By: Edward R. Milhorn, Compliance Consulting Director
The Community Reinvestment Act (CRA) was enacted in 1977 with the intention of encouraging depository institutions to help meet the credit needs of the communities in which they operate in a safe and sound manner. However, the regulatory framework for the CRA has become outdated, which has resulted in many institutions struggling to meet the credit needs of their communities. In order to address the challenges presented by the CRA in its current form, more clarity is needed around which banking activities will receive CRA consideration from regulators.
To this end, the federal bank regulatory agencies have been working on reforms to the CRA regulations for over a year. Most recently, in April of last year, the Treasury Department released a report[1] outlining potential changes to the CRA. In June 2019, the Federal Reserve Board published a summary[2] of feedback received during a series of 29 roundtable discussions with bankers and community members on the CRA. In August 2019, the OCC published an advanced notice of proposed rulemaking (“ANPR”) [3], which included several proposed reforms, including a proposed “metrics-based framework” for assessing compliance with the CRA. This proposed framework would rely more heavily on quantitative benchmarks to assign CRA ratings. For example, the notice indicates that “this approach could include updated metrics that take into account information on a bank’s performance context, such as the demographic characteristics and the economic and financial conditions of specific communities.” This focus on using quantitative metrics would further underline the importance of each financial institution developing its performance context to better define its overall CRA profile. Additionally, the proposed reform would change the geographical assessment area for certain banks, including consideration of a bank’s online presence, as well as their physical branches. Finally, the proposed reform would expand the types of activities considered in CRA evaluations.
While the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) did not join the OCC in the August ANPR, the document reflected input from both institutions and their staffs. Additionally, FDIC Chairman Jelena McWilliams, Federal Reserve Board Chairman Jerome Powell, Federal Reserve Board Vice Chairman for Supervision Randal Quarles, and Federal Reserve Board Governor Lael Brainard have all indicated that we need to modernize and strengthen the CRA regulatory framework and expressed their interest in working together to achieve reform of the CRA.
Although we are likely still several months away from the agencies publishing a proposed rule, it appears that progress is being made to update the CRA framework to make it more transparent and easier to understand. Once amendments to modernize CRA regulations are in place, the CRA will become stronger and empower banks to better serve the communities where they operate, thus fulfilling the original purpose of the CRA.
[1] U.S. Department of the Treasury , Memorandum for the Office of the Comptroller of the Currency, The Board of Governors of the Federal Reserve System, The Federal Deposit Insurance Corporation: : Community Reinvestment Act – Finding and Recommendations, Washington, D.C., 2018, https://home.treasury.gov/sites/default/files/2018-04/4-3-18%20CRA%20memo.pdf (accessed November 6, 2019).
[2] Board of Governors of the Federal Reserve System, Perspective from Main Street: Stakeholder Feedback on Modernizing the Community Reinvestment Act, 2019, https://www.federalreserve.gov/publications/files/stakeholder-feedback-on-modernizing-the-community-reinvestment-act-201906.pdf (accessed November 6, 2019).
[3] Department of the Treasury, Office of the Comptroller of the Currency, Reforming the Community Reinvestment Act Regulatory Framework, Billing Code: 4810-33-P, 12 CFR Parts 25 and 195 [Docket ID OCC-2018-0008], RIN 1557-AE343, 2018, https://www.occ.gov/news-issuances/news-releases/2018/nr-occ-2018-87a.pdf (accessed November 6, 2019).
