Reasons Why Banks Receive Poor CRA Ratings

• If the geographic distribution of lending is inadequate, particularly high-minority and/or low-income areas. "CRA is intended to ensure that financial institutions meet the credit needs of all areas of the community they serve. One way examiners will evaluate service is by analyzing your geographic distribution to low- to moderate-income (LMI) and majority-minority (MM) census tracts within your assessment area(s)." Banks should carefully keep track of the geographic distribution of their loans to avoid this problem.
• If the socioeconomic distribution of borrowers is inadequate, especially to low-income households. Lending should be distributed among individuals of various socioeconomic status within the assessment area.
• If the average Loan-to-Deposit (LTD) ratio is too low. "The regulators will measure your efforts to meet the credit needs by looking at the number of loans versus deposits, or loan-to-deposit (LTD) ratio." Banks should be able to explain the numbers behind the averages. Banks should aim to have at least 50% of loans inside the assessment area, although 70% or more is preferable.
• Issues with Fair Lending or Redlining compliance. This is one of the top reasons for a downgrade in CRA rating. The CRA process involves an evaluation of the lender's Fair Lending compliance. Any evidence of noncompliance will impact the lender's rating.
• If community development or community investing is lacking or poor. "The Community Development test will evaluate your bank's responsiveness to the community development needs of your community through a combination of loans, investments and services."