the adoption of 
pro rata treatment would lead to unjustifiable inflation of community 
development activities. Commenters unanimously asserted that it would 
not.
    The agencies are adopting the revised Q&A with the clarifications 
described above.

Revised Q&A Sec.  ----.42(b)(2)--3: Data Collection

    The agencies explained in January 2009 that if the proposed 
revision to Q&A Sec.  ----.12(h)--8, described above, were adopted, the 
agencies would also revise Q&A Sec.  ----.42(b)(2)--3 to address data 
collection and reporting of the pro rata share of the mixed-income 
housing loans described in the Q&A. The agencies proposed that, if an 
institution were to elect to have the portion of mixed-income housing 
loans that were set aside for low- or moderate-income housing 
considered as community development loans, in order to receive 
consideration for such loans, the institution would need to collect and 
report data on only the portions of the loans that provide housing that 
is affordable for low- or moderate-income individuals.
    Three commenters addressed the proposed revision to this Q&A. The 
general concern addressed by the commenters was the potential for 
confusion in reporting the pro rata share of an affordable housing 
activity. As in the past, the full amount of the loan should be 
collected and reported if the majority of the dollars or beneficiaries 
are identifiable to a community development purpose. Similarly, the 
full amount of the loan should be collected and reported if the 
express, bona fide intent of the loan or investment is community 
development, even though a majority of the dollars or beneficiaries are 
not identifiable with a community development purpose. In connection 
with affordable housing projects that provide mixed-income housing, but 
where a majority of the dollars or units do not have a community 
development purpose and the express, bona fide intent of the loan is 
not community development, the institution must report only the pro 
rata dollar amount of the portion of the loan that provides affordable 
housing to low- or moderate-income individuals. The pro rata dollar 
amount of the total activity will be based on the percentage of units 
set-aside for affordable housing for low- or moderate-income 
individuals. The agencies are adopting the proposed revision to the 
Q&A, but have added a sentence to the final answer to clarify this 
guidance.

Conforming Revision to Q&A Sec.  ----.22(a)(2)--4: Other Loan Data

    Q&A Sec.  ----.22(a)(2)--4, as adopted in January of 2009 (74 FR 
517), stated that loans that do not have a primary purpose of community 
development, but where a certain amount or percentage of units is set 
aside for affordable housing, should be submitted by the financial 
institution for consideration as ``other loan data.'' In the 
supplementary information published with the proposed revisions to the 
interagency questions and answers, the agencies advised that, if the 
proposed revision to Q&A Sec.  ----.12(h)--8 were adopted, a conforming 
change to Q&A Sec.  ----.22(a)(2)--4 would be made. The answer to Q&A 
Sec.  ----.22(a)(2)--4 has been revised to remove the reference to 
``loans that do not have a primary purpose of community development, 
but where a certain amount or percentage of units is set aside for 
affordable housing'' as an example of ``other loan data'' because such 
activities are eligible for pro rata treatment.
    The text of the final Interagency Questions and Answers follows:

Interagency Questions and Answers Regarding Community Reinvestment

Sec.  ----.11--Authority, purposes, and scope

Sec.  ----.11(c) Scope

Sec. Sec.  ----.11(c)(3) & 563e.11(c)(2) Certain special purpose 
institutions

    Sec. Sec.  ----.11(c)(3) & 563e.11(c)(2)--1: Is the list of special 
purpose institutions exclusive?
    A1. No, there may be other examples of special purpose 
institutions. These institutions engage in specialized activities that 
do not involve granting credit to the public in the ordinary course of 
business. Special purpose institutions typically serve as correspondent 
banks, trust companies, or clearing agents or engage only in 
specialized services, such as cash management controlled disbursement 
services. A financial institution, however, does not become a special 
purpose institution merely by ceasing to make loans and, instead, 
making investments and providing other retail banking services.
    Sec. Sec.  ----.11(c)(3) & 563e.11(c)(2)--2: To be a special 
purpose institution, must an institution limit its activities in its 
charter?
    A2. No. A special purpose institution may, but is not required to, 
limit the scope of its activities in its charter, articles of 
association, or other corporate organizational documents. An 
institution that does not have legal limitations on its activities, but 
has voluntarily limited its activities, however, would no longer be 
exempt from Community Reinvestment Act (CRA) requirements if it 
subsequently engaged in activities that involve granting credit to the 
public in the ordinary course of business. An institution that believes 
it is exempt from CRA as a special purpose institution should seek 
confirmation of this status from its supervisory agency.

Sec.  ----.12--Definitions

Sec.  ----.12(a) Affiliate

    Sec.  ----.12(a)--1: Does the definition of ``affiliate'' include 
subsidiaries of an institution?
    A1. Yes, ``affiliate'' includes any company that controls, is 
controlled by, or is under common control with another company. An 
institution's subsidiary is controlled by the institution and is, 
therefore, an affiliate.

Sec.  ----.12(f) Branch

    Sec.  ----.12(f)--1: Do the definitions of ``branch,'' ``automated 
teller machine (ATM),'' and ``remote service facility

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(RSF)'' include mobile branches, ATMs, and RSFs?
    A1. Yes. Staffed mobile offices that are authorized as branches are 
considered ``branches,'' and mobile ATMs and RSFs are considered 
``ATMs'' and ``RSFs.''
    Sec.  ----.12(f)--2: Are loan production offices (LPOs) branches 
for purposes of the CRA?
    A2. LPOs and other offices are not ``branches'' unless they are 
authorized as branches of the institution through the regulatory 
approval process of the institution's supervisory agency.

Sec.  ----.12(g) Community development

    Sec.  ----.12(g)--1: Are community development activities limited 
to those that promote economic development?
    A1. No. Although the definition of ``community development'' 
includes activities that promote economic development by financing 
small businesses or farms, the rule does not limit community 
development loans and services and qualified investments to those 
activities. Community development also includes community- or tribal-
based child care, educational, health, or social services targeted to 
low- or moderate-income persons, affordable housing for low- or 
moderate-income individuals, and activities that revitalize or 
stabilize low- or moderate-income areas, designated disaster areas, or 
underserved or distressed nonmetropolitan middle-income geographies.
    Sec.  ----.12(g)--2: Must a community development activity occur 
inside a low- or moderate-income area, designated disaster area, or 
underserved or distressed nonmetropolitan middle-income area in order 
for an institution to receive CRA consideration for the activity?
    A2. No. Community development includes activities, regardless of 
their location, that provide affordable housing for, or community 
services targeted to, low- or moderate-income individuals and 
activities that promote economic development by financing small 
businesses and farms. Activities that stabilize or revitalize 
particular low- or moderate-income areas, designated disaster areas, or 
underserved or distressed nonmetropolitan middle-income areas 
(including by creating, retaining, or improving jobs for low- or 
moderate-income persons) also qualify as community development, even if 
the activities are not located in these areas. One example is financing 
a supermarket that serves as an anchor store in a small strip mall 
located at the edge of a middle-income area, if the mall stabilizes the 
adjacent low-income community by providing needed shopping services 
that are not otherwise available in the low-income community.
    Sec.  ----.12(g)--3: Does the regulation provide flexibility in 
considering performance in high-cost areas?
    A3. Yes, the flexibility of the performance standards allows 
examiners to account in their evaluations for conditions in high-cost 
areas. Examiners consider lending and services to individuals and 
geographies of all income levels and businesses of all sizes and 
revenues. In addition, the flexibility in the requirement that 
community development loans, community development services, and 
qualified investments have as their ``primary'' purpose community 
development allows examiners to account for conditions in high-cost 
areas. For example, examiners could take into account the fact that 
activities address a credit shortage among middle-income people or 
areas caused by the disproportionately high cost of building, 
maintaining or acquiring a house when determining whether an 
institution's loan to or investment in an organization that funds 
affordable housing for middle-income people or areas, as well as low- 
and moderate-income people or areas, has as its primary purpose 
community development. See also Q&A Sec.  ----.12(h)--8 for more 
information on ``primary purpose.''
    Sec.  ----.12(g)--4: The CRA provides that, in assessing the CRA 
performance of non-minority- and non-women-owned (majority-owned) 
financial institutions, examiners may consider as a factor capital 
investments, loan participations, and other ventures undertaken by the 
institutions in cooperation with minority- or women-owned financial 
institutions and low-income credit unions (MWLIs), provided that these 
activities help meet the credit needs of local communities in which the 
MWLIs are chartered. Must such activities also benefit the majority-
owned financial institution's assessment area?
    A4. No. Although the regulations generally provide that an 
institution's CRA activities will be evaluated for the extent to which 
they benefit the institution's assessment area(s) or a broader 
statewide or regional area that includes the institution's assessment 
area(s), the agencies apply a broader geographic criterion when 
evaluating capital investments, loan participations, and other ventures 
undertaken by that institution in cooperation with MWLIs, as provided 
by the CRA. Thus, such activities will be favorably considered in the 
CRA performance evaluation of the institution (as loans, investments, 
or services, as appropriate), even if the MWLIs are not located in, or 
such activities do not benefit, the assessment area(s) of the majority-
owned institution or the broader statewide or regional area that 
includes its assessment area(s). The activities must, however, help 
meet the credit needs of the local communities in which the MWLIs are 
chartered. The impact of a majority-owned institution's activities in 
cooperation with MWLIs on the majority-owned institution's CRA rating 
will be determined in conjunction with its overall performance in its 
assessment area(s).
    Examples of activities undertaken by a majority-owned financial 
institution in cooperation with MWLIs that would receive CRA 
consideration may include:
     Making a deposit or capital investment;
     Purchasing a participation in a loan;
     Loaning an officer or providing other technical expertise 
to assist an MWLI in improving its lending policies and practices;
     Providing financial support to enable an MWLI to partner 
with schools or universities to offer financial literacy education to 
members of its local community; or
     Providing free or discounted data processing systems, or 
office facilities to aid an MWLI in serving its customers.

Sec.  ----.12(g)(1) Affordable housing (including multifamily rental 
housing) for low- or moderate-income individuals

    Sec.  ----.12(g)(1)--1: When determining whether a project is 
``affordable housing for low- or moderate-income individuals,'' thereby 
meeting the definition of ``community development,'' will it be 
sufficient to use a formula that relates the cost of ownership, rental, 
or borrowing to the income levels in the area as the only factor, 
regardless of whether the users, likely users, or beneficiaries of that 
affordable housing are low- or moderate-income individuals?
    A1. The concept of ``affordable housing'' for low- or moderate-
income individuals does hinge on whether low- or moderate-income 
individuals benefit, or are likely to benefit, from the housing. It 
would be inappropriate to give consideration to a project that 
exclusively or predominately houses families that are not low- or 
moderate-income simply because the rents or housing prices are set 
according to a particular formula.
    For projects that do not yet have occupants, and for which the 
income of the potential occupants cannot be determined in advance, or 
in other projects where the income of occupants cannot be verified, 
examiners will

[[Page 11646]]

review factors such as demographic, economic, and market data to 
determine the likelihood that the housing will ``primarily'' 
accommodate low- or moderate-income individuals. For example, examiners 
may look at median rents of the assessment area and the project; the 
median home value of either the assessment area, low- or moderate-
income geographies or the project; the low- or moderate-income 
population in the area of the project; or the past performance record 
of the organization(s) undertaking the project. Further, such a project 
could receive consideration if its express, bona fide intent, as 
stated, for example, in a prospectus, loan proposal, or community 
action plan, is community development.

Sec.  ----.12(g)(2) Community services targeted to low- or moderate-
income individuals

    Sec.  ----.12(g)(2)--1: Community development includes community 
services targeted to low- or moderate-income individuals. What are 
examples of ways that an institution could determine that community 
services are offered to low- or moderate-income individuals?
    A1: Examples of ways in which an institution could determine that 
community services are targeted to low- or moderate-income persons 
include:
     The community service is targeted to the clients of a 
nonprofit organization that has a defined mission of serving low- and 
moderate-income persons, or, because of government grants, for example, 
is limited to offering services only to low- or moderate-income 
persons.
     The community service is offered by a nonprofit 
organization that is located in and serves a low- or moderate-income 
geography.
     The community service is conducted in a low- or moderate-
income area and targeted to the residents of the area.
     The community service is a clearly defined program that 
benefits primarily low- or moderate-income persons, even if it is 
provided by an entity that offers other programs that serve individuals 
of all income levels.
     The community service is offered at a workplace to workers 
who are low- and moderate-income, based on readily available data for 
the average wage for workers in that particular occupation or industry 
(see, e.g., https://www.bls.gov/bls/blswage.htm (Bureau of Labor 
Statistics)).

Sec.  ----.12(g)(3) Activities that promote economic development by 
financing businesses or farms that meet certain size eligibility 
standards

    Sec.  ----.12(g)(3)--1: ``Community development'' includes 
activities that promote economic development by financing businesses or 
farms that meet certain size eligibility standards. Are all activities 
that finance businesses and farms that meet these size eligibility 
standards considered to be community development?
    A1. No. The concept of ``community development'' under 12 CFR --
--.12(g)(3) involves both a ``size'' test and a ``purpose'' test. An 
institution's loan, investment, or service meets the ``size'' test if 
it finances, either directly or through an intermediary, entities that 
either meet the size eligibility standards of the Small Business 
Administration's Development Company (SBDC) or Small Business 
Investment Company (SBIC) programs, or have gross annual revenues of $1 
million or less.
    To meet the ``purpose test,'' the institution's loan, investment, 
or service must promote economic development. These activities are 
considered to promote economic development if they support permanent 
job creation, retention, and/or improvement for persons who are 
currently low- or moderate-income, or supports permanent job creation, 
retention, and/or improvement either in low- or moderate-income 
geographies or in areas targeted for redevelopment by Federal, state, 
local, or tribal governments. The agencies will presume that any loan 
to or investment in a SBDC, SBIC, Rural Business Investment Company, 
New Markets Venture Capital Company, or New Markets Tax Credit-eligible 
Community Development Entity promotes economic development. (But also 
refer to Q&As Sec.  ----.42(b)(2)--2, Sec.  ----.12(h)--2, and Sec.  --
--.12(h)--3 for more information about which loans may be considered 
community development loans.)
    In addition to their quantitative assessment of the amount of a 
financial institution's community development activities, examiners 
must make qualitative assessments of an institution's leadership in 
community development matters and the complexity, responsiveness, and 
impact of the community development activities of the institution. In 
reaching a conclusion about the impact of an institution's community 
development activities, examiners may, for example, determine that a 
loan to a small business in a low- or moderate-income geography that 
provides needed jobs and services in that area may have a greater 
impact and be more responsive to the community credit needs than does a 
loan to a small business in the same geography that does not directly 
provide additional jobs or services to the community.

Sec.  ----.12(g)(4) Activities that revitalize or stabilize certain 
geographies

    Sec.  ----.12(g)(4)--1: Is the revised definition of community 
development, effective September 1, 2005 (under the OCC, Board, and 
FDIC rules) and effective April 12, 2006 (under OTS's rule), applicable 
to all institutions or only to intermediate small institutions?
    A1. The revised definition of community development is applicable 
to all institutions. Examiners will not use the revised definition to 
qualify activities that were funded or provided prior to September 1, 
2005 (under the OCC, Board, and FDIC rules) or prior to April 12, 2006 
(under OTS's rule).
    Sec.  ----.12(g)(4)--2: Will activities that provide housing for 
middle-income and upper-income persons qualify for favorable 
consideration as community development activities when they help to 
revitalize or stabilize a distressed or underserved nonmetropolitan 
middle-income geography or designated disaster areas?
    A2. An activity that provides housing for middle- or upper-income 
individuals qualifies as an activity that revitalizes or stabilizes a 
distressed nonmetropolitan middle-income geography or a designated 
disaster area if the housing directly helps to revitalize or stabilize 
the community by attracting new, or retaining existing, businesses or 
residents and, in the case of a designated disaster area, is related to 
disaster recovery. The Agencies generally will consider all activities 
that revitalize or stabilize a distressed nonmetropolitan middle-income 
geography or designated disaster area, but will give greater weight to 
those activities that are most responsive to community needs, including 
needs of low- or moderate-income individuals or neighborhoods. Thus, 
for example, a loan solely to develop middle- or upper-income housing 
in a community in need of low- and moderate-income housing would be 
given very little weight if there is only a short-term benefit to low- 
and moderate-income individuals in the community through the creation 
of temporary construction jobs. (Except in connection with intermediate 
small institutions, a housing-related loan is not evaluated as a 
``community development loan'' if it has been reported or collected by 
the institution or its affiliate as a home mortgage loan,

[[Page 11647]]

unless it is a multifamily dwelling loan. See 12 CFR ----.12(h)(2)(i) 
and Q&As Sec.  ----.12(h)--2 and Sec.  ----.12(h)--3.) An activity will 
be presumed to revitalize or stabilize such a geography or area if the 
activity is consistent with a bona fide government revitalization or 
stabilization plan or disaster recovery plan. See Q&As Sec.  --
--.12(g)(4)(i)--1 and Sec.  ----.12(h)--5.
    In underserved nonmetropolitan middle-income geographies, 
activities that provide housing for middle- and upper-income 
individuals may qualify as activities that revitalize or stabilize such 
underserved areas if the activities also provide housing for low- or 
moderate-income individuals. For example, a loan to build a mixed-
income housing development that provides housing for middle- and upper-
income individuals in an underserved nonmetropolitan middle-income 
geography would receive positive consideration if it also provides 
housing for low- or moderate-income individuals.

Sec.  ----.12(g)(4)(i) Activities that revitalize or stabilize low- or 
moderate-income geographies

    Sec.  ----.12(g)(4)(i)--1: What activities are considered to 
``revitalize or stabilize'' a low- or moderate-income geography, and 
how are those activities considered?
    A1. Activities that revitalize or stabilize a low- or moderate-
income geography are activities that help to attract new, or retain 
existing, businesses or residents. Examiners will presume that an 
activity revitalizes or stabilizes a low- or moderate-income geography 
if the activity has been approved by the governing board of an 
Enterprise Community or Empowerment Zone (designated pursuant to 26 
U.S.C. Sec.  1391) and is consistent with the board's strategic plan. 
They will make the same presumption if the activity has received 
similar official designation as consistent with a federal, state, 
local, or tribal government plan for the revitalization or 
stabilization of the low- or moderate-income geography. For example, 
foreclosure prevention programs with the objective of providing 
affordable, sustainable, long-term loan restructurings or modifications 
to homeowners in low- or moderate-income geographies, consistent with 
safe and sound banking practices, may help to revitalize or stabilize 
those geographies.
    To determine whether other activities revitalize or stabilize a 
low- or moderate-income geography, examiners will evaluate the 
activity's actual impact on the geography, if information about this is 
available. If not, examiners will determine whether the activity is 
consistent with the community's formal or informal plans for the 
revitalization and stabilization of the low- or moderate-income 
geography. For more information on what activities revitalize or 
stabilize a low- or moderate-income geography, see Q&As Sec.  --
--.12(g)--2 and Sec.  ----.12(h)--5.

Sec.  ----.12(g)(4)(ii) Activities that revitalize or stabilize 
designated disaster areas

    Sec.  ----.12(g)(4)(ii)--1: What is a ``designated disaster area'' 
and how long does it last?
    A1. A ``designated disaster area'' is a major disaster area 
designated by the federal government. Such disaster designations 
include, in particular, Major Disaster Declarations administered by the 
Federal Emergency Management Agency (FEMA) (https://www.fema.gov), but 
excludes counties designated to receive only FEMA Public Assistance 
Emergency Work Category A (Debris Removal) and/or Category B (Emergency 
Protective Measures).
    Examiners will consider institution activities related to disaster 
recovery that revitalize or stabilize a designated disaster area for 36 
months following the date of designation. Where there is a demonstrable 
community need to extend the period for recognizing revitalization or 
stabilization activities in a particular disaster area to assist in 
long-term recovery efforts, this time period may be extended.
    Sec.  ----.12(g)(4)(ii)--2: What activities are considered to 
``revitalize or stabilize'' a designated disaster area, and how are 
those activities considered?
    A2. The Agencies generally will consider an activity to revitalize 
or stabilize a designated disaster area if it helps to attract new, or 
retain existing, businesses or residents and is related to disaster 
recovery. An activity will be presumed to revitalize or stabilize the 
area if the activity is consistent with a bona fide government 
revitalization or stabilization plan or disaster recovery plan. The 
Agencies generally will consider all activities relating to disaster 
recovery that revitalize or stabilize a designated disaster area, but 
will give greater weight to those activities that are most responsive 
to community needs, including the needs of low- or moderate-income 
individuals or neighborhoods. Qualifying activities may include, for 
example, providing financing to help retain businesses in the area that 
employ local residents, including low- and moderate-income individuals; 
providing financing to attract a major new employer that will create 
long-term job opportunities, including for low- and moderate-income 
individuals; providing financing or other assistance for essential 
community-wide infrastructure, community services, and rebuilding 
needs; and activities that provide housing, financial assistance, and 
services to individuals in designated disaster areas and to individuals 
who have been displaced from those areas, including low- and moderate-
income individuals (see, e.g., Q&As Sec.  ----.12(i)--3; Sec.  --
--.12(t)--4; Sec.  ----.22(b)(2) & (3)--4; Sec.  ----.22(b)(2) & (3)--
5; and Sec.  ----.24(d)(3)--1).

Sec.  ----.12(g)(4)(iii) Activities that revitalize or stabilize 
distressed or underserved nonmetropolitan middle-income geographies

    Sec.  ----.12(g)(4)(iii)--1: What criteria are used to identify 
distressed or underserved nonmetropolitan, middle-income geographies?
    A1. Eligible nonmetropolitan middle-income geographies are those 
designated by the Agencies as being in distress or that could have 
difficulty meeting essential community needs (underserved). A 
particular geography could be designated as both distressed and 
underserved. As defined in 12 CFR ----.12(k), a geography is a census 
tract delineated by the United States Bureau of the Census.
    A nonmetropolitan middle-income geography will be designated as 
distressed if it is in a county that meets one or more of the following 
triggers: (1) An unemployment rate of at least 1.5 times the national 
average, (2) a poverty rate of 20 percent or more, or (3) a population 
loss of 10 percent or more between the previous and most recent 
decennial census or a net migration loss of five percent or more over 
the five-year period preceding the most recent census.
    A nonmetropolitan middle-income geography will be designated as 
underserved if it meets criteria for population size, density, and 
dispersion that indicate the area's population is sufficiently small, 
thin, and distant from a population center that the tract is likely to 
have difficulty financing the fixed costs of meeting essential 
community needs. The Agencies will use as the basis for these 
designations the ``urban influence codes,'' numbered ``7,'' ``10,'' 
``11,'' and ``12,'' maintained by the Economic Research Service of the 
United States Department of Agriculture.
    The Agencies publish data source information along with the list of 
eligible nonmetropolitan census tracts on the Federal Financial 
Institutions

[[Page 11648]]

Examination Council Web site (https://www.ffiec.gov).
    Sec.  ----.12(g)(4)(iii)--2: How often will the Agencies update the 
list of designated distressed and underserved nonmetropolitan middle-
income geographies?
    A2. The Agencies will review and update the list annually. The list 
is published on the Federal Financial Institutions Examination Council 
Web site (https://www.ffiec.gov).
    To the extent that changes to the designated census tracts occur, 
the Agencies have determined to adopt a one-year ``lag period.'' This 
lag period will be in effect for the twelve months immediately 
following the date when a census tract that was designated as 
distressed or underserved is removed from the designated list. 
Revitalization or stabilization activities undertaken during the lag 
period will receive consideration as community development activities 
if they would have been considered to have a primary purpose of 
community development if the census tract in which they were located 
were still designated as distressed or underserved.
    Sec.  ----.12(g)(4)(iii)--3: What activities are considered to 
``revitalize or stabilize'' a distressed nonmetropolitan middle-income 
geography, and how are those activities evaluated?
    A3. An activity revitalizes or stabilizes a distressed 
nonmetropolitan middle-income geography if it helps to attract new, or 
retain existing, businesses or residents. An activity will be presumed 
to revitalize or stabilize the area if the activity is consistent with 
a bona fide government revitalization or stabilization plan. The 
Agencies generally will consider all activities that revitalize or 
stabilize a distressed nonmetropolitan middle-income geography, but 
will give greater weight to those activities that are most responsive 
to community needs, including needs of low- or moderate-income 
individuals or neighborhoods. Qualifying activities may include, for 
example, providing financing to attract a major new employer that will 
create long-term job opportunities, including for low- and moderate-
income individuals, and activities that provide financing or other 
assistance for essential infrastructure or facilities necessary to 
attract or retain businesses or residents. See Q&As Sec.  --
--.12(g)(4)(i)--1 and Sec.  ----.12(h)--5.
    Sec.  ----.12(g)(4)(iii)--4: What activities are considered to 
``revitalize or stabilize'' an underserved nonmetropolitan middle-
income geography, and how are those activities evaluated?
    A4. The regulation provides that activities revitalize or stabilize 
an underserved nonmetropolitan middle-income geography if they help to 
meet essential community needs, including needs of low- or moderate-
income individuals. Activities such as financing for the construction, 
expansion, improvement, maintenance, or operation of essential 
infrastructure or facilities for health services, education, public 
safety, public services, industrial parks, or affordable housing, will 
be evaluated under these criteria to determine if they qualify for 
revitalization or stabilization consideration. Examples of the types of 
projects that qualify as meeting essential community needs, including 
needs of low- or moderate-income individuals, would be a new or 
expanded hospital that serves the entire county, including low- and 
moderate-income residents; an industrial park for businesses whose 
employees include low- or moderate-income individuals; a new or 
rehabilitated sewer line that serves community residents, including 
low- or moderate-income residents; a mixed-income housing development 
that includes affordable housing for low- and moderate-income families; 
or a renovated elementary school that serves children from the 
community, including children from low- and moderate-income families.
    Other activities in the area, such as financing a project to build 
a sewer line spur that connects services to a middle- or upper-income 
housing development while bypassing a low- or moderate-income 
development that also needs the sewer services, generally would not 
qualify for revitalization or stabilization consideration in 
geographies designated as underserved. However, if an underserved 
geography is also designated as distressed or a disaster area, 
additional activities may be considered to revitalize or stabilize the 
geography, as explained in Q&As Sec.  ----.12(g)(4)(ii)--2 and Sec.  --
--.12(g)(4)(iii)--3.

Sec.  ----.12(h) Community development loan

    Sec.  ----.12(h)--1: What are examples of community development 
loans?
    A1. Examples of community development loans include, but are not 
limited to, loans to:
     Borrowers for affordable housing rehabilitation and 
construction, including construction and permanent financing of 
multifamily rental property serving low- and moderate-income persons;
     Not-for-profit organizations serving primarily low- and 
moderate-income housing or other community development needs;
     Borrowers to construct or rehabilitate community 
facilities that are located in low- and moderate-income areas or that 
serve primarily low- and moderate-income individuals;
     Financial intermediaries including Community Development 
Financial Institutions (CDFIs), New Markets Tax Credit-eligible 
Community Development Entities, Community Development Corporations 
(CDCs), minority- and women-owned financial institutions, community 
loan funds or pools, and low-income or community development credit 
unions that primarily lend or facilitate lending to promote community 
development;
     Local, state, and tribal governments for community 
development activities;
     Borrowers to finance environmental clean-up or 
redevelopment of an industrial site as part of an effort to revitalize 
the low- or moderate-income community in which the property is located; 
and
     Businesses, in an amount greater than $1 million, when 
made as part of the Small Business Administration's 504 Certified 
Development Company program.
    The rehabilitation and construction of affordable housing or 
community facilities, referred to above, may include the abatement or 
remediation of, or other actions to correct, environmental hazards, 
such as lead-based paint, that are present in the housing, facilities, 
or site.
    Sec.  ----.12(h)--2: If a retail institution that is not required 
to report under the Home Mortgage Disclosure Act (HMDA) makes 
affordable home mortgage loans that would be HMDA-reportable home 
mortgage loans if it were a reporting institution, or if a small 
institution that is not required to collect and report loan data under 
the CRA makes small business and small farm loans and consumer loans 
that would be collected and/or reported if the institution were a large 
institution, may the institution have these loans considered as 
community development loans?
    A2. No. Although small institutions are not required to report or 
collect information on small business and small farm loans and consumer 
loans, and some institutions are not required to report information 
about their home mortgage loans under HMDA, if these institutions are 
retail institutions, the agencies will consider in their CRA 
evaluations the institutions' originations and purchases of loans that 
would have been collected or reported as small business, small farm, 
consumer or home mortgage loans, had the institution been

[[Page 11649]]

a collecting and reporting institution under the CRA or the HMDA. 
Therefore, these loans will not be considered as community development 
loans, unless the small institution is an intermediate small 
institution (see Sec.  ----.12(h)--3). Multifamily dwelling loans, 
however, may be considered as community development loans as well as 
home mortgage loans. See also Q&A Sec.  ----.42(b)(2)--2.
    Sec.  ----.12(h)--3: May an intermediate small institution that is 
not subject to HMDA reporting have home mortgage loans considered as 
community development loans? Similarly, may an intermediate small 
institution have small business and small farm loans and consumer loans 
considered as community development loans?
    A3. Yes. In instances where intermediate small institutions are not 
required to report HMDA or small business or small farm loans, these 
loans may be considered, at the institution's option, as community 
development loans, provided they meet the regulatory definition of 
``community development.'' If small business or small farm loan data 
have been reported to the agencies to preserve the option to be 
evaluated as a large institution, but the institution ultimately 
chooses to be evaluated under the intermediate small institution 
examination standards, then the institution would continue to have the 
option to have such loans considered as community development loans. 
However, if the institution opts to be evaluated under the lending, 
investment, and service tests applicable to large institutions, it may 
not choose to have home mortgage, small business, small farm, or 
consumer loans considered as community development loans.
    Loans other than multifamily dwelling loans may not be considered 
under both the lending test and the community development test for 
intermediate small institutions. Thus, if an institution elects to have 
certain loans considered under the community development test, those 
loans may not also be considered under the lending test, and would be 
excluded from the lending test analysis.
    Intermediate small institutions may choose individual loans within 
their portfolio for community development consideration. Examiners will 
evaluate an intermediate small institution's community development 
activities within the context of the responsiveness of the activity to 
the community development needs of the institution's assessment area.
    Sec.  ----.12(h)--4: Do secured credit cards or other credit card 
programs targeted to low- or moderate-income individuals qualify as 
community development loans?
    A4. No. Credit cards issued to low- or moderate-income individuals 
for household, family, or other personal expenditures, whether as part 
of a program targeted to such individuals or otherwise, do not qualify 
as community development loans because they do not have as their 
primary purpose any of the activities included in the definition of 
``community development.''
    Sec.  ----.12(h)--5: The regulation indicates that community 
development includes ``activities that revitalize or stabilize low- or 
moderate-income geographies.'' Do all loans in a low- to moderate-
income geography have a stabilizing effect?
    A5. No. Some loans may provide only indirect or short-term benefits 
to low- or moderate-income individuals in a low- or moderate-income 
geography. These loans are not considered to have a community 
development purpose. For example, a loan for upper-income housing in a 
low- or moderate-income area is not considered to have a community 
development purpose simply because of the indirect benefit to low- or 
moderate-income persons from construction jobs or the increase in the 
local tax base that supports enhanced services to low- and moderate-
income area residents. On the other hand, a loan for an anchor business 
in a low- or moderate-income area (or a nearby area) that employs or 
serves residents of the area and, thus, stabilizes the area, may be 
considered to have a community development purpose. For example, in a 
low-income area, a loan for a pharmacy that employs and serves 
residents of the area promotes community development.
    Sec.  ----.12(h)--6: Must there be some immediate or direct benefit 
to the institution's assessment area(s) to satisfy the regulations' 
requirement that qualified investments and community development loans 
or services benefit an institution's assessment area(s) or a broader 
statewide or regional area that includes the institution's assessment 
area(s)?
    A6. No. The regulations recognize that community development 
organizations and programs are efficient and effective ways for 
institutions to promote community development. These organizations and 
programs often operate on a statewide or even multistate basis. 
Therefore, an institution's activity is considered a community 
development loan or service or a qualified investment if it supports an 
organization or activity that covers an area that is larger than, but 
includes, the institution's assessment area(s). The institution's 
assessment area(s) need not receive an immediate or direct benefit from 
the institution's specific participation in the broader organization or 
activity, provided that the purpose, mandate, or function of the 
organization or activity includes serving geographies or individuals 
located within the institution's assessment area(s).
    In addition, a retail institution that, considering its performance 
context, has adequately addressed the community development needs of 
its assessment area(s) will receive consideration for certain other 
community development activities. These community development 
activities must benefit geographies or individuals located somewhere 
within a broader statewide or regional area that includes the 
institution's assessment area(s). Examiners will consider these 
activities even if they will not benefit the institution's assessment 
area(s).
    Sec.  ----.12(h)--7: What is meant by the term ``regional area''?
    A7. A ``regional area'' may be as large as a multistate area. For 
example, the ``mid-Atlantic states'' may comprise a regional area.
    Community development loans and services and qualified investments 
to statewide or regional organizations that have a bona fide purpose, 
mandate, or function that includes serving the geographies or 
individuals within the institution's assessment area(s) will be 
considered as addressing assessment area needs. When examiners evaluate 
community development loans and services and qualified investments that 
benefit a regional area that includes the institution's assessment 
area(s), they will consider the institution's performance context as 
well as the size of the regional area and the actual or potential 
benefit to the institution's assessment area(s). With larger regional 
areas, benefit to the institution's assessment area(s) may be diffused 
and, thus, less responsive to assessment area needs.
    In addition, as long as an institution has adequately addressed the 
community development needs of its assessment area(s), it will also 
receive consideration for community development activities that benefit 
geographies or individuals located somewhere within the broader 
statewide or regional area that includes the institution's assessment 
area(s), even if those activities do not benefit its assessment 
area(s).
    Sec.  ----.12(h)--8: What is meant by the term ``primary purpose'' 
as that term is used to define what constitutes a community development 
loan, a

[[Page 11650]]

qualified investment, or a community development service?
    A8. A loan, investment, or service has as its primary purpose 
community development when it is designed for the express purpose of 
revitalizing or stabilizing low- or moderate-income areas, designated 
disaster areas, or underserved or distressed nonmetropolitan middle-
income areas, providing affordable housing for, or community services 
targeted to, low- or moderate-income persons, or promoting economic 
development by financing small businesses and farms that meet the 
requirements set forth in 12 CFR ----.12(g). To determine whether an 
activity is designed for an express community development purpose, the 
agencies apply one of two approaches. First, if a majority of the 
dollars or beneficiaries of the activity are identifiable to one or 
more of the enumerated community development purposes, then the 
activity will be considered to possess the requisite primary purpose. 
Alternatively, where the measurable portion of any benefit bestowed or 
dollars applied to the community development purpose is less than a 
majority of the entire activity's benefits or dollar value, then the 
activity may still be considered to possess the requisite primary 
purpose, and the institution may receive CRA consideration for the 
entire activity, if (1) the express, bona fide intent of the activity, 
as stated, for example, in a prospectus, loan proposal, or community 
action plan, is primarily one or more of the enumerated community 
development purposes; (2) the activity is specifically structured 
(given any relevant market or legal constraints or performance context 
factors) to achieve the expressed community development purpose; and 
(3) the activity accomplishes, or is reasonably certain to accomplish, 
the community development purpose involved.
    Generally, a loan, investment, or service will be determined to 
have a ``primary purpose'' of community development only if it meets 
the criteria described above. However, an activity involving the 
provision of affordable housing also may be deemed to have a ``primary 
purpose'' of community development in certain other limited 
circumstances in which these criteria have not been met. Specifically, 
activities related to the provision of mixed-income housing, such as in 
connection with a development that has a mixed-income housing component 
or an affordable housing set-aside required by federal, state, or local 
government, also would be eligible for consideration as an activity 
that has a ``primary purpose'' of community development at the election 
of the institution. In such cases, an institution may receive pro rata 
consideration for the portion of such activities that helps to provide 
affordable housing to low- or moderate-income individuals. For example, 
if an institution makes a $10 million loan to finance a mixed-income 
housing development in which ten percent of the units will be set aside 
as affordable housing for low- and moderate-income individuals, the 
institution may elect to treat $1 million of such loan as a community 
development loan. In other words, the pro rata dollar amount of the 
total activity will be based on the percentage of units set-aside for 
affordable housing for low- or moderate-income individuals.
    The fact that an activity provides indirect or short-term benefits 
to low- or moderate-income persons does not make the activity community 
development, nor does the mere presence of such indirect or short-term 
benefits constitute a primary purpose of community development. 
Financial institutions that want examiners to consider certain 
activities should be prepared to demonstrate the activities' 
qualifications.

Sec.  ----.12(i) Community development service

    Sec.  ----.12(i)--1: In addition to meeting the definition of 
``community development'' in the regulation, community development 
services must also be related to the provision of financial services. 
What is meant by ``provision of financial services''?
    A1. Providing financial services means providing services of the 
type generally provided by the financial services industry. Providing 
financial services often involves informing community members about how 
to get or use credit or otherwise providing credit services or 
information to the community. For example, service on the board of 
directors of an organization that promotes credit availability or 
finances affordable housing is related to the provision of financial 
services. Providing technical assistance about financial services to 
community-based groups, local or tribal government agencies, or 
intermediaries that help to meet the credit needs of low- and moderate-
income individuals or small businesses and farms is also providing 
financial services. By contrast, activities that do not take advantage 
of the employees' financial expertise, such as neighborhood cleanups, 
do not involve the provision of financial services.
    Sec.  ----.12(i)--2: Are personal charitable activities provided by 
an institution's employees or directors outside the ordinary course of 
their employment considered community development services?