The final CRA rule is in. Here’s why it’s better.
On Wednesday the Office of the Comptroller of the Currency approved a final rule to strengthen and modernize the regulatory framework of the Community Reinvestment Act.
The agency’s action will make evaluating national banks and federal savings associations for CRA performance more objective and transparent. And it will encourage those banks to lend, invest and provide more services to the communities they serve, including low- and moderate-income (LMI) neighborhoods, across the country.
The OCC’s objective from day one has been to clarify: what counts; where it counts; how to count it; and to make recordkeeping and reporting more transparent and timelier.
The rule helps ensure the CRA remains a relevant and powerful tool for the revitalization of communities and for the nation’s civil rights by making capital and credit more accessible in these neighborhoods for many decades to come.
Since being enacted in 1977, the CRA has encouraged trillions of dollars to flow into the communities that banks serve. Wednesday’s final rule encourages banks to do even more to help communities.
The final rule is the culmination of a multiyear process and reflects more than a decade of dialogue about how to make the CRA work better. It builds on recommendations that federal banking agencies submitted to Congress in 2017 as part of their required decennial review of laws and regulations, and the recommendations released by the Treasury Department in April 2018.
The final rule is informed by the feedback gathered and published by the Federal Reserve. Most important, it is shaped by the thousands of personal conversations that we’ve had with stakeholders of all kinds and the firsthand experiences we gained visiting communities that banks serve across the nation.
We also gathered roughly 1,500 comments from the 2018 advance notice of proposed rulemaking, and then more than 7,500 comments submitted by stakeholders in response to the 2019 notice of proposed rulemaking.
We carefully considered all the comments received and made changes in the final rule accommodating suggestions and issues stakeholders raised.
For instance, the final rule defers the establishment of thresholds for grading banks’ CRA performance until the OCC reviews improved data that will be used to implement the final rule.
This was in response to the OCC recognizing important weaknesses in current data regarding CRA performance.
The final rule also increases credit for mortgage origination to promote the availability of affordable mortgages in LMI areas. And it revises the approach to deposit-based assessment areas by focusing on internet banks and banks that do not rely on branches — while fully retaining the importance of branches and assessment areas around physical branches.
The final rule clarifies that the volume and quality of CRA activity matter as much as the dollar value of activity in bank evaluations.
Overall, the final rule will benefit individuals and communities in the following ways:
It increases support for small businesses as well as small and family-owned farms. The final rule also raises the eligible size for loans to receive CRA credit for the first time in 25 years, which increases capital available to help create jobs and economic opportunity.
The final rule reduces so-called CRA deserts 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.
The final rule eliminates uncertainty that discourages investment. It removes subjectivity and lack of transparency that leaves bankers and stakeholders guessing what qualifies for CRA credit and how much credit they will receive.
It also refocuses the CRA on long-term activity by recognizing banks’ sustained commitment to the credit needs within their communities and rewarding long-term investment that can help make more meaningful and lasting change.
The final rule accommodates different bank sizes and business models. It provides an opt-in for smaller banks to choose whether to be evaluated under existing criteria or the revised framework based on their unique business model. But it also preserves community development obligations for banks that have them today.
The final rule also gives more CRA credit for maintaining branches in LMI areas in order to help keep branches in areas of need.
In addition, the rule gives banks credit for CRA-qualifying activities in Indian Country and rural areas, regardless of the banks’ assessment areas.
The OCC has also added provisions that allow it to more thoroughly evaluate banks’ performance in all their assessment areas, not just a limited evaluation in some of them.
This completed modernization will ensure CRA remains a relevant and effective tool for encouraging banks to meet the credit needs of their entire communities, including LMI neighborhoods and rural areas, for future generations.
Over the months we have worked on this rule, many asked me, “Why now?”
The answer has always been because we can do more to support communities in need across the country. The coronavirus pandemic has only made it more dire that communities — particularly LMI neighborhoods — need more capital and better access to credit. And they need it now.
This final rule encourages the banks and savings associations that already conduct the majority of CRA activity do even more in their communities.