CRA Service Test: The Last Piece of the Puzzle
In a series of articles this year, we’ve covered bank transitions in the CRA performance evaluation process and outlined key elements of lending and investment test performance for each category of bank—small, intermediate small (ISB) and large. To wrap up, we’re back with the final piece of the CRA evaluation puzzle, the Service Test.
As outlined in our previous articles, there are differences between ISB and large bank CRA procedures, particularly in how community development (CD) activities are evaluated. For ISBs, all CD activities—including loans, investments and services— are evaluated under a single comprehensive community development test. This structure allows flexibility—a bank can compensate for fewer activities in one category by increasing efforts in another. In contrast, large bank CRA evaluations separate these activities across three distinct tests: CD loans are evaluated under the lending test, which carries 50 percent of the CRA rating; and the investment and service tests account for 25 percent each.
Similar to the evaluation of CD investments, under both ISB and large bank procedures, banks must ensure that their CD service activities:
- Meet the definition of community development, and
- Are well-documented and tracked with supporting data and files (as discussed in our first article in the series).
Additionally, for large banks the service test evaluates the effectiveness of a bank’s systems for delivering retail banking services while also considering the innovativeness and responsiveness of community development service activities. In evaluating a bank’s performance, four elements are reviewed:
- Accessibility of Delivery Systems
- Changes in Branch Locations
- Reasonableness of Business Hours and Services in Meeting Assessment Area Needs
- Community Development Services
Examiners evaluate accessibility of delivery systems by reviewing the distribution of bank branches among each geographic income classification (low-, moderate-, middle- and upper-) within each assessment area. Assessment of changes to a bank’s branch locations considers its record of opening and closing branches, particularly locations in low- or moderate-income geographies or locations that primarily serve low- or moderate-income individuals (LMI). Changes in locations that result in greater access to branch locations by LMI individuals will generally receive more favorable consideration than changes that result in less access to bank branches by LMI individuals.
Reasonableness of business hours and services in meeting assessment area needs is reviewed by considering the reasonableness of business hours of each branch location as well as the availability and effectiveness of alternate systems for delivering retail banking services (e.g., ATMs, banking by telephone or computer, or loan production offices). Banks should ensure that any variation in business hours does not disproportionately inconvenience LMI geographies and individuals. Conversely, any variation that is tailored to ensure greater access to bank services by LMI geographies and individuals will generally receive favorable consideration.
The final element is evaluated by reviewing a bank’s community development services during the evaluation period. Community development services include activities that have a primary purpose of affordable housing (including multi-family rental housing) for low- or moderate-income individuals; community services targeted to low- or moderate-income individuals; activities that promote economic development by financing businesses or farms; or activities that revitalize or stabilize low- or moderate-income geographies or designated disaster areas or designated distressed or underserved nonmetropolitan middle-income geographies.
Examples of qualified services include, but are not limited to, using financial expertise to serve as a board member for organizations whose primary purpose is affordable housing or small business development; providing financial education to homebuyers to promote affordable housing; and providing credit counseling to assist LMI borrowers in avoiding foreclosure.
In preparation for CRA evaluations, banks should conduct periodic reviews of their public files to ensure that assessment area delineations and branch locations are current, and to understand the impact of any changes to their product offerings or branch locations during the evaluation period—paying close attention to their impact on LMI geographies and individuals. Banks also should develop a process to encourage their employees to submit any community development service activities they’re involved in. The process should include appropriate review and documentation of submitted activities, which will help make the evaluation process by regulators more efficient.
If you have any questions about the differences between the ISB and large bank evaluation procedures or community development activities, please reach out to your Federal Reserve Bank of Richmond consumer compliance point of contact or supervisionoutreach@rich.frb.org.
Note: In this series, we emphasized the CRA framework prior to the one introduced in October 2023, since the new framework was under review. Subsequently, on July 16, 2025 the agencies issued a proposal to rescind the 2023 CRA Final Rule and replace it with the earlier 1995 CRA regulation. Our approach to examinations remains consistent with the framework in place since 1995.
Related articles:
CRA Program Growth Spurts: Navigating the Transition
CRA: Making the Leap from ISB to Large Bank
CRA Investment Test: Large Bank Edition
