Federal agencies disagree on how the Community Reinvestment Act should be modernized, raising the possibility of confused enforcement.

Two federal bank regulators released a proposal in mid-December to revamp the Community Reinvestment Act for the first time in 25 years.  

But so far, only the Office of the Comptroller of the Currency (OCC), which developed the proposal, and the FDIC have adopted the proposal. The third bank regulator, the Federal Reserve, has not signed on, and housing advocates are raising alarms that it could reduce investment in lower-income communities.  

“It’s very troubling that in the past, going back to the origins of CRA, the three primary bank regulators have all worked together with shared regulations and shared approaches,” said Clark Ziegler, executive director of the Massachusetts Housing Partnership. “This proposal is so radical that the Fed is not going along, and it raises the possibility of different federal regulations, enforcement and standards.” 

A Push to Modernize Regulations  

The CRA, adopted in 1977, encourages financial institutions to meet community credit needs, including in low- and moderate-income neighborhoods, and prevent discrimination through redlining. It has led to trillions of dollars in investments and was last revised in 1995, before the onset of digital banking.  

“[The] joint proposal will help ensure CRA remains an effective and relevant tool to encourage more lending, investment, and services in the communities banks serve, including low- and moderate-income neighborhoods,” Comptroller of the Currency Joseph Otting said in a Dec. 12 statement after releasing the proposal.   

The OCC highlighted four areas it said would improve the CRA, including clarifying and expanding what qualifies for CRA credit. The proposed rules would require bank regulators to publish an illustrative list of these activities. While able to request guidance from the regulator, banks today often remain uncertain about whether any given activity qualifies until the CRA exam. 

The proposal would also update the locations that count for CRA credit. Evaluators currently look at activity in areas surrounding headquarters, branches, certain ATMs and places where banks conduct a significant volume of retail lending. Under the proposed regulations, banks would also designate assessment areas where they draw a significant portion of their deposits, such as through digital banking. 

The OCC also said its proposal would result in more objective performance evaluations and more transparent and timely reporting of exam results. 

Frustration from Housing Advocates 

With over 200 pages to review, stakeholders continue to read through the proposal. The proposal was published in the Federal Register on Jan. 9, giving the public until March 9 to submit comments. 

MHP’s Ziegler is working with national partners to go through the details before submitting comments to the OCC.  

While acknowledging that the CRA could be improved, Ziegler said the current regulations are ensuring lower-income communities and affordable housing projects are getting needed investment.  

“My global frustration is that what the OCC has proposed is tossing a grenade into a system that is working,” Ziegler said. “It’s frustrating that the approach doesn’t capture the opportunity to make the existing system better.” 

Proposed changes to the Community Reinvestment Act will evaluate banks by the total dollar amount loaned, instead of the number of loans made or their impact, raising the ire of housing advocates.

Ziegler submitted comments when the OCC issued an advance notice of proposed rulemaking in 2018. His fundamental concerns remain the same, Ziegler said, that the proposed regulations look at the amount of money being lent rather than the number of loans or their impact.  

In one example, Ziegler pointed to loans issued to first-time homebuyers through MHP’s ONE Mortgage program. A $389,570 loan in Rockland would count more under the OCC’s proposal than a $260,930 loan in Chicopee, even though the impact would be similar on both borrowers.  

The divergence can be even more striking in loans made to support affordable rental housing developments in different parts of the state with different land and other development costs. One in Brookline worked out to $71,391 per unit, Ziegler said, while another in Goshen was for $15,143 per unit.  

“Even though both projects are serving households at or below 60 percent of [area median income], the bank-financed debt per unit is nearly five times higher in Metro Boston than in rural Massachusetts,” Ziegler wrote to the OCC in 2018. 

More Certainty for Banks 

Ben Craigie, the director of compliance and training with the Massachusetts Bankers Association, said banks will welcome the opportunity to have regulators confirm in advance whether certain activities would count toward CRA credit, including innovative ideas lenders might have, a point on which Ziegler agreed. 

“The fact that there’s going to be a process to get projects approved before being underwritten is a good thing for our members,” Craigie said. 

Craigie also continues to review the proposal and plans to submit comments and encourage the MBA’s member banks to comment, as well. The MBA has been advocating for CRA reform for a long time, he added. 

The OCC’s proposed measurement system merits more scrutiny, Craigie said.  

“Anytime that we have a formula hardwired into a regulatory proposal, we want to make sure what counts as a numerator and a denominator is clear,” Craigie said. “You run the risk of putting bad numbers in, and then you could get bad numbers out.” 

Fed Still a Holdout 

The Federal Reserve has not yet signed on to the other two regulators’ proposal, prompting concern from industry and advocates.  

“Our largest emphasis is making sure we get consistency in the long run,” Craigie said. “It’s a concern that we don’t have the Fed on board with this specific proposal.” 

Diane McLauglin

If only the OCC and FDIC adopt the proposal, banks – and communities – would face different standards. And in Massachusetts, state-chartered banks would face more complications since the state is one of several that maintains its own, separate CRA examination modeled on the federal regulations. 

A recent speech about the CRA offered insight into the Fed’s position. Without naming the OCC and FDIC proposal, Fed Governor Lael Brainard said metrics should “rely on loan counts rather than dollar value in order to avoid inadvertent biases in favor of fewer, higher-dollar value loans.” 

She also suggested CRA revisions should not be rushed. 

“If the past is any guide, major updates to the CRA regulations happen once every few decades. So, it is much more important to get reform right than to do it quickly,” Brainard said, according to a transcript of her speech. “If we only have one opportunity for a few decades, I want to make sure CRA reform is based on the best analysis and ideas and the broadest input available.”