Government LendingRegulatory

Fed releases proposal to reform CRA

After declining to support OCC's reform plan four months ago, the central bank issues its own

The Federal Reserve approved a revamp of the anti-redlining rules known as the Community Reinvestment Act, or CRA, in a live-streamed meeting on Monday morning and gave 120 days for community and industry feedback.

The move comes four months after Joseph Otting, head of the Office of the Comptroller of the Currency, stepped down a day after releasing his controversial reforms of CRA. Housing groups sued the OCC in June for “unlawfully eviscerating the vital anti-redlining rules.”

Usually, federal regulators would speak in unison on proposals to revamp rules such as the CRA, but the Fed and the Federal Deposit Insurance Corp. declined to sign onto Otting’s proposal.

“Today the Federal Reserve Board unanimously approved an advance notice of proposed rulemaking that would strengthen, clarify, and tailor the CRA regulation to better meet the law’s core purpose,” Lael Brainard, a member of the Fed’s Board of Governors, said in a speech to the Urban Institute following the release. “Research and surveys indicate that there are ongoing racial disparities in access to credit.”

In 2019, small businesses with Black ownership were only half as likely as those with White ownership to have obtained bank financing in the previous five years, she said.

“And, the gap in homeownership rates between Black and White households remains significant today, even when controlling for differences in income and education,” Brainard said.

Brainard said the new proposal will “modernize the CRA in a way that significantly expands financial inclusion.”

One proposed change is to assign a “nationwide assessment area” for online banks, rather than continue with the current practice of assigning them the area where their headquarters is located.

The National Housing Conference, a fierce critic of the OCC’s reform of CRA, said the Fed’s proposal could lead the way to a united approach to modernizing the CRA.

The Fed’s approach “is likely to improve investment to low- and moderate-income households and communities,” the housing group said in a statement.

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