January 26, 2018

Banking Regulators Announce CRA-consideration for Investments in Puerto Rico and Virgin Islands

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Yesterday the banking regulators announced that community development activities in the U.S. Virgin Islands (USVI) and Puerto Rico will be eligible to receive credit under the Community Reinvestment Act (CRA) for activities that “help revitalize or stabilize the U.S. Virgin Islands and Puerto Rico.” This announcement applies to financial institutions located anywhere in the United States.

The announcement that financial institutions will be eligible for CRA credit by supporting community development efforts in the USVI and Puerto Rico, even if these areas do not fall under an institution’s assessment area, is intended to increase the capital that is flowing into these communities as they seek to rebuild from Hurricane Maria.

Both Puerto Rico and the USVI continue to face a host of barriers to rebuilding after Hurricane Maria destroyed wide swaths of the islands’ economies, housing, infrastructure and human capacity in September 2017. As the islands await further appropriated resources from Congress, private investments that may be eligible for CRA credit could help finance some of the needed repairs.

The special CRA eligibility for Puerto Rico and the USVI will last for 36 months; this time period began on September 20, 2017 when the areas were declared as “designated disaster areas.” There is the potential for an extension for long-term recovery efforts.

The CRA was enacted in 1977 with the goal of encouraging banks and other depository institutions to meet the credit needs of the communities in which the operate, including low- and moderate-income (LMI) neighborhoods. The law grew out of concerns that banks were discriminating against LMI communities by accepting deposits from residents of LMI areas but not lending to these same residents, denying the communities access to critical capital and investments.

The CRA, which is jointly regulated by the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), requires that financial institutions lend to low-income communities within their assessment area – the geographic area surrounding an institution’s brick-and-mortar depository locations. In addition to getting credit for mortgage and small business lending, banks can receive positive CRA credit for investing in the Low-Income Housing Tax Credit (Housing Credit), the New Markets Tax Credit (NMTC) and the historic rehabilitation tax credit.

This announcement comes as the Treasury Department looks towards proposing changes to the CRA in early 2018.

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