CRA: Compliance Creeps Further Into Commercial Lending

Under the new regulation, CRA officially recognizes that commercial lending can be a method of helping to meet the credit needs of low and moderate income communities. Commercial lending, especially small business lending, is something banks specialize in.

Small business lending has become a business activity important to CRA. It is specifically recognized in the new regulation, and it is becoming a focus of community groups efforts and action.

Banks subject to the new CRA data reporting on small business and agricultural lending need to be compiling data now to be ready to report. But more important than compiling the data is looking at what the data shows before it is too late.

Review what your lenders are doing. Evaluate how your picture looks. Will this information support the bank in a CRA evaluation - or bring it down?

It is time to tackle the commercial lenders now. Meet with them to explain the new CRA regulation. Train them, formally or informally, on CRA and your bank's program. Make sure they understand the process of collecting and reporting information required by CRA.

While you have their attention, it's worth calling their attention to other compliance issues. Remind them that the flood insurance rules apply to any improved real estate. Since most businesses are run in buildings, almost any business loan secured by real estate will be subject to the flood certification requirements.

Now ask them if they ever make home equity loans to their commercial customers, and then ask them about the disclosures they did - or didn't - provide. This may be a good time to remind them that the loan is subject to Truth in Lending.

Tie the traditional compliance requirements to regulations, such as the appraisal rules, that they probably take in stride. This may help them to realize that they have been subject to compliance in one form or another all along.

Finally, toss fair lending into the pot. Actions taken by commercial lenders may raise - or dispel - questions about fair lending. ECOA and Regulation B apply to all credit. In particular, point out that business loans to women is a topic that gets a great deal of political attention.

This brings us back to CRA. Business lending, done well with compliance goals in mind, will support your bank's CRA performance. With luck, this can end your meeting on a positive note.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 5, 3/96