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Bank regulators issue new Community Reinvestment Act rule

New rule establishes a framework to assess the digital delivery of banking products and services

The Office of the Comptroller of the Currency, the Federal Reserve Board and the Federal Deposit Insurance Corporation issued on Tuesday a new rule to modernize the 1977 Community Reinvestment Act (CRA), which addresses systemic inequalities in access to credit. 

Trade groups and fair housing associations applauded the changes, including the extension of the implementation timeline and recognition of Special Purpose Credit Programs (SPCPs) in a bank’s CRA rating. Meanwhile, some associations say the new rule did not make the racial wealth equity goals of the law explicit enough.

“The final rule will better achieve the purposes of the law by encouraging banks to expand access to credit, investment, and banking services in low- and moderate-income communities; adapting to changes in the banking industry, such as mobile and online banking; providing greater clarity and consistency in the application of the CRA regulations; and tailoring to bank size and type,” Fed Chairman Jerome Powell said in a statement.

The Fed approved the proposal Tuesday morning. The FIDC and OCC are expected to follow suit.

The CRA encourages banks to help meet the credit needs of their communities, with a focus on low- and moderate-income borrowers. But, since the last comprehensive interagency revision to the CRA in 1995, bank regulators proposed new rule-making in May 2022.   

The need for modernization is exemplified by the regulation not including mobile and online banking to evaluate a financial institution’s expansion. The new rule, however, recognizes the continued importance of bank branches while establishing a framework to assess the digital delivery of banking products and services, regulators said.  

“The rule maintains a focus on evaluating bank performance in areas where banks have deposit-taking facilities, but also enables evaluation of retail lending and community development activities outside of branch networks,” Michael S. Barr, Fed vice chair for supervision, said in a statement. 

Key Community Reinvestment Act changes outlined

The final rule adopts a new metrics-based approach, using peer and demographic data benchmarks to evaluate retail lending and community development financing. Regulators are committed to developing data tools that will give insight into performance standards.  

Regulators also reduced the number of major product lines potentially evaluated under the new retail lending test from six to three, including closed-end home mortgages, small business loans and small farm loans. 

Regarding data collection, small banks can opt to be evaluated under the existing or the new framework. Banks with assets of at least $2 billion are excluded from new data requirements. The rule also limits certain new data requirements to banks with assets greater than $10 billion.

In general, the rule updated the asset-size thresholds: small banks are those with less than $600 million (previously less than $376 million); intermediate banks are those with between $600 million and $2 billion (previously between $376 million and $1.503 billion); and large banks are those with more than $2 billion (previously more than $1.503 billion). The thresholds are adjusted annually for inflation. 

The effective date of the final rule is Apr. 1, 2024. But the applicability date for most provisions is Jan. 1, 2026.

Industry reactions to the new rule

The Mortgage Bankers Association (MBA) said the final Community Reinvestment Act rule included several key recommendations, including revising the weightings assigned to the overall Retail Lending and Community Development tests and recognizing SPCPs in a bank’s CRA rating. 

“The final rule also extends the implementation timeline as requested by MBA, with the first applicability date not until January 2026,” a spokesperson for the MBA wrote in a statement. 

Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition (NCRC), said in a statement the new rules are an “important step forward.” However, NCRC will also be “poring over this vast document with a keen eye for areas where rule-makers may have fallen short — including on the explicit consideration of race in CRA implementation.” 

Van Tol said it’s a “disappointment that these new final rules still fail to make the racial wealth equity goals of the law explicit, even as the agencies appear to have made great strides in fixing a broken system that permitted blatantly discriminatory banks to receive ‘outstanding’ grades for atrocious performance.”

The National Housing Conference (NHC) applauded the new rule, which improves the status quo but leaves room for ongoing clarification and adjustment over a 24-month implementation period, according to David Dworkin, NHC’s president and CEO. In addition, he said the new rule brings more transparency regarding which investments qualify for CRA treatment. 

NHC’s 2022 comment letter also urged regulators to explicitly address the issue of race in the final rule.

On the race issue, the NHC said the final rule avoided running afoul of recent U.S. Supreme Court decisions. However, it embraced earning CRA credit for SPCPs, even when there is no nexus to income. This opens doors for banks to engage in initiatives that promote racial equity, as SPCPs are explicitly allowed under the Equal Credit Opportunity Act (ECOA).

Congresswoman Maxine Waters of California, the top Democrat on the House Financial Services Committee, said that, “With today’s rule, we have a once in a generation opportunity to make meaningful steps toward ending redlining and its present-day manifestation.”

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