U.S. Regulators Plan to Overhaul Community Reinvestment Act

Enacted in 1977, the Community Reinvestment Act (CRA) sought to address the redlining and other systemic inequities in access to investment, credit, and banking services faced by low and moderate-income (LMI) and minority communities.

Now, the Federal Reserve, Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) are proposing an update to the CRA, which requires that the Fed and other agencies encourage banks to help meet the credit needs of their local communities.

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The Fed oversees CRA compliance by examining state member banks in order to evaluate and rate their performance under the CRA metrics. When analyzing applications for mergers, acquisitions, and branch openings, the Fed then considers the banks’ CRA performance in context with other supervisory information.

Because it was last updated in 1995, the CRA does not now reflect how technology has significantly changed the way banks conduct business. For instance, the physical footprints of a bank’s branches are still central to the metrics of CRA tests. But, according to the FDIC, the number of full-service bank branches fell from almost 95,000 to just over 83,000 between 2010 and 2019 as many are doing their banking primarily or entirely online.

Under the new metrics, banks would be subject to up to four tests: retail lending; retail services and products; community development financing; and community development services.

Updates to the CRA would acknowledge the differences in bank sizes and would also revise what is considered a small, intermediate, and large bank. Those banks with less than $600 million in assets would be considered small, those with assets between $600 million and $2 billion would be considered intermediate, and those with more than $2 billion would be considered large.

Large banks would face tougher examinations, and the new metrics would be mandatory for them. Small and intermediate banks, on the other hand, could choose to be measured by existing metrics or a combination of new and old metrics.

The update would also provide banks with a clearer picture of how their activities would be credited. There would be a list of community development activities – like investments in childcare, education, and job training – that qualify for CRA consideration, which would let banks know ahead of time whether engaging in those activities would be worthwhile. And rather than emphasizing just a few large-scale projects, the new metrics would emphasize smaller-value loans and investments that would have a “high impact” on poor neighborhoods.