Comptroller of the Currency Eugene A. Ludwig warned bankers Tuesday that not every community development loan will qualify for credit under the revised Community Reinvestment Act rules.
"To have a community development purpose, a loan must have a true and lasting impact on low- and moderate-income families or communities," Mr. Ludwig told the Community Reinvestment Association of North Carolina.
A loan to a small business in a distressed area that employs local residents would qualify for the community development designation, he said.
But a loan for upper-income housing in a low-income neighborhood would flunk even if it provides temporary construction jobs or increases the local tax base, he said.
Mr. Ludwig said the banking and thrift agencies plan to publish soon a comprehensive set of questions and answers on the revised CRA rules. He also said the OCC is creating a nationwide data base of community groups to help bankers form partnerships with local organizations.
Paul A. Smith, senior federal counsel at the American Bankers Association, urged community groups to study the new community development rules carefully. Banks are unlikely to fund projects that don't qualify for the community development designation, he said.
"Community groups need to look at what they are offering and make sure their projects qualify," he said.
Mr. Ludwig said banks can receive CRA credit for investing in community development projects that improve social services that low-income residents receive. For example, loans that support community-based child care, education, health care, and affordable housing all count, he said.
Mr. Ludwig said his office has been inundated with complaints from bankers who erroneously believe that grants to community groups won't qualify if they are tax deductible.
"I am not sure where the confusion may have come from, but I want you to know that a charitable grant will not be disqualified simply because it can be written off as a tax deduction," he said.
The banking agencies revised the CRA rules in April 1995. Small banks had to start complying in January, while large banks must adhere to new rules in July 1997. Large banks are required to meet the lending, service, and investment needs of their communities. Community development activities can count toward all three areas.
