- Key insight: A proposal from the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. would limit the proportion of nonprofit administrative expenses on Community Reinvestment Act-qualified grants to 15% and heighten scrutiny of community development donations.
- Supporting data: Grants and donations are a relatively small part of CRA-qualified investments, but many organizations rely on them for funding.
- Forward look: The proposal is likely to trigger a debate during the forthcoming 60-day comment period.
Banking regulators' latest attempt to rewrite regulations implementing the Community Reinvestment Act include new restrictions on grants banks give to nonprofits as part of their strategies to meet the needs of underserved local communities.
The Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency on Friday
Banks currently can satisfy their CRA obligations by lending to or investing in organizations that work in areas like affordable housing or community development. They can also give grants or donations to nonprofits with similar missions and obtain CRA credit for those contributions. The proposal, by contrast, would credit banks only for grants where no more than 15% goes to the nonprofit's operating costs — a standard that is in line with the default overhead cap that applies to reimbursement for government grants, as outlined in guidance from the Office of Management and Budget.
The agencies say the proposal is meant to shift the law's focus toward lending to communities themselves and away from funding the community reinvestment industry.
Both the first Trump administration and Biden administrations put forward overhauls to the CRA framework, but each effort was scuttled by the following administration, leaving the 1995 regulations in place.
"The agencies believe this … requirement will help ensure the vast majority of community development grant dollars are used to benefit the large bank's assessment area, rather than the organization administering the community development program, project, or initiative," the
Comptroller of the Currency Jonathan Gould
The proposal also limits grants that qualify for CRA credit to community development programs in the bank's geographic area. Currently banks can earn credit for grants to nationwide organizations.
Jeannine Jacokes, CEO and founder of Partners for the Common Good, said the change appears targeted primarily at larger banks that make more substantial grants to community organizations.
"It appears as though the grant provisions are really targeting the largest banks," Jacokes said. "If a nonprofit organization [is] based in Washington, D.C., and a large bank doesn't have Washington, D.C., in their assessment area, that large bank, if they gave the organization a grant, could not get CRA credit for it. … It would disincentivize any activities if they were not in the bank's assessment area."
Jacokes said many smaller banks already provide relatively limited grant funding, often to highly local organizations. But she said the proposal could constrain large banks' ability to provide flexible operating support.
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"It's quite clear that [the agencies are] not interested in supporting general operating costs," she said. "That's what the big change is."
Ken Thomas, a longtime CRA consultant and expert, said the proposal represents a meaningful departure from the current framework because it moves beyond evaluating whether a grant serves a community development purpose and instead scrutinizes how recipients spend the money.
Thomas said the changes could reshape which organizations receive CRA-supported funding, potentially favoring smaller organizations with narrowly defined projects, "while making it more difficult for larger … national organizations engaged in advocacy, research, coalition building, or broader community development work to qualify for CRA-supported funding.
"Many legitimate nonprofits, especially smaller grassroots nonprofits, have indirect costs above 15%, often in the 20-25% range," Thomas added. "The requirement will likely cause banks to scrutinize grant recipients much more carefully before making CRA-qualified contributions."
Grants and donations make up a relatively small share of banks' overall CRA-qualified investments, the overwhelming majority of which are spent on development projects. Even so, nonprofit advocates argue the significance of grants extends beyond their dollar share because they often provide flexible funding that allows community organizations to operate.
The proposal would make a historically flexible area of CRA compliance substantially more complicated, according to James Wylie, vice president of public policy and senior fair lending counsel at the National Fair Housing Alliance.
"The rule before [was] extremely flexible on what counted as a community development grant," Wylie said. "This makes something that was quite easy to do before, potentially, quite hard."
Wylie said banks generally respond cautiously to new compliance requirements and may become more selective about which organizations they support.
"This is going to impact the funds that community nonprofits have available in the housing and community development space," Wylie said. "Groups have already had to lay off staff; they've already had to forgo programs. So it is a real challenge."
