Proposal offers banks new flexibility in complying with anti-redlining rules under CRA

A proposed rule that would give banks new flexibility when working to comply with anti-redlining laws was approved for comment by the board of the federal insurer of bank deposits Thursday.

On a split vote (with Board Member Martin Gruenberg objecting), the board agreed to release the proposed overhaul of rules implementing the 1977 Community Reinvestment Act (CRA), imposed on banks that year for a track record of taking deposits from – by not making loans to – largely low- to moderate-income communities (LMIs).

The Office of the Comptroller of the Currency (OCC) issued its own proposal, similar to the FDIC’s, for national banks, also on Thursday.

The proposal issued by the FDIC would create more descriptive and expansive criteria for the types of activities that qualify for CRA credit, the FDIC said. First, the proposal would provide “defined criteria” that identify the types of activities that meet the credit needs of banks’ communities and, thus, can be considered qualifying activities. “These criteria would both encompass the many activities that currently qualify for CRA consideration and include additional activities that meet the credit needs of banks’ communities, such as expanding credit to areas considered distressed or underserved and ‘Indian country,’” the agency said.

According to the FDIC, the proposed criteria would include retail loans provided to an LMI individual, a small business, or a small farm, loans in Indian country regardless of the income of the consumer, and small loans to a business or farm located in an LMI census tract. The proposal would also list community development activities that provide funding or services to an expansive range of projects and entities. “Examples include adding Community Development Financial Institutions to the CRA credited ventures currently undertaken with minority- and women-owned depository institutions and low-income credit unions, as long as the activity helps the credit needs of the communities where those institutions are chartered,” the agency said.

Second, the proposal would require both the FDIC and the OCC to publish periodically a list of non-exhaustive, illustrative examples of qualifying activities; and establish a process for stakeholders to seek agency determination if an activity is a qualifying activity.

On assessment areas, the FDIC said the proposal would retain the current regulation’s delineation of assessment areas and would add a new requirement that additional assessment areas be delineated where a bank collects a substantial portion of its deposits. “This new requirement could potentially expand the number of assessment areas a bank may be required to delineate,” the agency said.

The proposal would also establish new performance standards to evaluate banks that are not small banks, the FDIC said.  Small banks, as defined in the proposal, would have assets of $500 million or less in each of the previous four calendar quarters (to be increased for inflation annually). Small banks could select to either be evaluated under the current small bank performance standards; or opt in to the NPR’s new performance standards.

The proposal was issued for a 60-day comment period.

FDIC CRA rule revisions proposal