American banks have been given a chance to help Puerto Rico and earn the equivalent of brownie points for it — but few banks have taken the opportunity.
Last year, to encourage banks to invest in Puerto Rico and help inject much-needed cash flow into the island, federal banking officials expanded the Community Reinvestment Act (CRA) — which encourages financial institutions to lend money to people who live or work in low- or moderate-income communities — to include hurricane-stricken areas like Puerto Rico.
This means that any financial institution in any state can invest in the development of hurricane-affected Puerto Rican communities or individuals and be eligible to receive CRA credit for such investments.
Banks benefit from having a good CRA record. It improves financial institutions’ chances when they apply for bank mergers or branch openings, among other perks.
“Banks are only required to do these investments in their areas, but Puerto Rico is different because banks from all over can do investment in Puerto Rico,” Nancy Santiago Negrón, vice president of strategic partnerships and communications at Hispanics in Philanthropy, told NBC News. “One of the roadblocks right now is that banks don’t know about this eligibility for CRA credit in Puerto Rico."
Starting Thursday, the Federal Reserve Bank of New York will start conducting a series of educational workshops in the island to educate financial institutions as well as local organizations that could be potential recipients of these funds.
“How do we start to invest in our own communities? CRA is one of the tools we should be using to start doing that,” said Santiago Negrón, who is also a former senior staffer within the Obama administration. “It can help us get capital to our communities faster … and where people are making investments, other types of money also follow.”
CRA accreditation opportunities could be particularly helpful to banks that have been ranked as low-performing by the Office of the Comptroller of the Currency and other federal regulators or have been caught up in public controversies.
And yet, not many banks have been taking advantage of the approximately 36-month window to do CRA-eligible investments in Puerto Rico after Hurricane Maria.
At least three banks that are not based in Puerto Rico — Deutsche Bank, Wells Fargo and Citibank — have made investments after September 2017 to help communities and people affected by Maria and could be eligible for CRA accreditation.
As part of Wells Fargo's Works for Small Business: Diverse Community Capital program, the bank recently provided a $1.5 million grant to PathStone, an upstate New York-based organization with offices in Puerto Rico that has used the funds to administer grants to small-business owners who were impacted by Maria.
The investment comes after the Office of the Comptroller of the Currency downgraded the bank’s final CRA rating to “needs to improve” back in 2017 after the bank settled accusations that it had discriminated against qualified African American and Hispanic borrowers in its mortgage lending.
Citibank, which has been sued for abusive lending practices in the past, launched a community development initiative last year alongside four Puerto Rican housing organizations and PathStone to provide housing assistance in Puerto Rican communities and help more than 85 small-business owners whose "businesses were badly damaged and whose incomes have been severely disrupted” after Maria.
Deutsche Bank, which has been involved in issues around tax evasion and the sale of toxic mortgage securities in the past, has reportedly committed millions of dollars to helping hurricane-ravaged communities in Puerto Rico. The bank also gave a $100,000 grant to the Greater New York YMCA to help Puerto Ricans relocating to New York City in the immediate aftermath of Maria.
Both Citibank and Deutsche Bank, alongside Puerto Rican banks Banco Popular and Oriental Bank, are set to participate in next week’s New York Fed workshops in Puerto Rico to train local organizations on how to leverage the CRA and partner with banks to seek funding for community development projects that “help to revitalize or stabilize the impact from the hurricane.”
“It’s a relationship that could go both ways," said Chelsea Cruz, associate director of the Community Development Finance (CoDeFi) at the New York Fed. "Organizations can propose projects to a bank that is required to comply with the CRA investments. Banks also seek out organizations to partner with CRA-eligible activities.”
The CoDeFi initiative seeks to increase the effectiveness of community development investments by using CRA compliance as a tool to encourage capital providers to fund projects that help rebuild Puerto Rico.
“While banks might be interested in helping the island, many don’t have relationships in the community,” said Cruz. “So, the New York Fed program is working on elevating the stories of different organizations that could be lead to CRA-eligible investments and partnerships.”
While banks normally have around 36 months after the official declaration of a disaster to make CRA investments in Puerto Rico, it's possible for the time frame to be extended if more banks continue to invest in ways that satisfy communities' needs, said Adrián Franco, New York Fed officer and director of the CoDeFi initiative.
Santiago Negrón said banks seeking to invest should not wait for a possible extension since President Donald Trump has voiced his opposition to giving aid to Puerto Rico on multiple occasions.
“We’re running out of time," she added. "We don’t know if this administration would be open to renewing it."