WASHINGTON — Top federal regulators unveiled a proposal that would change the way they evaluate the community-building activities of the banks they supervise under the Community Reinvestment Act.
The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency jointly released the
The regulators who approved the proposed rulemaking said the new rule would be more strenuous. Martin Gruenberg, acting head of the FDIC, said it would “raise the bar” for banks on retail lending to earn an “outstanding” or “high satisfactory rating.”
Under the proposal, regulators would still use “facility-based assessment areas” as the primary factor for determining if banks are meeting their CRA obligations. Under the proposed rulemaking, large banks would also consider areas where they have a concentration of retail loans and aggregate activity in low- and moderate-income across the entire country. The agencies also call for large banks to be able to consider community development activity regardless of where it takes place as a separate metric.
The agencies also call for large banks to disclose the racial and ethnic background of their borrowers, a move that they hope will provide more transparency to the public about what groups are getting access to credit.
Some advocates have called for the updated CRA to include more explicit targets for expanding credit to minority groups in recent months. While the interagency proposal falls short of that, Rohit Chopra, director of the Consumer Financial Protection Bureau, heralded its inclusion for better reflecting “congressional intent by more explicitly acknowledging race and ethnicity.”
The proposed changes also include a provision for loans, investments and ventures made with mission-driven financial institutions, such as depository institutions that cater to minority groups, women and low-income consumers.
The notice of proposed rulemaking also amends the type of activity that qualifies as community development, revising what constitutes affordable housing and economic development as well as adding a bevy of new categories. Banks would be credited for investments in childcare, education, workforce development, job training and health services, as well as efforts to improve financial literacy.
There’s one holdover from the 2020 CRA rulemaking spearheaded by former Comptroller of the Currency Joseph Otting: The promise of an illustrative list of community development activity. The current acting head of the OCC, Michael Hsu,
Under the proposed framework, regulators would use four tests to evaluate banks compliance with the CRA: a retail lending test, a retail services and products test, a community development financing test and a community development services test. Small and intermediate banks would have the option of being tested under a combination of new and/or existing tests, while large banks would be subject to all four new tests. Banks with more than $10 billion of assets would have to collect and report additional data for each test.
Federal Reserve Vice Chair Lael Brainard, who spearheaded the CRA effort at the Fed, said the proposal creates an updated and unified approach across each of the three regulators and is aimed at expanding low- and moderate-income households’ access to vital banking services — services whose importance was highlighted during the pandemic.
“The pandemic demonstrated clearly the importance of access to financial services for low and moderate income households,” Brainard said in a statement. “While most Americans received their COVID relief payments quickly and without cost through direct deposit into their bank accounts, those without bank accounts had to wait for debit cards or paper checks to arrive by mail, and they often paid costly fees to cash those checks when they did arrive. Similarly, small businesses generally had an easier time accessing Paycheck Protection Program loans if they had an existing relationship with a bank.”
Federal Reserve Gov. Michelle Bowman, a Trump appointee, said that while she supports issuing the notice of proposed rulemaking, she has significant reservations about the costs that the proposal would pose for banks with over $10 billion of assets.
“Fundamentally, we do not know if the costs imposed under the proposal will be greater than the benefits,” Bowman said in a statement. “I urge banks and community groups to comment on the proposed rule to provide information about core issues, such as whether the proposal will result in more or better investments in communities.”
Along with the various substantive changes to the CRA, the joint proposal also makes some custodial updates to the regulatory framework, including changing the standards for what constitutes a small, intermediate and large bank. The proposal sets the ranges at under $600 million of assets for small banks, between $600 million and $2 billion for intermediate and more than $2 billion for large.
The proposed rulemaking will be open to public comment for 60 days after its publication in the Federal Register.
