The Federal Reserve Board published feedback Thursday from more than 400 bankers and community groups that will influence how regulators make changes to the Community Reinvestment Act.
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The Fed, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. have struggled to develop a joint CRA reform plan. The report is based on feedback the Fed received from 29 roundtable discussions held between October and January on potential revisions to CRA regulation.
Generally, bankers and community groups want the CRA expanded to apply to credit unions, insurance companies, financial technology companies, mortgage brokers, and other non-regulated or nondepository institutions.
Participants in the roundtables said such an expansion would be more “fair” to the banks that are currently subject to the CRA and would increase the overall resources available to low- and moderate-income communities.
Many participants in the Fed's roundtable discussions think that current CRA assessment areas should be expanded to include a bank's lending activities and market share rather than relying primarily on deposits.
Some bankers expressed concerns about the difficulty in defining a bank’s digital presence. Others appeared reluctant to expand the geographic scope of assessment areas because doing so could impact which markets would be reviewed for fair-lending risk.
“Several bankers noted that the CRA can be a deterrent to growth because banks are hesitant to add branches or enter new markets due to all the CRA-related requirements associated with a new assessment area,” the report stated.
Bankers were somewhat critical of the current CRA framework, saying it creates confusion and results in banks restricting community development activities outside their assessment area.
To that end, many bankers want the definition of CRA assessment areas changed so institutions can receive credit for a range of activities outside their current boundaries.
The Fed said that many stakeholders also want regulators to establish clear standards to determine whether a bank has satisfactorily met community needs within its assessment areas, so a bank knows when it is permitted to engage in outside activities.
Many want a certain percentage of lending or investment activity to be allowed outside of a bank’s assessment area. Others suggested getting credit for any activity in a rural area or other underserved area.
Some bankers suggested that if a bank has received a “satisfactory” CRA rating or better at its last exam, then that bank should be allowed to pursue activities outside of its assessment areas.
In addition, bankers want a better understanding of what level of activity is required to achieve a certain CRA rating.
Meanwhile, both banks and community groups want regulators to clearly define what qualifies as an eligible “community development” activity.
Nearly all participants stressed the need for more clarity, consistency, and timeliness with CRA exams.
Bankers criticized the "unnecessary lag" between exams and the issuance of performance evaluations.
Finally, regardless of how the CRA is reformed, many participants urged regulators to improve and standardize examiner training across agencies. Many roundtable participants said current CRA exams "lack consistency" from examiner to examiner and from agency to agency.
