Executive Letter: Joint Agency Proposal to Strengthen CRA Regulations

By Rose Oswald Poels

Last week, the Federal Reserve Board (FRB), Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) released a joint statement proposing changes to the Community Reinvestment Act (CRA) regulations. The joint proposal would both strengthen and modernize the regulations by expanding access to credit, investment, and basic banking services; adapt to internet and mobile banking changes; provide greater clarity and consistency with both banks and their customers; and create unique CRA evaluations requirements.

The CRA, originally enacted in 1977, encourages banks and savings associations to help meet the need of all borrowers — including low- and moderate-income individuals. In recent years, the industry has seen the agencies attempt to modernize CRA to better address new technologies and community-investment opportunities. However, those efforts left much frustration for the industry when OCC implemented its own “updated” CRA regulation in June 2020, while FDIC and FRB retained existing standards, interpretations, and regulations.

WBA advocated heavily against separate CRA regulations in meetings with the agencies and in filed comment letters. Successfully, late last year, OCC repealed its independent CRA regulation and now the agencies are once again acting together in proposing a unified CRA regulation. I am pleased to see the expansion of transparency between agencies.

The new joint proposal has the following key elements:

• Expand access to credit, investment, and basic banking services in low- and moderate-income communities. Under the proposal, the agencies would evaluate bank performance across the varied activities they conduct and communities in which they operate so that CRA is a strong and effective tool to address inequities in access to credit. The proposal would promote community engagement and financial inclusion. It would also emphasize smaller value loans and investments that can have high impact and be more responsive to the needs of LMI communities.
• Adapt to changes in the banking industry, including internet and mobile banking. The proposal would update CRA assessment areas to include activities associated with online and mobile banking, branchless banking, and hybrid models.
• Provide greater clarity, consistency, and transparency. The proposal would adopt a metrics-based approach to CRA evaluations of retail lending and community development financing, which includes public benchmarks, for greater clarity and consistency. It also would clarify eligible CRA activities, such as affordable housing, that are focused on LMI, undeserved, and rural communities.
• Tailor CRA evaluations and data collection to bank size and type. The proposal recognizes differences in bank size and business models. It provides that smaller banks would continue to be evaluated under the existing CRA regulatory framework with the option to be evaluated under aspects of the new proposed framework.
• Maintain a unified approach. The proposal reflects a unified approach from the bank regulatory agencies and incorporates extensive feedback from stakeholders.

I highly encourage you to join WBA in commenting on this joint proposal by August 5, 2022. Please contact WBA’s Heather Mackinnon, vice president – legal, at hmackinnon@wisbank.com and Scott Birrenkott, assistant director – legal, at sbirrenkott@wisbank.com if you have any questions regarding the proposed regulation updates.