Proposed Rulemaking Issued on CRA Reform
This week, federal bank regulators jointly issued a proposal to strengthen and modernize regulations implementing the Community Reinvestment Act (CRA) to better achieve the purposes of the law. CRA is a landmark law enacted 45 years ago to encourage banks to help meet the credit needs of their local communities, including low- and moderate-income (LMI) neighborhoods, in a safe and sound manner. The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Fed) and Federal Deposit Insurance Corporation (FDIC) jointly issued the proposal, recognizing that CRA regulations must evolve to address the significant changes in the banking industry that have taken place since the last substantive interagency updates in 1995 and 2005. While banks and community groups agreed an overhaul was needed, the three bank regulators were previously unable to agree on how to overhaul the regulations. Under the previous administration, the OCC made its own proposal on how to rewrite the CRA. The proposal was not accepted by the Fed or FDIC and was rescinded in the early days of the Biden administration.
Building on the most recent feedback from stakeholders and research, the agencies included the following key provisions in their proposal:
- Expand access to credit, investment, and basic banking services in low- and moderate-income communities. Under the proposal, the agencies would evaluate bank performance across the varied activities they conduct and communities in which they operate so that CRA is a strong and effective tool to address inequities in access to credit. The proposal would promote community engagement and financial inclusion. It would also emphasize smaller value loans and investments that can have high impact and be more responsive to the needs of LMI communities.
- Adapt to changes in the banking industry, including internet and mobile banking. The proposal would update CRA assessment areas to include activities associated with online and mobile banking, branchless banking, and hybrid models.
- Provide greater clarity, consistency, and transparency. The proposal would adopt a metrics-based approach to CRA evaluations of retail lending and community development financing, which includes public benchmarks, for greater clarity and consistency. It also would clarify eligible CRA activities, such as affordable housing, that are focused on LMI, undeserved, and rural communities.
- Tailor CRA evaluations and data collection to bank size and type. The proposal recognizes differences in bank size and business models. It provides that smaller banks would continue to be evaluated under the existing CRA regulatory framework with the option to be evaluated under aspects of the new proposed framework.
- Maintain a unified approach. The proposal reflects a unified approach from the bank regulatory agencies and incorporates extensive feedback from stakeholders.
The new proposal will go into a public comment period and likely will be finalized later this year. Comments on the proposal will be accepted on or before August 5, 2022. The CRA proposal also comes on the heels of recent efforts by Treasury to strengthen the way underserved communities access capital. In March, Treasury debuted a program intending to help communities that have traditionally been underserved access more capital. The Emergency Capital Investment Program (ECIP) is investing $9 billion into Community Development Financial Institutions and minority depository institutions which are trying to help provide financial products for small and minority-owned businesses and customers in underserved communities.
To view the OCC summary of key objectives of the interagency CRA proposal, click here.
To view the Federal Reserve Community Reinvestment Act Proposal Fact Sheet, click here.
To view the Notice of Proposed Rulemaking, click here.