Bram Berkowitz

The U.S. Office of the Comptroller of the Currency at the end of August published an advanced notice of proposed rulemaking, calling for public comment on ways to modernize and transform the Community Reinvestment Act. 

While the effort was not done in tandem with the Federal Reserve or the FDIC, the comments could help frame new CRA rules, a change in which all agencies have expressed interest and a large majority of bankers have greatly desired for years. 

Experts say modernization efforts will focus on the future role of assessment areas in which banks lend, how institutions are evaluated and the ways in which the process can be clarified and made easier for banks to follow. 

“I think there is widespread agreement in the regulatory community and among bankers and activists that after 40 years of being in place, the law should be revisited,” said Tom Curry, a partner at Boston-based law firm Nutter, who formerly served as comptroller of the OCC and Massachusetts banking commissioner. “With the development of fintech, people are feeling that the existing approach based on assessment areas and brick and mortar may not be as relevant as it once was.” 

Enacted by Congress in 1977, the CRA is intended to encourage depository institutions to help meet the credit needs of low- and moderate-income neighborhoods in the communities in which they operate, while not compromising the financial health of the bank. 

State-chartered banks are evaluated by the Massachusetts Division of Banks and typically another federal agency, while federally chartered banks are typically evaluated by the OCC.  

CRA grades, which range from “needs improvement” to “outstanding,” are important for banks because regulators are less likely to allow banks to make acquisitions, open new branches and participate in other growth activities if they receive poor CRA marks. 

Providing Clarity 

The CRA has received criticism for lacking clarity about how banks are graded and for which projects they will receive credit. 

Grading is based on comparisons to other banks with similar assessment areas. But those banks can change year to year, and the only way to get data on them is when CRA grades are published, by which point the information may be obsolete, said Len Bolton, director of compliance at Rockland Trust. 

It can also be difficult to determine which projects count toward CRA credit. 

Rockland in the past made a loan to a local hospital that primarily serves low-income communities, but because the hospital is in a middle-income census tract, the bank had trouble getting CRA credit, Bolton said. 

Confusion also appears to arise when it comes to affordable housing projects, said Clark Ziegler, executive director of the Massachusetts Housing Partnership. 

Projects in the suburbs of Massachusetts are usually mixed-income developments, where 25 percent of the units are affordable and the rest are market rate. Some regulators, said Ziegler, will count all units in the project toward CRA, where other regulators only count the units that are affordable. 

“Having a way of getting an advanced opinion about something would be very helpful,” he said.  

Redefining Assessment Areas 

Perhaps one of the main points of contention in updating the CRA will come down to assessment areas. 

As part of the law, banks must delineate an assessment area in which they will lend. 

In general, this refers to the geographies where the bank has its main office, its branches and ATMs, as well as the surrounding areas in which the bank has originated or purchased a substantial portion of its loans. 

As banks have gotten more digital and grown larger, however, many banks have argued this approach no longer makes sense. 

“My opinion is that I don’t mind having a defined assessment area, but I think it’s time to change how that is defined,” said Bolton. “Assessment areas are based by and large on brick and mortar. This made a lot of sense 20 to 40 years ago, but now with tech, consumers are not relying on or using the branch like they used to.” 

Another issue with geographies is that the CRA encourages banks to concentrate on some areas more than others, said Ziegler, who said banks tend to go for CRA projects that fall into the primary market of their assessment area. 

Banks will compete intensely for CRA projects if Boston is in their assessment area because they think they will get more credit from the regulators, which leaves cities like Fall River and Springfield with less investment, he said.  

There has been talk from the OCC about redefining assessment areas or even possibly eliminating them altogether, moves that banks tend to favor and that consumer groups tend to worry about. 

While there is widespride consensus about revisiting the CRA and on most of the issues that need to be examined, the challenge will be getting everyone on the same page. 

“I think the devil is in the details,” said Curry.