Federal Banking Agencies Issue Proposed Rule on CRA

The Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) jointly issued a proposed rule that modernizes the regulations implementing the Community Reinvestment Act (CRA).  The CRA requires federal bank regulators to encourage financial institutions to meet the credit needs of the areas in which the financial institutions operate.  The CRA includes the credit needs of low- and moderate-income neighborhoods, consistent with safe and sound practices.  The banking agencies state that the proposed rule should provide banks and the public with an updated CRA framework that better addresses the credit needs of low- and moderate-income communities.  Commentators must submit a comment by August 5, 2022.

The banking agencies charged with issuing regulations under the CRA created a regulatory framework that regulates covered banks according to their size.  Under that framework, regulators evaluate banks on whether they are meeting the credit needs of the bank’s community.  The proposed rule seeks to adjust the evaluation models to promote community engagement and financial inclusion.  The adjusted evaluation models recognize the difference between small and large banks and allow small banks to remain under a CRA evaluation model or go through a new model proposed in the rule.  Additionally, the updated evaluation models seek to emphasize smaller-value loans and investments that may have a larger impact on low- and moderate-income communities.

Further, the proposed rule aims to adopt a metrics-based approach to CRA evaluations of retail lending and community development financing, which includes public benchmarks to provide the public with greater clarity, consistency, and transparency.  In furtherance of the banking agencies’ goal to provide the public with greater clarity, the proposed rule clarifies CRA activities focused on low- and moderate-income communities, like affordable housing.  These CRA activities are given new definitions and evaluated differently under the proposed rule’s CRA evaluation model.

Finally, the proposed rule also changes the CRA evaluation to include an evaluation of a bank’s mobile and online banking, branchless banking, and hybrid banking models.  Here, the banking regulators hope to modernize the CRA to ensure that banks are staying current with modern banking practices.