Agencies propose highly anticipated CRA overhaul

The Federal Reserve, FDIC and OCC today issued a much-anticipated joint notice of proposed rulemaking to modernize regulations implementing the Community Reinvestment Act. The agencies proposed changes to how CRA activities qualify for consideration, where activities are considered and how they are evaluated. Enacted in 1977, CRA’s last interagency revision was in 1995. In today’s proposal, the agencies identified five key goals of the proposal, including:

  • Expanding access to credit, investment and basic banking services in low- and moderate-income communities;
  • Adapting to technology changes in the banking industry by updating CRA assessment areas to include activities associated with online and mobile banking, branchless banking and hybrid models;
  • Providing greater clarity, consistency and transparency in the application of the regulations;
  • Tailoring CRA evaluations and data collection to bank size and type; and
  • Maintaining a unified regulatory approach from all three regulatory agencies.

In a statement following the announcement, ABA President and CEO Rob Nichols welcomed the proposal, noting that “we particularly appreciate that the agencies are trying to develop a regulatory framework that better reflects today’s modern-day banking system and provides greater clarity, consistency and transparency to banks seeking to meet the needs of their customers and communities.”

ABA will review the proposal and offer comments “to achieve workable rules that help spur needed investment … without imposing unnecessary costs,” Nichols added, noting that the process won’t be finished until “nonbank financial services providers are held similarly accountable to the communities they serve”

Proposal outlines new evaluation framework

The nearly 700-page proposal would establish a new framework for evaluating banks’ CRA performance. The proposal stratifies three different assessment tiers: large banks (defined as those with $2 billion or more in assets); intermediate banks ($600 million to $2 billion in assets); and small banks (less than $600 million in assets). Ratings will be determined based on a weighted average of the applicable performance test scores.

Under this framework, large banks would be subject to a retail lending test; a retail services and products test; a community development financing test; and the community development services test. Within the large-bank tier, certain provisions of the retail services and products test and community development services test would only apply to banks with $10 billion or more in assets.

Intermediate-sized banks would be subject to the retail lending test and the status quo community development test, but may choose to opt into the community development financing test. Small banks would be evaluated under the status quo small bank lending test, unless they choose to opt into the retail lending test. Firms can also choose to be evaluated under a CRA strategic plan as an alternative method for evaluation.

In addition, the proposal provides specific details on each of the tests, qualifying CRA activities, assessment areas, ratings, data collection, reporting and disclosure.

ABA will review the proposal and offer comments based on input from bankers in its CRA Working Group. Comments are due by August 5.