Understanding CRA Reform

Understanding CRA Reform

An overview and comparison of the Federal Reserve’s CRA ANPR and the OCC’s final ruling

Since its enactment in 1977, the Community Reinvestment Act (CRA) has been an important tool in addressing redlining and the lack of investments in low- to middle-income (LMI) communities. It requires banks to meet the lending needs of their community, including credit-worthy LMI individuals and minority-owned businesses. However, it has failed to keep pace with today’s evolving banking environment or improve credit accessibility for those it was designed to protect.

It’s been more than 25 years since the last revisions to the CRA, and during that time mobile and digital banking has grown in popularity without being addressed in CRA requirements. In addition, the gap between black and white home ownership is 3% greater than it was in 1960.1 It’s clear that the CRA needs to be revisited and updated. This article will compare and contrast the OCC’s and the Fed’s efforts to strengthen and modernize existing CRA requirements.

The Office of the Comptroller of the Currency

The OCC released an Advanced Notice of Proposed Rulemaking in August 2018. The FDIC joined the OCC and released a joint Notice of Proposed Rulemaking in December 2019 and opened the floor to stakeholder comments to help inform and guide the final ruling. Citing the need to focus on issues related to the 2020 COVID-19 pandemic, the FDIC removed themselves from the rulemaking process. In May 2020, the OCC released their final ruling, which includes, but is not limited to:

  • Clearly enumerating CRA qualifying activities
  • Defining assessment areas
  • Establishing performance standards
  • Establishing data collection and retention requirements

While the final rule went into effect on October 1, 2020, banks subject to general, wholesale and limited performance standards have until January 1, 2023 to comply. Intermediate and small banks must comply with the ruling by January 1, 2024.

The Federal Reserve

In September 2020, the Fed released an ANPR on updating their CRA regulations with a 120-day comment period ending February 16, 2021. Stakeholders “have expressed strong support for the agencies to work together to modernize CRA.”2 Stakeholders were asked for feedback regarding the Fed’s efforts to:

  • Bring greater clarity, consistency, and transparency to performance evaluations
  • Minimize data collection and reporting burden
  • Base performance evaluations on bank size, business models and local conditions
  • Clarify and expand eligible CRA activities in LMI communities
  • Recognize the special circumstances of small banks in rural areas

Their intent is to ensure LMI banking needs are met, promote financial inclusion and address changes in the banking industry over the past 25 years.

How they differ.

Both reform efforts seek to align CRA requirements and reporting with today’s banking needs, from modernizing assessment areas to clarifying eligible activities for CRA credit. However, the approaches differ in a few areas.

While the OCC rule was finalized, the FED ANPR is still accepting comments. Pundits believe there is still time for the agencies to come together to provide uniform regulations, as stakeholders across the board have requested.

Be ready for your next CRA examination.

Understanding updated CRA requirements, from whichever regulatory body you report to, is essential to receive the CRA credit your bank has earned. At Marquis, we’ve kept and continue to keep our finger on the pulse of the CRA modernization process. When it becomes time to implement new CRA regulations, Marquis compliance experts will be ready. Marquis has a proven history of helping clients tell their CRA story.

“Our recent CRA Exam was truly a team effort, involving our Production Officers, CFO, Investment Officer, CRA Committee and some invaluable help from Marquis,” says Roger McLaren, Vice President, Inwood National Bank. “With CRA, like in life, you have to keep score, tell your story and pat yourself on the back. In the end, it comes down to solid record-keeping. Between our efforts, Marquis Software’s ability to sort and organize our data, and assistance from Marquis Compliance Professional Services, we were able to assemble the data we needed, analyze the results, and verify our success. It all culminated in an Outstanding CRA Exam rating.”

Contact us at [email protected] to see how Marquis is addressing this much-needed change to the CRA and how it affects your institution.

 

 

1 Urban Institute, Reducing the Racial Homeownership Gap https://www.urban.org/policy-centers/housing-finance-policy-center/projects/reducing-racial-homeownership-gap

2 Federal Reserve, Fact Sheet on the Community Reinvestment Act, Advanced Notice of Proposed Rulemaking, September 2020 https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200921a1.pdf

CRM is the Relationship Lighthouse

While the way we transact has evolved, relationships are still at the core of banking.

Over 2,000 years ago, the Romans built lighthouses in Egypt to warn ships of dangers and to keep ships safe, allowing sailors to navigate treacherous waters and carry out their mission. Today’s banking lighthouse is the CRM platform.

If there is one takeaway from 2020, it’s the need to recognize relationship warning signals and opportunities that require personalized service. That’s hard to do without the ability to understand the customer relationship, respond to customer needs and support their financial goals on an enterprise-wide level.

Customer relationship management (CRM) captures conversations, monitors transaction activity, and displays actionable data so any staff member can connect with customers using relevant and personal communications. CRM utilizes customer data to build more engaged relationships through an integrated journey.

Financial institutions that incorporate CRM into their service develop stickier relationships with their customers. Banks leveraging CRM will experience an increase in sales. But this isn’t about dollars; it’s about an increase in connection. Better service leads to a stronger relationship.

“One of the key benchmarks for all financial institutions should not simply be to gain a deeper relationship with its customer base, but to position themselves as the ’go to‘ solution provider for all of the customers’ financial needs,” says Bill LaVigne, COO at The Bank of Elk River in Elk River, MN. “To accomplish this, you must present yourself at the right moment in time with the right solutions and the right advice, building trust and confidence. An effective CRM system provides the platform to deliver those opportunities. The rest is on you to execute.”

Most CRM systems don’t account for the nuances of the financial services industry. Generic CRMs leverage information on age, ethnicity, and gender without fear of compliance landmines. The situation is quite different for banks.

With the input of industry experts, Marquis created CallTrax NEXT, a CRM that uses terms tailored to the financial industry. This unique CRM integrates service, sales, and marketing automation with organized, actionable data. Marquis also helps to assess bank sales and service processes to customize a system that enhances both.

Given the rocky waters of 2020 and the unknown of 2021, you need to consider how to safely sail through the upcoming year. Let a CRM platform be your lighthouse and assist your customers in navigating their financial ship.

 

RYAN HOUSEFIELD is Senior Vice President of Sales at Marquis.

What Works? An Analysis of Campaign Results and Best Practices – Part 1 Featuring Marquis’ CMO, Dr. Tony Rizzo

 

Video Transcription 

What Works? An Analysis of Campaign Results and Best Practices.

Part 1: The Theories Behind Marketing Automation

Dr. Tony Rizzo, CMO, Marquis

One of the questions I get asked frequently is, “What works?” So taking that question to heart, we executed a very extensive analysis of campaign performance throughout campaigns that we managed and produced over 2019. I’m going to share those results with you today.

For those of you that are homeschooling in and amongst the pandemic, bring the kids in the room, we’re going to give them a quick psychology lesson.

Direct marketing needs to accomplish two things. One, it has to capture attention and two, it can’t manipulate. There’s two theories at work. The first is called the Capacity Theory of Attention. And the Capacity Theory of Attention is simply this: We have a limited bandwidth in terms of our subconscious ability to process information. Only those things that are familiar to us tend to break through that filter so we can move from the subconscious to the conscious level of cognition. This is why we do things like personalization. We make things more familiar to that customer/member to open up that filter, so the offer can move to a higher level of process.

The next is called the Psychological Reactance Theory. And for anyone that’s ever had kids, or been a kid themselves, you’ve been told not to do something, “Don’t touch the stove!” and you touch the stove. Here’s why that happens. We are creatures of free will. And if someone tells us not to do something, our gut instinct is to do the exact opposite. From a marketing perspective, if someone senses that you are using data to manipulate them, they will affirm their autonomy in doing the exact opposite. We have to run a balance of creating things that are familiar to a consumer while not manipulating him or her as to create an environment where “I am open to processing your message.” Those two theories are the foundation of everything.

Our study was the sample size that you see here on the screen, a pretty extensive look in terms of the number of campaigns that we executed throughout 2019. Globally or strategically, we approach marketing with something called Predisposition of Response. What does that mean? It means the campaigns that you’re going to look at, if it’s a campaign, a one-time event, for example, there are over 20 different filters that went into putting the target audience together. Could have been geographic, psychographic, demographic, balances. Could be exclusions, delinquencies. Could be tenure. All of those things, all of these different attributes, went into building a campaign profile.

Why? To get that Predisposition of Response. Not everyone. I’m looking for the one.

Now, from a marketing automation standpoint, on average, 30 different filters were put in place to build or to get to that audience of one. The heavy lifting with a lot of this work, and work in your campaigns, is done on the front end. I’m trying to capture attention. I’m trying not to manipulate. One of the ways that I can do that is by filtering appropriately. All of the campaigns that you’re looking at have this Predisposition of Response and this maniacal focus on the target market, in order to get to that look-alike profile.

Now, if we do that, when we do that, it leads to an increased response rate. In particular, I’m going to speak to the power of marketing automation. Because one of the things that I’ve really questioned is, “Is marketing automation worth the effort?” It’s a lot of effort to do daily marketing, right? All the way from the front end of segmentation to the back end of production. A lot of work. Is the juice worth the squeeze?

We’re going to show you that it is.

What also leads to increased response rates across the segment of campaigns that we looked at, over 400 campaigns, was, again, maniacal focus on brand. If you put your marketing materials on a table and look at them from a direct marketing standpoint across the board, and they look boring to you, you’re doing the right thing. You are focusing on your brand. Why is that important? Remember, we talked about capturing attention and not manipulating? That Capacity Theory of Attention basically tells me I only have a limited brand bandwidth, right? So if your stuff doesn’t look consistent, psychologically, people are going to ignore it. Not that they want to ignore it, but they will ignore it. So brand consistency, across the board, played into higher response rates.

Now, from a data perspective, we have seen the number of data sources we use to put together our Predisposition of Response explode over the past several years. A lot more data sources are being added – transactional data. It could be from a credit card. It could be from ACH, we’ve seen a lot of that come into the system. A lot more demographics. A lot more psychographics. A lot more geographics. So all of that is coming to fruition as we look to do a better job of segmentation. So practically, what does that look like?

You’re looking at a profile of 100,000 Home Equity users. Primary indicators of Home Equity skewed around several different elements; invitation to apply ITA, income, net worth, loan-to-value, the year the home was built. These were primary indicators of propensity to own a home equity loan.

Secondarily, we have some propensity models. On a scale of one to 100, were you in the market for a home equity loan? On a scale of one to 20, were you in the market to refinance your home equity loan? Were you a mail order buyer? Did you have children? What was your tenure? It’s those things (remember, we talked about the other 20 or 30 different filters) that go into creating this funnel. Well, this is what it practically looks like. These are things that we think through in order to break through the barrier of offer resistance.

Across the board, globally, I’m going to share three numbers. The first is $5. For every dollar invested in our approach, this Predisposition of Response, we generated $5 in profit on the back end. I’ll take that bet any day. The second number is 5%. This is representative of the number of consumers that we mail to, on average. So not big numbers, right? These are small numbers. The last one is 13%. And this is our average combined response rate compared to an average DMA number of 9%. We do much better than the national benchmark. Again, working on this Predisposition of Response, using our data to focus on most likely buyers.

We categorized the results across a number of different categories. The first was categorically channel, right? We did direct mail only, email only, and then a mix of email and direct mail. We categorized across campaign type, be it preapproval, reboarding, onboarding, prospecting … we categorized it that way so we could look at the data.

Two big key findings that we found in the study: the first was that if we use direct mail and email together, your balances go up by 2x in almost every case. The second finding that we found, when we use time personalization, also known as marketing automation, your performance, overall balance performance, response performance, goes up by 4x.

So there is something to marketing automation, there is something to recognizing an event in the consumer’s life with you and doing something with it that creates a lift. It creates greater receptivity. It creates better response.

The Path Ahead Featuring Marquis’ CEO, Susan R. Faulkner

 

Video Transcription 

The Path Ahead

Susan R. Faulkner, CEO, Marquis

Are you ready for this next normal?

The unknown portion of this crisis may be beyond anything we’ve seen in our professional lives. But we need to do our best to find out what the issues are and then help navigate through them. The point isn’t to have a better answer. The point is to build the capability to learn quickly and pivot faster than your peers do. Resilience comes through speed. This may be a new capability that very few organizations have now and they will likely need to spend real time building.

There are still a lot of unknowns, but creating value and finding those pockets of growth are possible and absolutely essential. But it will also require an understanding your customers’ and members’ needs, behaviors and concerns and to quickly adapt to these consumers and market changes. This path ahead will require resilience. There will be continued ups and downs as lockdowns are relaxed and segments of the community continue to reopen; viral resurgences and unforeseen events will keep growth from being that straight line going up.

The reality is that most business leaders made choices over the past decades that traded resilience for a perceived increase in shareholder value. Now may be the moment to consider the error of chipping away at organization resilience in the name of greater efficiency may have reached its limits. Now, this isn’t to say that there aren’t efficiencies to be sought or found. But more the tradeoff between efficiencies and resiliency needs to be defined far more clearly than it has been in recent years.

Innovation may have never been so important. Now, it’s always been essential to have innovation to solve big problems. But the world is looking not just for new shiny things, but also for new ways of doing things, especially on the people side, where we need new behaviors, long term rather than short term capabilities and work ethics. More than ever, a bias to take action is essential, which will frequently mean getting comfortable with the uncomfortable. Apart from all the operational focus needed for the return to work, it is even more important that teams take a step back to reflect upon these core themes.

Are you ready to set yourself apart?

How would you grade yourself on the ability to adapt quickly and respond to changing industry needs, innovation and destabilization? This ability to adjust or shift makes an employee nimble, and that’s important because most industries, including ours, are in a state of flux. Next, are you ready to be proactive? Doing those things that you need to do before you need to do them? Having the ability to help control a situation by causing something to happen, rather than responding to it after it’s happened?

For example, reaching out to your customers and members before they’re reaching out to you in distress and being agile to move quickly and easily. An agile company or team has the ability to quickly adapt to market changes. While yesterday compliance with TRID was a primary focus, now privacy has to be the focus given the sheer amount of remote workers. Risk and concerns definitely pivoted overnight, and we had to be agile to meet most of those heightened new risks.

Next is resilience — it’s knowing how to cope in spite of setbacks, barriers or limited resources. A measure of how much you want something and how much you’re willing and able to overcome those obstacles to get it. It really has to do with the emotional strength of you, your team and your company. And finally, take action. You have to act in order to get a desired result.

What will set you apart? Ask yourself: are you positioned to lead and pivot to a more sustainable business model as we move to our next normal?

At Marquis, we have the solutions and implementation teams to help set yourself apart. But our solutions and products only tell part of that story. It is our team who work tirelessly every day to bring you the very best in data assembly, analysis and action. We believe that if we take care of our clients and take care of each other, the rest will take care of itself.