Digital Lending and the Community Reinvestment Act

Since the 1970’s the Community Reinvestment Act has been encouraging lenders to fulfill the credit needs of low- and moderate-income individuals. But what does this mean for small- and medium-sized banks in the modern digital age? Read on to find out.

Since the creation of the Community Reinvestment Act (CRA) 40 years ago, and the subsequent publication of their performance ratings, banks are constantly seeking ways to consistently – and profitably – lend to low- and moderate-income (LMI) borrowers in their communities. But in recent years, this has become increasingly difficult with FinTechs and large banks embracing and leveraging technology to address LMI and other markets.

Let’s explore what it means for banks working to serve their communities and this segment in the modern digital age.

Assisting communities during uncertain times

The CRA establishes a system where banks can benefit from serving more individuals in their community – even if they are deemed to be of higher risk. This incentive is especially important during times of uncertainty when LMI neighborhoods are financially impacted the hardest.

Consider the current economic climate; the Census Bureau recently released findings that the COVID-19 is financially impacting low-income and young families the most. Considering the millions of individuals who lost their jobs and businesses facing financial hardships, there will likely be more people needing loans from their local banks.

However, the CRA helps banks serve their communities because it incentivizes them to lend to LMI individuals and helps borrowers find a reliable financial institution through its rating system.

Even four decades after it was passed, the CRA helps both banks and LMI borrowers receive the loans and terms they need, subsequently helping their local communities find their financial footing during difficult times.

Technology can help Small and Medium-Sized Banks reach their LMI audience with a superior lending experience

Although small and mid-sized banks pride themselves on being pillars in their communities for addressing financial needs, in recent years it has become more and more difficult to profitably retain and cross-sell bank customers, as well as serve their diverse communities who are turning their attention toward digital channels to inform themselves and apply for financial products.  As a result, many banks have seen a dramatic reduction in lending and customer relationship depth, as well as negative impacts on their Community Reinvestment Act (CRA) ratings.

GDS Link recognized this need and leveraged our best-of-breed analytics and technology used by today’s top lenders to provide comprehensive digital marketing, engagement, and loan origination solution that banks can easily deploy as a part of their lending and digital marketing strategy.

GDS Link’s platform acts as a powerful pre-screen engine so financial institutions can make meaningful, personalized, and the firm offers to their customers directly or with our direct marketing services.  GDS Link is also able to detect bank customers or targeted prospects on third party lead aggregation websites and present a firm offer of the bank’s products to drive consumers back to the bank.  And we are able to provide this, along with a seamless customer experience from start to finish, integrating our leading monitored performance models, third-party data integrations, automated processes, and bank oversight.

With GDS Link, small and mid-size banks can deploy a comprehensive digital lending strategy they need to remain focal points in their communities (vs just fintechs and large banks) in a way that is accessible and affordable by the bank.

Now, more than ever, LMI communities need to be presented with favorable loan options to overcome economic hardships. With GDS Link’s Modellica Engage, small and midsize banks can reach them and provide the financial assistance they need while improving their community involvement and CRA rating.

Begin serving your local community’s financial needs today with Modellica Engage.

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Sources:

https://www.federalreserve.gov/boarddocs/supmanual/cch/fair_lend_fhact.pdf

https://www.fdic.gov/regulations/community/performance/index.html

https://www.census.gov/library/stories/2020/06/low-income-and-younger-adults-hardest-hit-by-loss-of-income-during-covid-19.html

https://fas.org/sgp/crs/misc/R43661.pdf

https://www.gdslink.com/modellica-engage-preview/

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