Agencies Issue Final Rule Amending CRA Regulations

The Federal Reserve Board, FDIC, and OCC issued a final rule amending their regulations implementing the Community Reinvestment Act (CRA).

The CRA is designed to ensure depository institutions are meeting the credit needs of the entire community they serve, including low- and moderate-income (LMI) neighborhoods, consistent with the safe and sound operations.  The final rule is intended to address the significant changes in the banking industry that have taken place since the last comprehensive interagency update to the regulations in 1995.  The new regulations’ key objectives include:

• Strengthening the CRA’s core purpose of addressing inequities in access to credit by: (i) evaluating bank engagement with LMI individuals and communities, small businesses, and small farms; (ii) enhancing financial inclusion by supporting Minority Depository Institutions and Community Development Financial Institutions, Native Land Areas, persistent poverty areas, and other high-need areas; and (iii) emphasizing smaller loans and investments that can have high impact and be more responsive to the needs of LMI communities.

• Adapting to changes in the banking industry, including the expanded role of mobile and online banking, by maintaining a focus on evaluating bank performance in areas where banks have deposit-taking facilities while also evaluating retail lending activities.

• Providing greater clarity and consistency in the application of the regulations by: (i) adopting new metrics and benchmarks to assess retail lending performance that translate into performance conclusions; (ii) encouraging community development activities that are responsive to the needs of LMI individuals and communities, small businesses, and small farms by clarifying what activities will receive CRA credit (such as affordable housing); (iii) providing for a public listing and approval process to confirm an activity’s eligibility for CRA credit; and (iv) evaluating community development activities in light of their impact.

• Tailoring performance standards to account for differences in bank size, business models, and local conditions by: (i) updating asset size thresholds for small, intermediate, and large banks; (ii) utilizing community and market benchmarks that reflect differences in local conditions; and (iii) continuing to provide a tailored performance evaluation framework with different performance tests based on bank size and business model.

• Tailoring data collection and reporting requirements by: (i) using existing data whenever possible; (ii) exempting small and intermediate banks from new data collection requirements that apply to banks with assets of at least $2 billion; and (iii) limiting certain data collection and reporting requirements to only large banks with assets greater than $10 billion.

• Promoting transparency and public engagement by: (i) providing greater transparency for existing data available under the Home Mortgage Disclosure Act  for large banks, by assessment area; (ii) codifying the practice of forwarding to the bank all public comments received by the agencies regarding a bank’s CRA performance; (iii) encouraging the public to submit comments on community needs and opportunities; and (iv) committing that the agencies will develop data tools that use reported loan data to calculate metrics and benchmarks in different geographic areas in recent years, allowing banks and the public to have additional insight into the performance standards.

• Confirming that CRA and fair lending responsibilities are mutually reinforcing by: (i) continuing to prohibit banks from delineating assessment areas that reflect illegal discrimination or arbitrarily exclude LMI or majority-minority census tracts; and (ii) affirming and clarifying that CRA ratings can be downgraded as a result of discriminatory and other illegal credit practices.

• Promoting a consistent regulatory approach that applies to banks regulated by all three agencies by providing a unified approach that is responsive to feedback from stakeholders on the need for consistent regulations.

The effective date for the new rule is April 1, 2024.