Reinvestment Alert 17: CRA Sunshine Rules and You: How Nonprofits Can Avoid Being Left in the Dark

"Sunshine" is the shorthand name for a new provision in federal law that requires nonprofits and others to disclose and report to federal regulators on certain agreements, contracts, or grants that they have with banks. This Alert outlines the basic things that nonprofits need to know in order to comply with the rules. It discusses what types of agreements are covered under "Sunshine;" what constitutes a "Community Reinvestment Act (CRA) Communication" for the purposes of "Sunshine;" and how to disclose and produce annual reports for "Sunshine" agreements. While "Sunshine" is, in the view of many community advocates and bankers, an unnecessary provision that arbitrarily imposes reporting requirements on private transactions, compliance should not be too burdensome. Organizations can generally comply with the law using financial documents that they already have on hand. Woodstock Institute is taking the stance that it is easier for groups that are not sure if "Sunshine" applies to them to assume it does rather than spend time trying to figure out whether or not they are covered. In 1999, Congress passed the Gramm-Leach-Bliley Financial Modernization Act (or "GLBA") and President Clinton signed it into law. GLBA broke down the barriers that have existed since the Depression between banks, insurance companies, securities firms, and mortgage companies. These firms can now legally merge, acquire one another, and own one another for the first time in almost 70 years. Community groups, nonprofits, and other advocates for low-income communities fought to expand the Community Reinvestment Act (CRA) to those companies that banks could mergewith/acquire under the new law. CRA encourages banks and savings and loans to serve all communities, including low and moderate-income areas, where they take deposits and in which they are chartered. However, these advocates were unsuccessful, and GLBA does not extend CRA to mortgage companies, insurance agencies and securities firms. As GLBA was being debated, certain legislators who do not support CRA argued that community groups and nonprofits were unfairly extracting money from banks using CRA pressure. "Sunshine" came out of this notion that nonprofits should be more accountable to communities about how they use their funds. Though many argued against "Sunshine," including nonprofits, financial institutions, legislators, and others, the provision passed and is now part of GLBA. It is important to note that the CRA has not been changed in any way by this provision. Also, those who opposed "Sunshine" were very successful in encouraging reasonable reporting requirements. However, there remains substantial confusion over the regulation. This document should help clarify "Sunshine" rules for nonprofits.