Fed Issues Its Own CRA Modernization Proposal

The Federal Reserve today issued an advance notice of proposed rulemaking on updating the agency’s three-decade-old Community Reinvestment Act regulations. The ANPR follows a separate rulemaking on CRA reform by the OCC, which was finalized earlier this year without the support of the Fed or FDIC. The Fed outlined several objectives for its own reform approach, which include:

  • More effectively meeting the needs of low-to-moderate-income communities and address disparities in credit access
  • Increasing the clarity, consistency and transparency of supervisory expectations and standards regarding where activities are assessed, which activities count and how eligible activities are assessed, while minimizing data collection burden
  • Tailoring CRA supervision based on size, business model, local market conditions, etc.
  • Updating standards to reflect changes in banking over time, including the increased use of mobile and internet delivery channels
  • Promoting community engagement
  • Strengthening the special treatment of minority depository institutions
  • Recognizing that CRA and fair lending responsibilities are mutually reinforcing

The proposal involves a retail test, which would consist of a retail lending subtest and a retail services subtest, as well as a community development test, which would consist of a community development financing subtest and a community development services subtest. Small retail banks could elect to be evaluated under the current CRA framework or choose to be evaluated under the retail lending subtest alone. Small banks could also elect to have their retail services and community development activities evaluated. The Fed is proposing an asset threshold of $750 million or $1 billion to distinguish between small and large retail banks.

“Separating the retail test and the community development test provides greater scope to tailor the metrics to local market conditions, which often differ for retail lending and community development financing,” said Fed Governor Lael Brainard in a speech today. “This approach would create clear quantitative thresholds for the level of retail lending and community development financing that is needed to achieve a ‘satisfactory’ CRA rating.”

American Bankers Association President and CEO Rob Nichols called the proposal an “important step” toward CRA modernization, noting that “we appreciate the Fed’s measured, research-based approach to formulating this critically important rule.” Nichols also called on the regulatory agencies to work together to finalize the proposal.

“Joint regulatory action will prevent confusion and avoid unintended consequences for banks and the communities they serve,” he said. “This is critically important as the banking industry works to meet the needs of low-and moderate-income communities and address inequities in access to credit.”

ABA is currently reviewing the 186-page ANPR, which has a 120-day comment period. Additionally, the Fed will host an “Ask the Fed” session on Wednesday, Sept. 23, at 3 p.m. EDT, to highlight key features of the ANPR and discuss the comment process.