Banking Agencies Amend CRA Regulations

The OCC, the Federal Reserve Board ("FRB") and the FDIC (collectively, the "Agencies") adopted a new framework for the implementation of the Community Reinvestment Act ("CRA").

The rule covers activities such as the origination and purchase of home mortgage loans, multifamily loans, small business loans and small farm loans, as well as through automobile lending where that applies (see previous coverage). It also applies to community development loans, investments, and services under various tests. The new requirements classify (i) large banks as those with assets of at least $2 billion over the prior two calendar years, (ii) intermediate banks as those with assets of at least $600 million and (iii) small banks as those with lesser assets. Banks will be evaluated on their performance in meeting the credit needs of their communities.

The framework is intended to:

• expand access to credit, investment and basic banking services in low- and moderate-income communities through promotion of community engagement and financial inclusion, with an emphasis on smaller-value loans and investments;
• provide for banks to be evaluated in locations where they do not have a physical branch in light of the growth of online and mobile banking and branchless banking making physical locations less significant;
• provide a metrics-based approach to retail lending and community development financing evaluations;
• give smaller banks the option to continue to be evaluated under the old framework or use the new framework; and
• maintain a unified approach to regulation among the Agencies.

The Agencies stated that the final rule does not impose any new data collection and reporting requirements for small and intermediate banks.

The rule is effective on April 1, 2024, with the exception of several of the amendments for which the Agencies will publish an effective date in the Federal Register.

Statements

CFPB Director and FDIC Board of Directors Member Rohit Chopra called the new rule a compromise among the agencies which "should help increase investment and lending in historically excluded communities, including rural communities."

FDIC Vice Chair Travis Hill criticized the evaluation system as being reliant on a "highly complex" series of formulas. Mr. Hill argued that based on the rule's length and complexity, the final rule will be "less likely" to be applied in a consistent manner. He said that "[a]t some point, the costs of added complexity outweigh the benefits of added precision."

FDIC Board Director Jonathan McKernan dissented, arguing that the Agencies have "not made a case for the rule's unspoken premise that a significant portion of banks are not doing enough to meet the credit needs of their entire community."