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Community Reinvestment Act (CRA) Rule Reforms Announced

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In a step toward modernizing the Community Reinvestment Act (CRA), the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) recently released a joint notice of proposed rulemaking to reform the Act.

In a detailed update, the Office of the Comptroller of Currency (OCC) issued a statement on May 5, 2022, regarding an “Interagency Proposal to Modernize the Community Reinvestment Act (CRA)”. The statement was issued by Acting Comptroller of the Currency Michael J. Hsu after the Federal Deposit Insurance Corporation (FDIC) board meeting to consider the interagency notice of proposed rulemaking (NPR) to strengthen and modernize the Community Reinvestment Act (CRA).

An excerpt of Hsu’s statement follows:
“Today marks an important milestone in our efforts to expand financial access and inclusion for low-and moderate-income (LMI) communities. The interagency issuance of this Notice of Proposed Rulemaking to strengthen and modernize the Community Reinvestment Act regulations brings the three federal banking agencies back together and holds the promise of expanding access to credit for LMI communities. In my capacity as both an FDIC Director and as Acting Comptroller of the Currency, I am proud to say that the FDIC and OCC are strongly committed to using every authority and tool at our disposal to ensure that banks uphold their obligations so that the CRA’s vision of full inclusion for LMI and underserved communities is realized and sustained.

Today’s proposal is aimed at strengthening and modernizing the CRA regulations by expanding access to credit, investment and basic banking services in LMI communities, adapting to changes in the banking industry such as internet and mobile banking, and providing greater clarity, consistency and transparency. Further, the proposal accounts for differences in bank size and business models by tailoring CRA evaluations and data collection and promotes a unified approach from the federal banking agencies.

I want to commend the staff at the OCC, FDIC and Federal Reserve for their extraordinary efforts that have led to the development of this interagency NPR. I look forward to receiving comments on all aspects of this proposal, which has as its goal to provide a modern and consistent regulatory approach across the federal bank regulatory agencies that would significantly increase investments in CRA activity and help address persistent inequalities in access to credit and other financial services.”

For its part, the Community Bankers Association has weighed in on modernizing the CRA.

CBA President & CEO Richard Hunt released a statement:
“This is an important step towards modernizing a law that has not been meaningfully updated in decades, well before the widespread adoption of smartphones and mobile banking,” said Hunt. “We’re pleased to see the proposal focus on providing banks with the clarity, consistency, and transparency necessary to continue delivering on CRA’s important mission for years to come,” he added.

Hunt continued, “We also commend leading regulators for taking a unified approach and incorporating feedback from all stakeholders. Since the CRA was enacted more than 40 years ago, banks have invested trillions of dollars into underserved communities – making the vision of CRA a reality for families and small businesses most in need.” Hunt’s statement also said, “Recognizing our shared commitment to expanding access to credit across every community banks serve, it’s imperative any final rule applies new requirements uniformly across the board to all financial institutions. CBA, our Community Reinvestment Committee and all of our member banks are currently analyzing the proposal and look forward to working with regulators, providing recommendations critical to ensuring the success of this effort.”

The Community Reinvestment Act was signed into law in 1977 to ensure banks continued serving the financial needs of their communities, noted the CBA statement, adding that regulations have only been significantly amended once, in the mid-1990s, before smartphones and other modern banking advancements. CRA needs to be modernized to continue working as it was intended.

Through CRA, banks are currently investing nearly $500 billion annually into communities across the country. Modernizing CRA will give banks more clarity as to which investments will count – allowing for them to do more, not less. Modernizing the Community Reinvestment Act will ensure those investments reach more people and communities in need.

To successfully modernize CRA, CBA reports that it has long has called on regulators to:
  1. Provide clarity and certainty in CRA-eligible activities. There is currently too much ambiguity in CRA compliance and too much need to document detailed compliance requirements. Further, examiners from different agencies interpret the same rules differently.
  2. Account for digital transformation and customer preference. Modernization efforts should take into account the transformation in both technology and customer preference. It is important for both branch and non-branch channels to be given equal weight, and that banks be able to demonstrate they are serving the needs of their entire communities, including low- and moderate-income customers, by employing channels that fit their model and their market.
  3. Permit more flexibility to invest where there is a need. Modernization should allow CRA-eligible activity wherever it is needed, including areas identified as underserved, while continuing to ensure banks are helping to meet local community needs.
  4. Provide optionality for business models and strategies. CRA modernization should also avoid an overly strict one-size-fits-all framework. Rules should take into consideration different banks’ unique business strategies, just as they consider the unique needs of each community.”

CRA Modernization Timeline

The Federal Reserve, OCC, and FDIC released an Advance Notice of Proposed Rulemaking in February 2021. At that time, CBA outlined key priorities for policymakers to consider. In May 2021, CBA responded to the OCC’s decision to reconsider the rule, noting: “CRA has not been modernized since the shared line rotary phone days, and it is needed to reflect advancements in the marketplace. The OCC has demonstrated a path forward, and we hope regulators and politicians put politics aside and find common ground to best serve communities across the nation.”

In July 2021, CBA commended the OCC after the agency announced its decision to move forward with a repeal of the June 2020 (CRA) rule and continue working with the Federal Reserve and the FDIC on a joint rulemaking process to modernize the law. One month later, during CBA LIVE 2021 in August, Acting Comptroller of the Currency Michael Hsu provided an update on CRA interagency reform efforts, stating “People are meeting a lot on an interagency basis. […] We aren’t doing things in parallel and then hoping to reconcile it. We’re doing it together, each step of the way. […] Everyone is incentivized to get to the finish line together.”

Naehas will continue to stay abreast of developments emerging on changes to this and other regulations announced by government agencies to support broader understanding of, and compliance with, regulations in the financial services industry.

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