Community Reinvestment Act (CRA)

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Professor
Subject
Date
Community Reinvestment Act (CRA)
1. What is the CRA? When was it passed and who is covered by it?
CRA is a law that intends to encourage depository institutions to help the neighborhood communities in which they operate to meet their credit needs. These communities include low- and moderate-income (LMI). It encourages safe operations as well as sound banking. This law was enacted in 1977, and its main purpose was to eliminate the likelihood of poor neighborhoods from being redlined by the banks. CRA covers Federal Deposit Insurance Corporation (FDIC) – insured institutions, and they include banks, saving institutions, and both the state-chartered commercial and saving banks (Occ.Gov 1).
2. How is CRA performance assessed?
According to Occ.Gov, the Office of the Comptroller of the Currency (OCC) has the mandate to evaluate the bank’s lending to the communities they operate in (2). CRA’s performance is assessed based on the regulations provided by the regulators, that is, OCC. These regulations consider the differences in size, operations of the banks, and other institutions. The guidelines provided by the regulations state:
a) Small banks are assessed based on their lending performance
b) Intermediate small banks are assessed in the category of small banks lending test and community development test.
c) Large retail banks are evaluated under the following three tests: lending, investment, and service tests.
d) Wholesale and limited-purpose institutions are assessed based on their communities’ development operations.
The CRA regulations also allow other institutions that do not fall under the size and business strategy categories to be assessed using the plan. OCC evaluates the banks based on the information on both the institution and the community being served (Occ.Gov 2).
3. Why are CRA ratings so important?
After evaluation, OCC assigns the bank a rating that falls either of the following categories: outstanding, satisfactory, need to improve, or either substantial non-compliance. The rating is essential when OCC is reviewing bank’s depository facility application. The ratings also help the stakeholders (public, government, et al.) to the banks to express their views based on the CRA evaluation rating (Occ.Gov 3).

4. Do the Fed and OCC agree on how CRA should be implemented. Explain.
Fed and OCC do not agree on how CRA should be implemented. OCC oversees 70% of the CRA activity, while the Fed oversees around 15% of the CRA activity. In his article, Ackerman Andrew says that banks are faced with the challenge of following one law that is controlled by multiple regimes. OCC is one of the major regulators of CRA had drafted its own set of rules to control CRA. Federal Deposit Insurance Corp. being the third regulator of CRA, declined overhaul on CRA, citing inappropriateness in time to change the rules. Both the OCC and Fed have different sets of rules on CRA. Fed declined to support the OCC plan citing that the process was rushed and could have led to a decrease in lending to lower-income areas. The fed officials had also suggested that their approach plan could be effective than the OCC’s plan since they would offer more credit on the number of loans that banks provide to their retail customers (1).

Work cited
Ackerman, Andrew. “Fed Moves To Overhaul Lending Rules For Poorer Communities”. WSJ, 2020, https://www.wsj.com/articles/fed-to-propose-overhaul-of-lending-rules-for-poorer-communities-11600695600.
Occ.Gov, 2020, https://www.occ.gov/publications-and-resources/publications/community-affairs/community-developments-fact-sheets/pub-fact-sheet-cra-reinvestment-act-mar-2014.pdf.

CREDIT SCORING

https://www.wsj.com/articles/five-tips-to-improve-your-credit-score-11603473022

https://www.wsj.com/articles/coronavirus-tanked-the-economy-then-credit-scores-went-up-11603013402

https://www.wsj.com/articles/flying-blind-into-a-credit-storm-widespread-deferrals-mean-banks-cant-tell-whos-creditworthy-11593423001

https://www.finextra.com/blogposting/18716/credit-scoring-going-alternative

1. What is credit scoring? What types of factors go into your score?
2. Are there ways to improve/repair your credit score? Why are credit scores so important? Is there only one “FICO:?
3. What happens if you are denied credit according to ECOA?
4. What happened to credit scores during the pandemic? Underwriting? Do FICO scores accurately capture risk?
5. How are lenders working to reach non traditional high quality borrowers ? What is Lenddo? SOFI?

Credit Scores: What You Need to Know Now
Tighter Lending Makes Cracking the System Vital; Benefits of Paying on Time
By KAREN BLUMENTHAL
Are you keeping score?
Credit scores have been getting a lot of attention lately, as lenders tighten credit standards and contend with new legislation that has, among other things, reined in how credit-card issuers can raise rates.
Meanwhile, several firms, preying on our insecurities, are pushing credit scores and credit-score-tracking services for a monthly fee.
For all the attention they generate, though, credit scores are largely misunderstood. For instance, your precise score matters only when you’re in need of new debt, like a home, auto or education loan or a new credit card, which should be a fairly rare occurrence.
You don’t have just one score, but many. Your FICO score, the one developed by Fair Isaac Corp. that runs from a low of 300 to a high of 850, will vary depending on which credit bureau is reporting it and the kind of lender that requested it.

So the score that costs you $15.95 at MyFico.com may not be the score your lender sees. Beyond that, the three credit bureaus— Equifax, Experian and TransUnion— sell their own proprietary scores.
Confused about what to believe? Here are some common myths about credit scores:
My credit score is a good reflection of my financial smarts and good behavior.
Not really. Your score doesn’t reflect your income, employment history or your assets, which should be a part of your overall financial picture. It also doesn’t show whether you pay your rent or utilities on time. As a result, a credit score is less like a report card and more like an SAT score—your results on a particular date that seek to predict your future credit success or failure.
I pay my card off every month, so I must be a low credit risk.
True, your financial habits are excellent. But they won’t affect your score. That’s because the credit bureaus don’t have a clue whether you pay your bill in full or carry a balance on your cards each month. All they know is the amount you owed on your most recent statement.
Instead, the crucial fact is how much available credit you have used. Steve Ely, president of personal-information solutions at Equifax, says you should keep your credit use to less than half your credit limit to minimize the impact on your score.
Taking advantage of reward cards shouldn’t affect my creditworthiness.
Unfortunately, about 30% of your FICO score is based on “credit utilization,” a broad term that includes how much you’ve used of each credit limit, how much you’ve borrowed as a percentage of your total available credit and even how big the dollar balances actually are.
If you’re a rewards junkie like I am, charging groceries, charitable contributions and just about everything else to get points, you may be jeopardizing your score. Based on reports I paid for, my TransUnion score was 11 points lower than my Equifax score, apparently because of my vacation-enhanced balance, even though I used less than 10% of my available credit.
Luckily, there’s an easy solution: Cut back your credit-card use for two or three months before you plan to seek a car loan or mortgage so that your balances will be more modest.
Scored Straight
Credit scores, while crucial to one’s financial health, are widely misunderstood. Some oft-forgotten points to consider:
• They don’t reflect your whole financial picture, but a snapshot of your debt at a point in time.
• It doesn’t matter whether you carry a balance, but it does matter if you pay on time.
• The score you buy isn’t necessarily the score lenders see.
• You don’t need to apply for new credit for credit inquiries to show up on your report.
I was late on a payment, but the debt is now paid off. So I’m good, right?
Afraid not. The single most important factor in your score, accounting for 35% of the total, is whether you have paid your bills on time. One late payment will ding your score for up to a year, very late payments can hurt you for two or three years, and collections and bankruptcies can sting for up to seven years.
What counts as late? In theory, one day. But because credit-card companies know that people move, get sick or misplace their bills, they commonly wait to report your late payment to credit bureaus until about 30 days have passed, or you have missed two due dates. (You will likely be assessed a late fee right away, however.)
If you have missed a payment, pay it as soon as possible and consider calling and doing the honorable thing: groveling. Many companies will waive or reduce fees the first time a good customer makes a mistake, and they may even agree to withhold reporting the infraction to the credit bureau.
Information stays on my credit report for no more then seven years.
That’s largely true for bad news, including late payments. But good news hangs around—and pays dividends—a lot longer. My credit report reflects the 30-year history of the credit card I got back in college.
In addition, closed accounts in good standing will stay on your record for a decade, says Barry Paperno, FICO consumer-operations manager. Both old and closed accounts can help your score because the length of your credit history is another, if smaller, piece of the formula.
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Your credit card behavior affects your overall credit score.

Preserving your credit history is one reason that Kenneth Lin, CEO of Creditkarma.com, recommends that you don’t formally close an account but let the issuer close it for lack of activity. The longer the account stays open, he says, the more you’ll add to your credit history and the longer you’ll benefit from the additional available credit.
I haven’t gotten a loan in a while, which should boost the “new credit” part of my score.
You don’t have to get new credit to show a so-called hard inquiry on your credit report. If you have opened a new checking account, the bank may have checked your score. Last year, I bought a car and the dealer, unbeknownst to me, checked my credit. I never applied for a loan, but that one inquiry knocked 15 points off my Equifax score—and that’s typical.
For that reason, Curtis Arnold, founder of Cardratings.com, suggests you ask up front if a bank, insurer or car dealer plans to check your credit record. Luckily, shopping around for a car or education loan or mortgage counts only as one inquiry as long as you do it within a few weeks. Otherwise, multiple inquiries may knock your score back for a year.
That said, when you check your score, when your current card company keeps tabs on your credit or when someone pre-approves you for a credit-card—all so-called soft inquiries—your score won’t be affected.
The score I pay for or get for free is my real score.
Most free scores are not the FICO scores that lenders request. You can buy FICO scores from Equifax and TransUnion—but not Experian—on MyFico.com for $15.95 each, but even then, they may not be the exact score the lender actually sees. You can, however, see each of your three credit reports—which include all the activity that is used to determine your score, but not the score itself—for free once a year by going to AnnualCreditReport.com. Because your scores aren’t likely to vary by much, ongoing tracking services are usually unnecessary.
I should aspire to a score above 800.
Sadly, a score of 800 or more—the holy grail for “high achievers” on online FICO forums—won’t make you thinner, smarter, richer or more attractive to lenders or anyone else. True, every 20 points in your score can mean a slightly lower mortgage rate or better car loan, but only up to the mid-700s.
That means it’s worthwhile to take steps to improve a score in the 600s or low 700s, and in the high 700s, you’ll have plenty of room for score fluctuation. Beyond that, a higher score is meaningless.
—Email: familymoney@wsj.com

Credit Scoring
Ever wonder how a creditor decides whether to grant you credit? For years, creditors have been using credit scoring systems to determine if you’d be a good risk for credit cards and auto loans. More recently, credit scoring has been used to help creditors evaluate your ability to repay home mortgage loans. Here’s how credit scoring works in helping decide who gets credit — and why.
What is credit scoring?
Credit scoring is a system creditors use to help determine whether to give you credit.
Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points — a credit score — helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.
Because your credit report is an important part of many credit scoring systems, it is very important to make sure it’s accurate before you submit a credit application. To get copies of your report, contact the three major credit reporting agencies:
• Equifax: (800) 685-1111
• Experian (formerly TRW): (888) EXPERIAN (397-3742)
• Trans Union: (800) 916-8800
These agencies may charge you up to $9.00 for your credit report.
Why is credit scoring used?
Credit scoring is based on real data and statistics, so it usually is more reliable than subjective or judgmental methods. It treats all applicants objectively. Judgmental methods typically rely on criteria that are not systematically tested and can vary when applied by different individuals.
How is a credit scoring model developed?
To develop a model, a creditor selects a random sample of its customers, or a sample of similar customers if their sample is not large enough, and analyzes it statistically to identify characteristics that relate to creditworthiness. Then, each of these factors is assigned a weight based on how strong a predictor it is of who would be a good credit risk. Each creditor may use its own credit scoring model, different scoring models for different types of credit, or a generic model developed by a credit scoring company.
Under the Equal Credit Opportunity Act, a credit scoring system may not use certain characteristics like — race, sex, marital status, national origin, or religion — as factors. However, creditors are allowed to use age in properly designed scoring systems. But any scoring system that includes age must give equal treatment to elderly applicants.
What can I do to improve my score?
Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change — but improvement generally depends on how that factor relates to other factors considered by the model. Only the creditor can explain what might improve your score under the particular model used to evaluate your credit application.
Nevertheless, scoring models generally evaluate the following types of information in your credit report:
• Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.
• What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score.
• How long is your credit history? Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances.
• Have you applied for new credit recently? Many scoring models consider whether you have applied for credit recently by looking at “inquiries” on your credit report when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make “prescreened” credit offers are not counted.
• How many and what types of credit accounts do you have? Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may negatively affect your credit score.
Scoring models may be based on more than just information in your credit report. For example, the model may consider information from your credit application as well: your job or occupation, length of employment, or whether you own a home.
To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. It’s likely to take some time to improve your score significantly.
How reliable is the credit scoring system?
Credit scoring systems enable creditors to evaluate millions of applicants consistently and impartially on many different characteristics. But to be statistically valid, credit scoring systems must be based on a big enough sample. Remember that these systems generally vary from creditor to creditor.
Although you may think such a system is arbitrary or impersonal, it can help make decisions faster, more accurately, and more impartially than individuals when it is properly designed. And many creditors design their systems so that in marginal cases, applicants whose scores are not high enough to pass easily or are low enough to fail absolutely are referred to a credit manager who decides whether the company or lender will extend credit. This may allow for discussion and negotiation between the credit manager and the consumer.
What happens if you are denied credit or don’t get the terms you want?
If you are denied credit, the Equal Credit Opportunity Act requires that the creditor give you a notice that tells you the specific reasons your application was rejected or the fact that you have the right to learn the reasons if you ask within 60 days. Indefinite and vague reasons for denial are illegal, so ask the creditor to be specific. Acceptable reasons include: “Your income was low” or “You haven’t been employed long enough.” Unacceptable reasons include: “You didn’t meet our minimum standards” or “You didn’t receive enough points on our credit scoring system.”
If a creditor says you were denied credit because you are too near your credit limits on your charge cards or you have too many credit card accounts, you may want to reapply after paying down your balances or closing some accounts. Credit scoring systems consider updated information and change over time.
Sometimes you can be denied credit because of information from a credit report. If so, the Fair Credit Reporting Act requires the creditor to give you the name, address and phone number of the credit reporting agency that supplied the information. You should contact that agency to find out what your report said. This information is free if you request it within 60 days of being turned down for credit. The credit reporting agency can tell you what’s in your report, but only the creditor can tell you why your application was denied.
If you’ve been denied credit, or didn’t get the rate or credit terms you want, ask the creditor if a credit scoring system was used. If so, ask what characteristics or factors were used in that system, and the best ways to improve your application. If you get credit, ask the creditor whether you are getting the best rate and terms available and, if not, why. If you are not offered the best rate available because of inaccuracies in your credit report, be sure to dispute the inaccurate information in your credit report.

Your FICO Credit Score: Actually, There Are Many
More lenders are showing customers a FICO score. But recipients need to understand they each have multiple FICO numbers.
ENLARGE
Citigroup is among the lenders sharing FICO credit scores with some of their customers. PHOTO: JEWEL SAMAD/AGENCE FRANCE-PRESSE/GETTY IMAGES
By
ANNAMARIA ANDRIOTIS
June 26, 2015 12:55 p.m. ET
8 COMMENTS
The widely used FICO credit score has become easier to check for millions of U.S. adults.
But consumers can’t assume that the FICO score a lender shows them is the exact same FICO score that lender—or another one—will use in evaluating an application for a credit card, car loan or mortgage.
Most consumers have dozens of FICO scores, and the exact score a lender pulls up depends in part on the credit-reporting firm that supplies it and the type of FICO score the lender chooses to use.
“It’s almost guaranteed that it won’t be the same score,” says John Ulzheimer, president of consumer education at CreditSesame.com, a credit-management site. That could mean consumers won’t get as good a deal as they expect.
More lenders have been offering many customers their FICO credit score without charge over the past year and a half. Lenders such asAlly Financial, Citigroup and Discover Financial Services began giving out this score under a program launched by Fair Isaac Corp., the creator of FICO scores, in late 2013.
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Getting Access
The score can be seen now by 65 million consumers, a big jump from 32 million late last year and around eight million when the program first launched, according to Fair Isaac, which also is known as FICO.
FICO scores, which range from 300 to 850, have a significant impact on consumers’ ability to get loans and other credit, and on the interest rate they receive. They are used in 90% of consumer-lending decisions, according to CEB TowerGroup, a financial-services research firm.
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Knowing their FICO scores can give consumers an indication of whether they are likely to get approved for a new loan. Those with a low score can delay applying and work on improving it. Also, a sudden dive in the score could be a warning that someone has fraudulently opened accounts in his or her name.
More lenders plan to start showing customers their score or expand their offerings. Bank of America will start providing the score to its credit-card users later this year. Private-student-loan lender SLM, also known as Sallie Mae, soon will announce that it will expand its score offering to all its private-student-loan borrowers and cosigners.
Ally Financial will make the score available to all its car-loan customers online next month, following a pilot program that made the score available to fewer than 1,000 customers.
The moves mark a turnaround for a score that until a few years ago was a mystery to most borrowers. Before this program, consumers had a difficult time looking up their FICO score for free. A FICO website has sold consumers their credit scores for years—at a price that currently ranges from $14.95 to $29.95 a month and includes other products, such as credit reports. (There also are options for a one-time purchase.)
In most cases, customers of participating lenders can view their score when they log on to their credit-card or loan account online.
Scoring the Scores
There are many reasons that the score consumers are shown through this program isn’t necessarily the same score that lenders will obtain on them when they apply for a loan.
Many lenders get a score from only one of the three big credit-reporting firms— Equifax, Experian and TransUnion—which is the score they show to customers through this program. (Mortgage lenders are an exception because most pull FICO scores from all three firms.) For example, Sallie Mae and Barclaycard, the credit-card issuer and unit of Barclays, check the score from TransUnion,while J.P. Morgan Chase, which shows some of its Slate credit-card holders their score, gets it from Experian.
If one credit-reporting firm is missing an account that another firm has on the person’s credit report, or one of the credit reports has an error on it, that can affect the credit score the firm provides the lender.
Secondly, FICO has released many updates to the score models over the years, and some lenders still use earlier versions. While many lenders use FICO 8, a score the firm launched in 2008, in evaluating applications for credit cards and some other consumer debt, most mortgage lenders use an older version.
There also are different types of a single FICO score. The “base” score predicts the risk of a borrower falling behind on payments on all types of loans.
Most car-loan lenders use a FICO “auto score” that more heavily weights prior experience with car loans. Borrowers who previously had a car loan and made their payments on time could end up with a higher auto score than base score, says Jim Wehmann, executive vice president of scores at FICO. The same setup exists for credit-card lenders, some of whom use a “bank card score.”
Mr. Wehmann says FICO requires the lenders showing scores to disclose the credit-reporting firm they receive these numbers from, the score version and the specific type if it isn’t a base score.
Lenders, for their part, point out that the score they show consumers is the one they actually use when making decisions on existing accounts.
Nearly 200 million consumers in the U.S. have FICO scores, according to the company. Most of them each have at least 60 FICO scores, Mr. Ulzheimer says.
FICO doesn’t dispute that but says the number of scores being used by lenders in most consumer decisions is far smaller. Each of the three credit-reporting firms has six or seven FICO scores per scorable consumer that collectively account for 95% of the FICO scores that were pulled in the past year by lenders, Mr. Wehmann says.
In most cases, all of a consumer’s FICO scores should be in the same ballpark—generally not varying by more than 25 points—and the score differences shouldn’t change a lender’s decision to approve a borrower, Mr. Ulzheimer says.
But varying scores can affect the interest rates a consumer is charged. As of Thursday, borrowers with a 720 or higher FICO score got an average 3.183% annual percentage rate on a 36-month car loan for a new vehicle, compared with a 4.546% APR on average for borrowers with a score between 690 and 719, according to Informa Research Services, a market-research firm.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

Business English Communication

Business English Communication – Level 4
Your Full Name:

From: Regional Manager,
Electronic Parts Manufacturer.

To: Customer Service,
Country Inn, Inc.

Date: 6th Nov 2020

Subject: Claim Request

Dear Sir/Madam,
I am writing this regarding my recent stay I made in your hotel. Your country Inn Hotel came highly recommended for accommodation and meals due to price affordability and great meals. In all our conferences, Electronic Parts Manufacturer recommends that all its employees to use your hotel chain since your rates fall within the company’s budget.
On May 4 and 5, two employees and I visited your hotel to attend Halifax conference. Our department administrative assistant made our reservations. She was assured that our charges would fall under weekend rates, which should include a hot breakfast – in the Atrium – in the rate. Since we arrived at the restaurant early enough, there was no step up, and therefore, we ordered pancakes and sausages, which we were charged $35 each. Again, checking on the credit statement, on 5th May, we were charged $114 for three champagne buffet breakfast in the Atrium.
The charges are outrageous since we had not ordered champagne buffet breakfast, and we had been assured that it would include the meals at the Atrium.
Reflecting on this instance, I remember seeing continental breakfast set up for guests in the lounge on my floor. I came to think maybe the hotel expected all guests on weekend rates to be in the lounge and eat from there. Still, my administrative assistant had been assured that one could order breakfast from the menu at the hotel’s restaurant when she was making the reservation.
In my understanding, such errors can happen, and therefore, herein, I have attached the credit statement that highlights the error – wrongful charges. I will appreciate you looking into this issue and solve it by crediting our account as soon as possible. Electronic Parts Manufacturer being your loyal customer, would appreciate continuing using your services in your hotel chain for a long time.
Yours Sincerely,
Regional Manager.