A Community Reinvestment Act that works for everyone

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Communities across the nation need greater access to capital, more responsible lending, better banking services and improvements to critical infrastructure.

For more than 40 years, the Community Reinvestment Act has encouraged banks to lend and invest trillions of dollars in the communities they serve to help meet those needs. Today, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. took steps to strengthen and modernize CRA rules, and encourage banks to do even more to help our neediest communities.

The proposed regulations reflect years of work by dozens of staff and thousands of stakeholders who have advocated for better CRA rules to evaluate banks more objectively and fairly; to eliminate uncertainty in the process; and to close the gaps and loopholes that have developed over the 25 years since the rules were last updated.

The proposal builds on recommendations that federal banking agencies submitted to Congress in 2017 as part of their required decennial review of laws and regulations. It reflects the Treasury Department’s recommendations released in April 2018 and the feedback gathered by the Federal Reserve.

The proposal is also informed by the thousands of personal conversations that we have had with stakeholders of all kinds, and the firsthand experiences we gained visiting communities that banks serve across the nation.

The feedback, including more than 1,500 comments from the 2018 advance notice of proposed rulemaking, is clear. It is time to modernize the CRA rules.

In fact, 94% of the comments received on the ANPR stated that the current CRA framework lacks objectivity, transparency and fairness. Nearly all the comments (at 98%) stated CRA is applied inconsistently, and 88% said it is hard to understand.

The proposal that the OCC and FDIC released would preserve what is best about the existing CRA regulations — lean upon its success — and encourage banks to lend and invest more by making four basic, but important changes to current CRA regulations.

First, the proposal would clarify what counts for CRA credit by articulating clear standards and requiring the agencies to publish an illustrative list of qualifying activities.

Second, it would update how banks define their assessment areas by retaining local areas surrounding branches and adding additional assessment areas where banks draw large amounts of their deposits. This would maintain the importance of branches in meeting community needs and capture banks with large-scale activities outside their facility-based network.

Third, under the proposal, examiners would evaluate CRA performance more objectively by assessing the distribution of retail lending as well as the impact of CRA activity. It would require examiners to assess what portion (number of units) of a bank’s retail lending is targeted to low- and moderate-income (LMI) individuals as well as LMI areas.

And it would require examiners to evaluate impact by comparing the dollar value of a bank’s CRA-qualifying activity (lending, investment, and services) with its retail deposits in each assessment area, and at the overall bank level.

Fourth, the proposal would improve the transparency and timeliness of reporting. Better reporting allows stakeholders and bankers to gauge CRA performance throughout the evaluation cycle and can speed up regulatory decision making.

Among the many benefits, the proposed changes would benefit stakeholders in the following ways.

It would reduce so-called CRA deserts. Current rules neglect rural needs and those of Indian Country that lack branches because CRA evaluations primarily focus on areas where branches are concentrated.

The proposal would address this concern by clarifying when banks can receive credit outside their assessment areas and what specific activities serving rural and underserved areas would qualify for CRA credit.

Requiring banks to designate additional assessment areas where they take large amounts of deposits also helps serve areas beyond the facility-based assessment areas.

The proposal also removes uncertainty that discourages investment. Subjectivity and lack of transparency leave bankers and stakeholders guessing what qualifies for CRA credit, and how much credit they will receive. This limits innovation and restricts the flow of capital to underserved areas.

The proposal would fix this problem in part by adopting clear criteria, publishing an illustrative list of qualifying activities and establishing a clear process for adding to that list.

The proposal also aligns incentives to focus on LMI borrowers. Current rules allow banks to receive too much credit for loans to wealthy borrowers in LMI areas, which can contribute to displacement and harmful gentrification.

By refocusing CRA credit for retail lending products to primarily LMI borrowers and areas, the proposal would close this loophole.

It would also shorten gaps between performance evaluations and publication of those performance reports. Today’s process results in performance evaluations that can be nearly 1,000 pages long, and take months or years to produce. More objective measures and standardized reporting would alleviate this problem.

The proposal also refocuses the CRA credit on long-term activity. Today’s approach only credits activity initiated within an evaluation period. The proposed rule instead would look at the sustained commitment of a bank to meet the credit needs within its communities, and reward long-term investment that can help make more meaningful and lasting change.

There’s also a focus to support Americas farms and small businesses by raising the size of loans eligible for CRA credit. The eligible size for loans to receive CRA credit has not been updated in 25 years. Raising it would help create more jobs and economic opportunity.

There’s also an accommodation for different bank sizes and business models. The proposal would provide an opt-in for small banks, with $500 million in assets or less, to choose whether to be evaluated under existing criteria or the revised framework based on their unique business model.

In addition, the proposal also provides banks specific credit for maintaining branches in LMI areas.

We need CRA to remain a relevant and effective tool for encouraging banks to meet the credit needs of their entire communities, including LMI neighborhoods and rural areas. The diversity of input and voices reflected in the agencies’ joint proposal helps ensure we advance that goal.

By issuing this proposal, the OCC and the FDIC would modernize rules that apply to the vast majority of banks and thrifts that conduct upward of 85% of all CRA activity in this country. Every month this proposal is delayed prevents billions of dollars more from helping reach communities that could benefit from greater economic opportunity.

The proposal is an important step in modernizing CRA, but it is not the final one.

Stakeholders now have the opportunity to read and comment on the proposed rule, and help us make the final rule as strong and as effective as it can be.

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CRA Community banking Affordable housing Housing affordability Consumer banking Farm and rural mortgages Joseph Otting FDIC OCC