A set of “top 10” provisions from banking regulators’ proposal to modernize Community Reinvestment Act rules for banks was highlighted Monday by the top federal bank deposit insurance official before a community reinvestment group’s meeting held in Washington.
In his top 10, Martin Gruenberg, acting chairman of the Federal Deposit Insurance Corp. (FDIC), underscored proposed rule provisions addressing retail as well as consumer lending; activities of banks with branches and those without; provisions aimed at increasing clarity, consistency, and transparency in the CRA evaluation and compliance process; provisions focusing on minority depository institutions (MDIs) and community development financial institutions (CDFIs); and more.
Gruenberg’s description the “top 10” provisions is repeated (in brief) below:
Expanding the Scope of CRA – New Retail Lending Assessment Areas: The NPR would establish new retail lending assessment areas to allow for CRA evaluation in communities where a bank may be engaging in significant lending activity but where the bank does not have a branch (if it indeed has any branch at all). The retail lending test under the NPR would require an evaluation of mortgage and small business lending, and for banks with more than $10 billion in assets, auto lending as well, the first time CRA would be expanded to include consumer lending.
In addition to the branch-based assessment areas and the new retail lending assessment areas, a bank would also be subject to a statewide test to capture areas not included in the other two, as well as a multistate MSA review and an institution-wide review. The objective is to subject all the bank’s lending activity to a CRA evaluation.
Raising the Bar for Retail Lending Performance: The NPR would raise the bar for CRA performance on the retail lending test for a bank to earn an outstanding or high satisfactory rating. It incorporates detailed metrics on bank lending activity and establishes standards for bank performance to achieve a particular CRA rating that would be higher than past experience. The aim is to provide an incentive for increased bank lending to underserved communities.
Greater Clarity, Consistency, and Transparency for CRA Evaluations: The proposal would provide for a metrics-based approach to CRA evaluations for retail lending and community development financing, which would also include public benchmarks for greater transparency, certainty, consistency, and accountability. It would more clearly define community development activities by establishing 11 proposed categories of community development and would, among other things, provide for publication of an illustrative and non-exhaustive list of qualifying activities and through a pre-approval process.
Tailoring CRA Requirements to Bank Size, Complexity, and Business Type: The proposed rule tailors the CRA tests and data collection to each bank category – small, intermediate, and large. Small banks would continue to be evaluated under the existing regulatory framework but would have the option to be evaluated under aspects of the new proposed evaluation framework. There would be no new data collection for small or intermediate banks. Additional evaluation elements and data requirements relating to deposits, community development, and auto lending would apply for banks over $10 billion.
Enhanced Transparency for Lending to Communities of Color through Use of Publicly Available HMDA Data: Large banks would be required to disclose the distribution of home mortgage loan originations and applications in each of the bank’s assessment areas by race and ethnicity utilizing publicly available data under the Home Mortgage Disclosure Act (HMDA). The data would not have an independent impact on the CRA ratings of the bank but would allow the public to compare lending by the bank in communities of color to other communities, as well as allow comparisons to other institutions.
The proposed rule would retain the current prohibition on banks drawing assessment areas that reflect illegal discrimination or arbitrarily exclude low- and moderate-income census tracts. Large banks would be required to include whole counties in establishing their assessment areas, the aim being to ensure that low-income or minority areas are not excluded.
Expanding Consideration of Scope of Illegal and Discriminatory Conduct to Include Deposit or Other Bank Activities: Currently illegal or discriminatory credit practices are a potential basis for downgrading a bank’s CRA rating. The proposal would expand this so that all discriminatory practices, even if not tied to the provision of credit, could be a basis for possible downgrade. That could include practices related to deposit products or other products and services. For example, discrimination in opening deposit accounts would be covered by the proposal.
Provisions Related to MDIs and CDFIs: The NPR recognizes the importance of MDIs, Treasury Department-certified CDFIs, women’s depository institutions (WDIs), and low-income credit unions (LICUs) in providing financial access to underserved consumers and communities. It creates a specific community development definition for eligible activities, such as investments, loan participations, and other ventures conducted by all banks with these institutions, including such activities undertaken by an MDI or WDI in cooperation with a different MDI, WDI, or LICU. Under the Retail Services and Products Test, the proposal provides that retail lending-focused partnerships with MDIs, CDFIs, WDIs, and LICUs, should be considered when assessing the responsiveness of a bank’s credit products in meeting the needs of low- and moderate-income communities under CRA.
Addressing Credit or Banking Deserts, Including Rural Areas, Native Lands, and Areas of Persistent Poverty: The new Community Development Financing test would provide credit for lending and investment activities outside of the bank’s branch-based assessment areas. This will provide incentives for banks to provide community development financing in underserved areas, including rural areas and Native Lands, even if they are outside of their existing “brick-and-mortar” area of service. In addition, activities in areas of persistent poverty are provided additional consideration.
Encouraging the Retention or Establishment of Branches in LMI Communities and Low-Cost Transaction Accounts: Noting that nearly 80% of mortgages continue to be originated in branch-based assessment areas, Gruenberg said the proposed rule would provide consideration for banks that maintain or establish a branch where there are few or no branches in LMI communities. The rule proposes methods for branch access that are tailored to recognize that reasonable access is different in rural areas than in urban areas. For the first time, he said, the NPR also would evaluate for large banks the offering to and usage by consumers of low-cost transaction accounts – those with low or no minimum balance requirements and no overdraft fees.
Strengthening Disaster and Climate Resilience in LMI Communities: The NPR would give credit to community development activities designed to strengthen disaster and climate resilience in low- and moderate- income communities. Activities that mitigate the effect of disasters and climate-related risks, such as earthquakes, severe storms, droughts, flooding, and forest fires would be eligible.
The FDIC, Federal Reserve, and Office of the Comptroller of the Currency (OCC) jointly released their CRA rule proposal May 5; comments are due Aug. 5.
Reg lookup: Community Reinvestment Act