RSK.IQ Question of the Week 6/25/18

CRA and Credit for Scholarship Donations


The Bank is considering making donations to schools offering scholarships to students. Although the schools might not be located in low to moderate-income census tracts, the Bank is hoping to make such donations on the condition that the funds be directed to students from low to moderate-income backgrounds. Would the Bank be granted CRA credit for this type of contribution?

Response Summary

The Bank should enjoy CRA credit for such charitable contributions, provided that it is able to demonstrate that a majority of the students come from low to moderate-income families, and that the students who benefit include those within the Bank’s assessment area.

Response Detail

When evaluating the Community Reinvestment Act (“CRA”) performance of large and intermediate small banks under the investment test, federal regulators use the following criteria:

  • The dollar amount of qualified investments
  • The innovativeness or complexity of qualified investments
  • The responsiveness of qualified investments to credit and community development needs
  • The degree to which the qualified investments are not routinely provided by private investors. 12 CFR §§228.23; 26(c)(2).

In addition, a qualified investment must benefit the Bank’s assessment area or a broader state-wide or regional area that includes the assessment area.

A “qualified investment” is defined as “a lawful investment, deposit, membership share or grant that has as its primary purpose community development.” 12 CFR §228.12(t).

The term “community development” means:

  • Affordable housing (including multi-family rental housing) for low or moderate-income individuals
  • Community services targeted to low or moderate-income individuals
  • Activities that promote economic development by financing businesses or farms that meet the size eligibility standards of the Small Business Administration’s Development Company or Small Business Investment Company programs, or have gross annual revenues of $1 million or less
  • Activities that revitalize or stabilize low or moderate-income geographies, designated disaster areas, or distressed or underserved nonmetropolitan middle-income geographies designated by a federal banking regulator based on factors such as rates of poverty, unemployment, or population density. 12 CFR §228.12(g).

Federal guidance indicates that an institution will receive consideration for charitable contributions, provided that the contributions have community development as their primary purpose. A charitable contribution, whether in cash or an in-kind contribution of property, is included in the term “grant”. Interagency CRA Questions and Answers, §12(t) – 5, A5.

Community development activities are not limited to those that promote economic development, but include community-based child care, educational, health, or social services targeted to low or moderate-income persons. A community development activity need not occur inside a low or moderate-income area in order for an institution to receive CRA consideration for the activity, but should include activities, regardless of their location, that target low to moderate-income persons.  Interagency CRA Questions and Answers, §12(g) – 1,2, A1, A2.

It is also not necessary for there to be an immediate or direct benefit to an institution’s assessment area in order to receive CRA credit. An institution’s activity is considered a qualified investment if it supports an organization or activity that covers an area that is larger than, but inclusive of, the institution’s assessment area, and that the purpose of the organization or activity includes serving geographies or individuals within the institution’s assessment area. Interagency CRA Questions and Answers, §12(h) – 6, A6.

In this case, the Bank has proposed making contributions to a scholarship program in order to benefit low to moderate-income students. Such contributions would be considered a grant to a community development activity and, thus, a qualified investment, since they promote educational services to low to moderate-income students.

The Bank must be able to demonstrate that:

  • Low to moderate-income students are targeted.
  • The students who benefit include those within the Bank’s assessment area.

The income of the students’ families should be documented, as well as that most of the students who benefit come from low to moderate-income families.

This entry was posted on Monday, June 25th, 2018 at 6:00 am.

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