Christine Docherty

On May 5, the Office of the Comptroller of the Currency, the Federal Reserve Board and the Federal Deposit Insurance Corp. released a proposal to modify regulations implementing the Community Reinvestment Act. Recent efforts to modernize CRA regulations have been uneven. The proposed regulations are a culmination of recent modernization efforts in the OCC’s, Federal Reserve’s and FDIC’s recognition that “CRA regulations must evolve to address the significant changes in the banking industry that have taken place since the last substantive interagency updates in 1995 and 2005.”

The CRA was enacted in 1977 to promote equal access to banking and financial services across all socioeconomic classes, including low- and moderate-income neighborhoods, but the interagency regulations have not been updated in a material way in close to two decades. In addition, technological advancements and societal changes since that time have signaled the need for reform.

The OCC had previously adopted its own rule in 2020 that resulted in an uneven approach across the OCC, FDIC and Federal Reserve – the three agencies tasked with implementing the CRA. In 2021, the OCC rescinded the 2020 rule so that the three agencies could focus on a unified rulemaking approach. The proposed rule differs in some respects from the OCC’s rescinded CRA rule; however, the new proposal retains some of the modernization principles embodied in the rescinded OCC CRA rule. Just as importantly, the proposed rule, if adopted, would result in a modernization with consistent application across the three agencies.

Armand J. Santaniello

Five Main Features

The three agencies in a press release identified five following objectives: better achieve of the core purpose of the statute, adapt to changes in the banking industry, provide greater clarity and consistency in the application of regulations, tailor performance standards to different banks, tailor data collection and reporting requirements and promote transparency and public engagement.

The CRA’s goal is to “support a robust and inclusive financial services industry.” To achieve this goal, the proposed rule aims to strengthen investment and loan activities that support institutions with historical ties to underserved communities, clarify eligible community development activities and implement review factors for community development activities.

To account for changes in the banking industry in the last 20 years, the proposed rule recognizes how financial services are delivered through increased use of mobile and online services. The proposed rule will update assessment areas to better capture where banks conduct their activities, including where they do business outside of branch networks. The goal is to establish a tailored assessment approach that differentiates between where banks will be assessed for retail lending activities and community development financing, especially those conducted outside of facility-based assessment areas.

Different Tests for Different Lenders

The proposed rule also seeks to clarify CRA activities and introduce standardized metrics for banks to evaluate those activities. The proposed metrics would allow banks to self-assess performance based on benchmarks that are tailored to local market conditions.

Despite consolidation in recent years, banks still vary widely in size, business model and local conditions. In response, the proposed rule recommends a new framework that would establish four tests for large banks (assets above $2 billion): a retail lending test, a retail services and products test, a community development financing test and a community development services test. Intermediate size banks (assets between $600 million and $2 billion) would be evaluated under the retail lending test and the current community development test, and could opt into the new community development financing test. Small banks (assets under $600 million) would be evaluated under the current small bank lending test, and could opt into the new retail lending test.

The proposed rule’s data collection and reporting requirements seek to leverage existing bank data where possible, such as data available under the Home Mortgage Disclosure Act. The proposed rule will also balance these new requirements by exempting small and intermediate sized banks from new data collection requirements. For large banks, the agencies would conduct separate assessments using the four new tests to conduct a more comprehensive evaluation of large bank retail lending, taking into account activities within and outside of the banks’ networks.

Lastly, regulators hope to promote transparency and public engagement by using the proposed rule to establish a process for gathering public comment on CRA performance and providing feedback to banks.

Comments on the proposed rule are due by Aug. 5.

Christine A. Docherty is a partner in Nutter’s corporate and transactions department. Armand J. Santaniello is an associate in Nutter’s corporate and transactions department. Both are members of the firm’s banking and financial services group.