Fed to unveil CRA proposal for 120-day comment period; Brainard says effort meant to ‘advance core purpose’ of statute

A proposed revision of anti-redlining rules is scheduled to be unveiled for public comment Monday in the Federal Register, with a 120-day comment period assigned, ending on Feb. 16, 2021.

In publishing the 173-page advance notice of proposed rulemaking (ANPR) regarding “modernizing” rules implementing the Community Reinvestment Act (CRA), the Federal Reserve said it is seeking comment on “all aspects of the ANPR from all interested parties.”

The notice also states that the Fed is “mindful of the economic impact of the COVID-19 pandemic, particularly on low- and moderate-income (LMI) communities and households, and seeks feedback on how it should consider these impacts in CRA modernization.”

The notice states that changes under consideration by the Fed to its Rule BB (which implements CRA) include:

  • More effectively meeting the needs of LMI communities and address inequities in credit access, in furtherance of the CRA statute and its core purpose.
  • Increasing the clarity, consistency, and transparency of supervisory expectations and of standards regarding where activities are assessed, which activities are eligible for CRA purposes, and how eligible activities are evaluated and assessed, while seeking to minimize the associated data burden and to tailor collection and reporting requirements.
  • Tailoring CRA supervision of financial institutions (banks) to reflect differences in bank sizes and business models; differences in local markets, needs, and opportunities, including with respect to small banks serving rural markets; and expectations across business cycles.
  • Updating standards in light of changes to banking over time, particularly the increased use of mobile and internet delivery channels.
  • Promoting community engagement.
  • Strengthening the special treatment of minority depository institutions (MDIs).
  • Recognizing that CRA and fair lending responsibilities are mutually reinforcing.

“In this ANPR, the Board requests feedback on different approaches to modernizing the regulatory and supervisory framework for the Community Reinvestment Act (CRA) in order to more effectively meet the needs of low- and moderate-income (LMI) communities and address inequities in credit access,” the Fed wrote in its Federal Register filings Friday. “This includes seeking feedback from stakeholders regarding, among other things, accounting for changes in the banking system, applying metrics to certain CRA evaluation standards, and providing greater clarity regarding CRA-eligible activities.”

In remarks Thursday before the National Bankers Association (delivered remotely), Federal Reserve Board Gov. Lael Brainard – who has spearheaded the agency’s efforts in reforming the rules – said a foundational goal for the ANPR is to advance the core purpose of the CRA statute.

“Right at the outset, the ANPR asks for open-ended feedback on a foundational question: how should CRA’s regulatory implementation be modified or changed to address systemic inequity in credit access to minority individuals and communities,” she asked.

She said advancing the CRA’s core purpose includes strengthening the regulations to ensure that a wide range of low-income and minority banking needs are being met. “As part of this objective, CRA modernization provides a unique opportunity to carefully examine the MDI provisions in the CRA statute to ensure proposed changes to the regulation maximize the benefit and impact for MDI banks and the customers and communities they serve,” she told the group, which describes itself as largely representing minority- owned financial institutions and women-owned institutions.

“In the ANPR, we placed a priority on strengthening the special consideration for MDIs, women-owned financial institutions, and low-income credit unions in the current regulation, as well as adding new proposals based on your feedback,” Brainard said.

Brainard also told the group that the proposal contains four new provisions specifically aimed at MDIs:

  • Give banks credit for activities with MDIs, women-owned financial institutions, and low-income credit unions located outside their assessment areas at either the state or institution level, which would ensure that there is a clear “place” for such activities to be counted.
  • Explicitly designate activities in MDIs, women-owned financial institutions, and low-income credit unions as a potential pathway to achieving an “outstanding” CRA rating, in order to elevate the profile of and create more incentives for activities with these mission-oriented institutions.
  • Provide credit for MDIs and women-owned financial institutions investing in other MDIs, women-owned financial institutions, and low-income credit unions.
  • Offer credit for MDIs and women-owned financial institutions investing in limited activities to improve their own banks, with eligibility possibly limited to activities that demonstrate meaningful investment in the business, such as staff training, hiring new staff, opening new branches in minority neighborhoods, or expanding products and services.

“We see CRA modernization as a significant opportunity to strengthen further the ability of MDIs to serve their communities, and we hope that you will provide us with feedback on how to modernize the CRA regulations in a way that supports MDIs and the communities you serve,” Brainard said.

Federal Reserve ANPR: Community Reinvestment Act

Fed Gov. Lael Brainard: Modernizing and Strengthening CRA Regulations: A Conversation with Minority Depository Institutions