If your financial institution is a HMDA reportable financial institution, then you are intimately familiar with geocoding and the headaches that the process causes when it comes to completing your HMDA LAR.  The property location data fields (state, county, MSA, census tract codes, etc.) account for many of the errors that your regulatory agency identifies when completing data integrity on your LAR.  Well, CFPB to the rescue (insert sigh)!
As we reported in a recent blog article, the CFPB has released a proposed update to Regulation C to clarify information you will be required to report and collect beginning January 1, 2018.  The proposal contains a number of clarifications, technical corrections, and minor changes to the HMDA regulation, including a new geocoding tool the CFPB will be releasing for collection of the census tract data field.
The proposed HMDA rule states:
The Bureau plans to make available on its web site a geocoding tool that financial institutions may use to identify the census tract in which a property is located. The proposal would establish that a financial institution would not violate Regulation C by reporting an incorrect census tract for a particular property if the financial institution obtained the incorrect census tract number from the Bureau’s geocoding tool, provided that the financial institution entered an accurate property address into the tool and the tool returned a census tract for the address entered.
Specifically, the Bureau believes this proposal would reduce the costs of financial institutions on the following tasks: completion of geocoding data, standard annual edit and internal check, internal audit, external audit, exam preparation and exam assistance on the issues related to geocoding. It would do so by providing a safe harbor that would further encourage financial institutions to use the geocoding tool that the Bureau is developing and hence reducing the burden on the institutions. The Bureau also believes the financial institutions that would most likely benefit more from this proposal are low-complexity institutions that generally lack the resources to adopt commercially available geocoding tools.
All sounds like good news…but what about those institutions that are required to collect and report data for CRA purposes.  § 1003.4(e) of Regulation C requires banks and savings associations that are required to report data on small business, small farm, and community development lending under regulations that implement the Community Reinvestment Act to report the census tract of properties located outside MSAs and MDs in which the institution has a home or branch office or outside of any MSA.
Will financial institutions that are subject to reporting requirements for CRA be able to utilize the new CFPB geocoding tool for collecting census tract data or have to utilize the current FFIEC geocoding tool that most use?  How inconvenient would it be for banks to have to utilize two different systems?  Will the systems even provide the same results?  How will the regulatory agencies interpret the use of two different systems?
While the CRA reporting requirements are mentioned in the new proposal for HMDA, it doesn’t specifically state that the new CFPB geocoding tool may be utilized for CRA reporting requirements.  The new HMDA proposal does include some clarification on many items in the Final Rule; however, this piece may have created a new unresolved issue with HMDA.  We hope to see some clarification on this when the final rule is released!