Fed chairman suggests CRA rule reform would be path to encourage service to rural, underserved areas

The financial needs of many rural and underserved communities may be overlooked, particularly as banks deploy online and other “non-branch delivery systems,” but revisions to rules implementing anti-redlining law may be a way to encourage financial institutions to “seek opportunities” in the areas, the chairman of the Federal Reserve said Tuesday.

In remarks to a policy forum sponsored by Hope Enterprise Corp. at Mississippi Valley State University in Itta Bena, Miss., Federal Reserve Board Chairman Jerome H. (“Jay”) Powell noted that bank branch closures in rural and underserved areas can have profound effects. He said the Fed has found that the loss of the branch often meant more than the loss of access to financial services; “it also meant the loss of financial advice, local civic leadership, and an institution that brought needed customers to nearby businesses.”

He told the group that a means to address bank branch closures is the anti-redlining Community Reinvestment Act (CRA). He called the law (and the rules implementing it) an important tool for strengthening local communities – but that the trend toward fewer branches and increased use of technology to deliver financial services “presents a particular challenge to our current approach to CRA evaluations” of banks.

“Specifically, the current regulations use a bank’s branches to define its assessment area, the area for which it is evaluated for CRA purposes,” he said.

“To the extent that banks serve much broader areas using online or other non-branch delivery systems, or have so many assessment areas that examiners cannot do a thorough evaluation in each, the financial needs of many rural communities may be overlooked. We believe that revisions to the CRA’s implementing regulations should more effectively encourage banks to seek opportunities in underserved areas,” Powell said.

During questions and answers with the audience, Powell underscored his comments about CRA. “As an institution, we are very committed to CRA and to the goals of CRA,” he said. “We do think that technology has changed. The world has changed a lot, and it’s a good time to step back and look at reforming CRA but in a way that enables us to better meet the goals of the statute, not worse,” he said. “We’re not looking to go in the wrong direction.”

He noted that the law has not been amended, and that the Fed is continuing a focus on place and availability of credit – “taking into account all of the changes that have come along” in financial services delivery.

“I can tell you we take our obligations under CRA very seriously,” Powell said. “And as part of this reform process, we’ll certainly be working to achieve better delivery under the law, rather than weaker.”

Powell speech text: Encouraging Economic Development in High-Poverty Rural Communities