The Community Reinvestment Act (CRA) for banks and Community Development Financial Institutions (CDFI) for both banks and credit unions can be about much more than just meeting regulatory requirements. If handled correctly, they present meaningful opportunities to drive a positive corporate culture while making a real difference in their respective communities.
Banks Are Subject to CRA – Why Aren’t Credit Unions?
The CRA has received much more attention and focus recently. In October 2023, a final rule was issued to modernize and strengthen regulations for implementing CRA so the law can better meet its objectives.
While banks are paying close attention to these changes, credit unions do not fall under CRA because Congress recognized their not-for-profit structure and baked-in mission to serve their communities and members. A handful of states do require CRA-like compliance for credit unions.
Since then, some have argued that CRA should be applied to credit unions.
What Is CRA?
Under the CRA, financial institutions such as banks are required to meet the credit needs of the communities they serve. Meeting those needs involves community development, including community services targeted to low- and moderate-income (LMI) individuals, banking deserts and those who’ve been historically disadvantaged.
Financial institutions other than credit unions must report on their efforts in the designated communities to comply with CRA. Those institutions will also be regularly evaluated to make sure that they remain in compliance with the law.
What better way to rejuvenate your institution’s corporate culture than to incent team members to volunteer in their community? Particularly when those volunteer opportunities contribute to your bank’s CRA rating. Examples of CRA-qualifying services could include helping to stock and fund soup kitchens, homeless shelters, youth programs and other similar services. Additionally, banks might illustrate how they are lending and providing financial counseling in LMI and minority markets.
Why Are Credit Unions Exempt?
For-profit banks exist to earn a profit for their owners and shareholders. Credit unions also live to provide a return to their owners, who are also members of the institution. Serving their communities and underserved areas is a primary focus for credit unions.
Why? Because they emerged from the Great Depression when average people could not get a loan and even played a part in the women’s movement, assisting women to open accounts and credit in their names without a cosigner.
As we said, credit unions were not placed under CRA because of their regular, innate community service. However, some argue that if they’re already doing the work, they should not have a problem documenting it for CRA. In fact, Connecticut, Illinois, Massachusetts, New York, Rhode Island, and the District of Columbia already require credit unions to comply with CRA-like regulations.
Data Support CDFI Compliance
Some credit unions already report community development efforts to the CDFI Fund to maintain their CDFI certification and earn financial awards and low-cost capital from the federal government to supplement their community development commitments.
Credit unions and other CDFIs invest time, talent and treasure to earn this certification and build strategic plans to support their grant applications. The certification requirements and compliance reporting ensure the grant money goes to the people and communities it was intended for.
Dual Benefits: Employee Engagement and Regulatory Compliance
Incorporating employee giving and volunteering into corporate culture not only benefits employees but also helps organizations comply with CRA or CDFI requirements. These programs provide a unique opportunity to create a win-win situation for banks and credit unions and their employees. These initiatives can simultaneously boost employee satisfaction while supporting CRA and CDFI compliance efforts.
Enhancing Employee Experience
Implementing a robust employee giving and volunteering program can:
- Increase job satisfaction and engagement, with 74% of employees reporting an improved sense of purpose through volunteering.
- Foster team building and camaraderie, as 64% of employees say volunteering improved their work relationships.
- Develop leadership and soft skills, with 92% of respondents agreeing that volunteering effectively improves leadership abilities.
- Promote diversity and inclusion by bringing together employees from various backgrounds.
Supporting CRA and CDFI Compliance
While benefiting employees, these programs also contribute to regulatory compliance:
- CRA compliance: Employee volunteering in LMI communities can count toward CRA service test requirements.
- CDFI initiatives: Encouraging employees to volunteer with or donate to CDFIs aligns with the mission of supporting underserved communities.
- Community impact: These programs demonstrate a commitment to community development, a vital aspect of both CRA and CDFI compliance.
Integrating Compliance and Corporate Culture
To leverage these opportunities for optimal impact, incorporate these initiatives:
- Align volunteer opportunities with CRA and CDFI goals, focusing on activities that serve low- and moderate-income areas.
- Offer matching programs for employee donations to qualified CDFIs or community organizations.
- Track and report volunteer hours and donations to showcase community involvement for compliance purposes.
- Educate employees about the importance of CRA and CDFI initiatives to foster a culture of community engagement.
By integrating employee giving and volunteering into corporate culture, banks and credit unions can create a more engaged workforce while simultaneously addressing regulatory requirements. This approach transforms compliance from a mere checkbox exercise into a meaningful part of the organization’s identity and community impact.
And when your credit union would like to put data to its community development efforts for marketing or your bank needs to prove itself to the CRA officer, Uncommon Giving is there for you!
About Uncommon Giving
Uncommon Giving’s platform is a turnkey solution that helps promote donations and volunteering for employee giving. It also tracks the hours spent and dollars contributed to use in your financial institution’s marketing, compliance or employee engagement needs. If you’re looking to have an even more significant impact in your community and automate it to save time and aggravation, reach out to us at uncommongiving.com.
