CRA Reforms Move Forward

Financial Services Law

Joint rulemaking on CRA reform may finally be in the works, including amendments tailored to the vastly changed environment since its passage.

What happened

On February 1, at the “Research Symposium on the Community Reinvestment Act” hosted by the Federal Reserve Bank of Philadelphia, Federal Reserve Board (FRB) Governor Lael Brainard discussed the feedback received from the banking industry—including banks, trade associations, community and consumer groups, academics, and citizens—in response to the advance notice of proposed rulemaking (ANPR) published by the Office of the Comptroller of the Currency (OCC) in August 2018 concerning revisions to the Community Reinvestment Act (CRA) regulations. Indicating that support for the CRA is “broad and deep,” Gov. Brainard synthesized the stakeholder comments into six overarching themes:

  • First, commentators asked that the FRB, the OCC and the Federal Deposit Insurance Corporation work together to promulgate a joint rulemaking proposal so that CRA policies can be clearly and consistently applied by the federal bank regulatory agencies.
  • Second, commentators suggested ways to modernize the definition of assessment area, through a balanced package of reforms, to reflect the changing nature of banks’ business models. “We have heard general support for assessment areas that reflect each bank’s business model, recognizing that branch-based assessment areas work for many banks but that additional or different assessment areas may be appropriate for others,” Gov. Brainard revealed.
  • Third, commentators supported CRA regulations tailored to banks of different sizes and business models, with a clear message that “CRA regulations cannot be one-size-fits all.”
  • Fourth, commentators provided suggestions for addressing CRA hotspots and CRA deserts and the need to incentivize banks to seek out opportunities in and to reach underserved communities.
  • Fifth, a popular topic of stakeholder feedback was how to increase clarity, consistency and predictability with respect to CRA evaluations and ratings. Commenters expressed support for “expanding the use of metrics that evaluate components of a bank’s activity on an assessment area level, while recognizing the importance of also leveraging performance context information, including of a qualitative nature, so that bankers and examiners are able to identify and understand local community needs.”
  • Sixth, commentators strongly supported retaining a proactive focus on reducing discriminatory “redlining” practices and reaching all underserved borrowers. Gov. Brainard emphasized, “The central thrust of the CRA is to encourage banks to ensure that all creditworthy borrowers have fair access to credit, and, to do so successfully, it has long been recognized that they must guard against discriminatory or unfair and deceptive lending practices.”

Gov. Brainard expressed her and the FRB’s support and commitment for strengthening the CRA regulations to promote more CRA activity, and indicated that “simplifying and clarifying the regulations while strengthening local community engagement will help us accomplish that goal.”

To read Gov. Brainard’s prepared remarks, click here.

Why it matters

Updates to the CRA continue to be the focus of community and regional banks looking for regulatory relief and an easier path to satisfy their obligations under the statute. In addition, banks that adequately satisfy their CRA obligations have an easier path with regulators when approaching strategic transactions, including growth through mergers and acquisitions. The ANPR solicited ideas on ways to transform and modernize the implementing CRA regulations to better achieve the statute’s original purpose, encourage more lending and investment in areas where it is needed most, and ease the regulatory burden associated with CRA reporting and evaluation. While Gov. Brainard acknowledged that the FRB didn’t join with the OCC to issue the ANPR, she pledged the commitment of the FRB to strengthen the CRA by reforming the regulatory framework.



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