CRA and Reporting Loan Origination

Issue/Inquiry

The Bank originated a straight line of credit in 2019 for $700,000, which was reported on the Community Reinvestment Act Loan Register (“CRA LR”). A year has passed and the loan has been extended, at which time it had a balance of $350,000. Should the term extension be reported on the CRA LR? If so, should the original amount be reported or the present balance? What if there was new money given?

Response Summary

Under Interagency Guidance, the extension would be reported as a loan origination on the CRA LR. Since the extension had already been reported and would be considered a renewal for CRA purposes, only the amount of the present balance should be reported.

Response Detail

Per Interagency Guidance, an institution should collect information about small business loans that it refinances or renews as loan originations. A “refinancing” is generally when the existing loan obligation or note is satisfied and a new note is written, while a “renewal” is an extension of the term of the loan. However, the institution may only report one origination, including a refinancing or renewal that is treated as an origination, per loan each year, unless an increase in the loan amount is granted. Interagency Questions and Answers Regarding Community Investment, §___.42(a) – A.5.

In this case, the origination of the loan would have been reported on the CRA LR in 2019. If the loan was extended in a subsequent year, then the extension would be considered as a renewal for CRA purposes and, therefore, a reportable loan origination for that year.

A straight line of credit is different from a revolving line of credit as advances that are repaid cannot be advanced again. Consequently, the present balance of the loan is reported rather than the initial credit limit.

If an institution increases the amount of a small business loan when it extends the term of the loan, it should always report the amount of the increase as an origination. If the original or remaining amount had already been reported that year, then only the amount of the increase should be reported. If the increase was made the following year as part of a refinancing, then both the refinancing and increase should be reported as originations that year, and could be reported as a single transaction in the total amount (i.e., the original or remaining amount together with the increase). Interagency Questions and Answers Regarding Community Investment, §___.42(a) – A.5.

This response is for informational purposes only and is not intended for legal guidance.

This entry was posted on Monday, February 3rd, 2020 at 6:00 am.