A new proposed rule to update banks’ requirements under the anti-redlining Community Reinvestment Act (CRA) was issued jointly Thursday by the three federal banking regulatory agencies.
Issuance of the proposed rule, out for a 90-day public comment period ending Aug. 5, was approved unanimously by the Federal Deposit Insurance Corp. (FDIC) Board Thursday and the Federal Reserve Board on Wednesday. The Office of the Comptroller of the Currency (OCC) issued its first statement on the proposed rule Thursday.
The agencies said their joint proposal is intended to:
- Expand access to credit, investment, and basic banking services in low- and moderate-income communities. Under the proposal, the agencies would evaluate bank performance across the varied activities they conduct and communities in which they operate so that CRA is a strong and effective tool to address inequities in access to credit. The proposal would promote community engagement and financial inclusion. It would also emphasize smaller-value loans and investments that can have high impact and be more responsive to the needs of LMI communities.
- Adapt to changes in the banking industry, including internet and mobile banking.The proposal would update CRA assessment areas to include activities associated with online and mobile banking, branchless banking, and hybrid models.
- Provide greater clarity, consistency, and transparency.The proposal would adopt a metrics-based approach to CRA evaluations of retail lending and community development financing, which includes public benchmarks, for greater clarity and consistency. It also would clarify eligible CRA activities, such as affordable housing, that are focused on LMI, underserved, and rural communities.
- Tailor CRA evaluations and data collection to bank size and type.The proposal recognizes differences in bank size and business models. It provides that smaller banks would continue to be evaluated under the existing CRA regulatory framework with the option to be evaluated under aspects of the new proposed framework.
- Maintain a unified approach.The proposal reflects a unified approach from the bank regulatory agencies and incorporates extensive feedback from stakeholders.
Each of the agencies issued identical releases Thursday and published their own collections of documents (board member statements, bulletins, etc.) related to their joint notice of proposed rulemaking (NPR). The Consumer Financial Protection Bureau (CFPB) does not administer the CRA rules, but its director, Rohit Chopra, is on the FDIC Board (as is Michael Hsu, the acting comptroller) and voted in favor of issuing the proposed rule.
The FDIC, in its FIL-18-2022, presented the rule’s elements in the following highlights:
- Higher thresholds. The NPR would set new thresholds for small and intermediate banks. Under the proposal, Small Banks are defined as those with assets of up to $600 million and Intermediate Banks are those with asset of at least $600 million but less than $2 billion. Large Banks are those with assets of at least $2 billion.
- No New Data Collection or Reporting. Small Banks and Intermediate Banks would have no new data collection and reporting requirements and existing data would be used whenever possible.
- Update CRA to address changes in banking industry. The NPR would modernize the approach to the delineation of AAs [assessment areas] and would apply performance standards and metrics for retail and CD activities tailored to bank size and business model.
- Establish four tests for Large Banks. Four tests below would apply to Large Banks, including those evaluated under a strategic plan, although certain provisions of the Retail Services and Products Test and Community Development Services Test would apply only to Large Banks that had average quarterly assets, computed annually, of over $10 billion in both of the prior two calendar years:
- Retail Lending Test. A retail lending screen would be used to measure a bank’s retail lending relative to its capacity to lend in a particular facility-based assessment areas. Geographic and borrower distribution metrics would be used to assess the bank’s lending performance with respect to LMI individuals and LMI areas, and small businesses and small farms.
- Retail Services and Products Test. This test would measure the delivery systems and deposit and other products of a bank through the use of certain metrics and performance context.
- Community Development (CD) Financing Test. This test would use a CD metric paired with an impact review to evaluate the quantitative and qualitative aspects of a bank’s CD financing activity.
- Community Development Services Test. This test would use some metrics, for example hours for each CD activity, but would remain mostly qualitative to measure responsiveness to community needs.
- CD [Community Development] Activities: Eligibility of qualifying activities would be expanded in certain areas, including for mission–based entities and Native Land Areas. A non-exhaustive list of, and confirmation process for, qualifying activities would provide increased certainty and clarity on what qualifies for CRA credit.
- Data Collection, Maintenance, and Reporting for Large Banks: Large Banks over $10 billion would be required to collect, maintain, and report data for their retail deposits, retail lending, retail services, CD loans and investments, CD services, and assessment areas. Large Banks with assets between $2 billion and $10 billion would be subject to some data collection and reporting requirements. Small Banks and Intermediate Banks would collect data in the normal course of business as they do currently.
- Performance Conclusions and Ratings: Under the proposed rule, the agencies would assign a bank, except a small bank, conclusion scores, including a single score at the institution level to arrive at the bank’s overall statutory rating assigned by the agencies.
The unified approach touted by the agencies Thursday is a sharp departure from the situation created with the 2020 adoption of a final set of CRA revisions by the Office of the Comptroller of the Currency (OCC), then led by Joseph P. Otting. Otting issued that final rule without the participation of either the Fed or the FDIC, even though the FDIC (then headed by Jelena McWilliams) participated in the proposed rulemaking. The Fed declined to attach to either the proposed or final rule.
Hsu, upon taking the helm as acting comptroller, proceeded toward a rescission of the 2020 rule, effective this January. Current rules under the federal anti-redlining law have reverted generally to a version all three banking agencies adopted in 1995.
The CRA, enacted in 1977, encourages banks to address the credit needs of their local communities, including low- and moderate-income (LMI) neighborhoods, in a safe and sound manner.