Last week, the three federal banking agencies—the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation—released an interagency proposal (PDF) that would revise banking regulations related to the Community Reinvestment Act (CRA). The CRA was passed in 1977 and the last major revisions to CRA regulations occurred almost 20 years ago.
The goals of this joint proposal are to both strengthen and modernize implementation of the CRA. It’s based on previous agency proposals, research conducted by the agencies and extensive feedback from various stakeholders. The agencies have opened a public comment period that will end on Aug. 5, 2022. The joint proposal’s major stated objectives are to:
- Expand access to credit, investment and basic banking services in low- and moderate-income communities. Bank performance would be evaluated across a range of activities and communities. The proposal promotes community engagement and financial inclusion, enhances data disclosures and emphasizes small-dollar loans and investments that can have high impact.
- Adapt to changes in the banking industry, including internet and mobile banking. Update CRA assessment areas to reflect activities associated with online and mobile banking, branchless banking and hybrid models (for example, a bank with a physical footprint and online lending). The proposal updates assessment areas while maintaining a focus on branch-based assessment areas and proposes a tailored assessment area approach.
- Provide greater clarity, consistency and transparency. The proposal introduces a metrics-based approach to CRA evaluations of retail lending and community development financing, including public benchmarks. It clarifies eligible activities focused on low- and moderate-income, underserved and rural communities.
- Tailor CRA evaluations and data collection to bank size and type and local conditions. Smaller banks would continue to be evaluated under the existing CRA framework with an option to be evaluated under aspects of the new proposed framework. The proposal breaks banks into small (less than $600 million in assets), intermediate ($600 million to $2 billion in assets) and large (more than $2 billion in assets) banks.
- Maintain a unified approach (among regulators). All banks subject to CRA will abide by the same regulations, regardless of federal regulator.
The CRA was enacted 45 years ago to encourage banks to meet the credit needs of the communities they serve, including low- and moderate-income communities, in a safe and sound manner. While the goals of the CRA have not changed, the banking industry has changed significantly since 2005, when the last major revisions were made to CRA regulations. This proposal recognizes that CRA regulations need to evolve in order to address these industry changes.
Changes to regulations, especially regulations as significant as those related to CRA, are best made after robust public comment and engagement. I encourage all stakeholders to take advantage of the public comment period to ensure that the final rule that is ultimately crafted benefits from a diverse set of views and input.