CRA Guidance Shows How to Help Communities Through COVID-19
The Covid-19 pandemic has upended the lives of people all over the world. As of April 22, 26.5 million people have filed claims for unemployment in the United States, representing 16.2% of the workforce. A Pew research survey found that 43% of U.S. adults have lost a job or taken a pay cut during the crisis, and that only 23% of lower-income adults have savings that could cover three months of expenses.
This year, it’s more important than ever to remember that April is Financial Literacy Month. As CNBC stated, “this year it could not come at a more difficult time.” People are facing issues they might never have faced before, such as which government benefits they’re entitled to, how they should prioritize paying bills on a reduced income, and whether or not they should apply for a loan.
CRA COVID-19 Guidance
In the wake of the pandemic, the federal Community Reinvestment Act (CRA) regulators issued interagency guidance in March to inform financial institutions about the kind of COVID-19-related activities that will qualify for CRA credit.
The agencies will give favorable CRA consideration for financial institutions’ retail banking services and retail lending activities that are responsive to the needs of low- and moderate-income individuals, small businesses, and small farms affected by COVID-19. Qualifying activities may include things like waiving fees, increasing credit card limits, and offering payment accommodations such as allowing borrowers to defer or skip payments or extending payment due dates.
Financial institutions will also receive CRA consideration for community development activities like:
- offering loans, investments or services that support digital access or access to health care for low- and moderate-income individuals or communities
- economic development activities that sustain small business operations
- investment or service activities that support provision of food supplies and services for low- and moderate-income individuals or communities
The Federal Reserve Bank of Dallas specifically referred to the “digital access” part of the new CRA guidance in its document on connecting communities during COVID-19. Of course, there’s been a lot of news concerning how the digital divide is affecting families during this crisis. Many homes don’t have access to good (or any) broadband service, which makes it hard for people to work at home and for students to take online classes.
The guidance noted that the COVID-19 emergency has had a significant economic impact that may extend beyond banks’ assessment areas. Therefore, favorable consideration will be given to community development activities located in a broader statewide or regional area that includes a bank’s CRA Assessment Area and that help to stabilize communities affected by COVID-19, if the institutions have first responded to the community development needs and opportunities in their own assessment areas.
Neither the March CRA guidance nor the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed by Congress specifically discuss financial literacy. But it’s evident that people are going to need help navigating through their changed financial circumstances. In a statement on mortgage servicing rules in response to the pandemic, federal agencies noted that “there is the potential for consumer confusion about how to seek help or how to respond to some of the options that mortgage servicers may be offering at this time.”
In addition, the FDIC is warning people about COVID-19 related scams.
The pandemic also poses a threat to people’s financial security, because their credit scores may be affected by a job loss or decreased work hours. Even people who haven’t lost their jobs must contend with possibly having to stay away from work to care for children who are home from school.
Two recent developments are meant to help people protect their credit during this time. First, the CARES Act has a provision (Section 4021) called Credit Protection During COVID-19, which requires creditors to report credit and loan accounts as “current” if a consumer makes lower payments, or no payments, under an accommodation agreement with a lender. Second, to help people keep track of their finances and protect their credit standing during this crisis, the three credit bureaus (Equifax, Experian, and TransUnion) will provide free weekly credit reports through April 2021. (Previously, they each provided one free report every year.)
But merely giving people access to their credit reports won’t be enough; people will undoubtedly need help checking and correcting their reports. Financial education can help people keep the damage to their credit at a minimum.
Finally, proposed changes to the CRA regulations that were submitted in January (pre-crisis) would allow financial institutions to provide financial education to people of all income levels, not just to people with low-to-moderate income.
The change was proposed because:
The agencies believe that financial literacy is an important issue irrespective of income level. Moreover, some stakeholders expressed support for providing CRA credit for financial literacy programs for all individuals. These stakeholders cited high levels of student and credit card debt and a lack of retirement and other savings as reasons for providing broader consideration of financial literacy-related activities.
If the change goes through as proposed, there will certainly be a lot of people who can benefit from expanded financial literacy programs to make it through this crisis.