As a banking community, we are hoping for clarity, transparency, and fairness in CRA legislation that was revolutionary in 1977–the same year Star Wars was released. On May 5th, 2022, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency released an updated CRA proposal with the goal of “strengthening and modernizing” regulations.
The updated proposal comes two years after an attempted revamp from the OCC (without the collaboration of the Fed and the FDIC), which was rescinded in September 2021. The changes were criticized due to their focus on total lending volume rather than type.
Martin J. Gruenberg, Acting Chairman of the FDIC, notes the following in his official statement on the latest Notice of Proposed Rulemaking (NPR):
“The changes to CRA being proposed are substantial. They would significantly expand the scope and rigor of CRA, and expand access to credit, investment, and basic banking services in low– and moderate–income communities across the United States. These communities have been the most severely impacted by the COVID–19 pandemic.”
The NPR includes an aim for greater transparency, emphasis on metrics and small dollar loans, and the expanded role of mobile and online banking. The highlights are below, but the major differences from the 2020 revision attempt? This is a joint proposal supported by all three financial regulators, and supporters claim it meets the CRA’s vision of full-inclusion for underserved communities.
Objectives of the Updated CRA Proposal
- Provide LMI communities more access to credit, investment, and banking services. The proposal aims to address credit access inequality by emphasizing smaller value loans and investments that could benefit LMI communities the most.
- Account for mobile banking, branchless banking, hybrid models, etc. Offerings that have been restructuring the industry for decades will be considered and addressed. For example, financial institutions will be given credit for mortgages and loans issued to LMI areas through online lending. Banks can earn community development credit for activity outside of their branch-based areas, incentivizing bank activity in LMI, rural, and other underserved communities.
- Offer clarity & consistency to financial institutions under the law. The proposal incorporates detailed metrics on bank lending activity (particularly for retail lending and community development financing). It also offers a concrete list of CRA eligible activities (many of which are focused on LMI, rural, and other underserved communities), lessening the subjectivity of the current rules. Also, the current satisfactory grade would be replaced by grades of high satisfactory and low satisfactory.
- CRA evaluations will be tailored to bank size and business model/complexity. The proposal offers separate standards for small (assets under $600 million), intermediate (assets of at least $600 million and less than $2 billion), and large (assets over $2 billion) institutions. Smaller banks would continue to be evaluated under the current CRA framework unless they choose to be evaluated under the new guidelines. Large banks could have additional reporting requirements, like details on customer deposits and auto loans in LMI areas as well as online lending for mortgages, credit cards, and other retail lending.
- “Maintain a unified approach” from all bank regulatory agencies that’s backed by research and feedback from stakeholders.
Gruenberg adds, that in addition to the above objectives:
“…the proposed rule provides greater transparency on lending to communities of color utilizing publicly available information. It also provides enhanced incentives for bank collaboration with minority depository institutions and community development financial institutions, bank investments in disaster preparedness and climate resilience in low- and moderate-income neighborhoods, and bank lending, investment, and services in rural communities and Native lands.”
The agencies are inviting stakeholders to review and comment on the joint proposal through August 5, 2022.
CRA Proposal Insights
There are some elements that many community banks argue are missing from the new proposal, particularly the lack of inclusion for credit unions and fintechs, even as much of the revamp is aimed at updating for technology for the first time since Windows ‘95 was released.
What we may see is not necessarily an inclusion of credit unions and neobanks at the national level, but instead the addition of state-level CRA requirements like we’ve seen in New York, Illinois, and Massachusetts. Clearly, this may present challenges as banks serve market areas spanning across multiple states.
Banks might face tougher CRA examinations, but the NPR could help financial institutions better understand where they stand in regard to CRA compliance, especially as the proposal draws lines in the anti-redlining legislation where there previously were none.
Looking to streamline CRA management? Now’s the time.
Modernized (and seemingly more stringent) CRA regulations have officially joined the chat. It’s time to get serious about streamlining CRA management.
We built our Community Spark software so financial brands can do just that by managing, tracking, and reporting on their community investments, volunteer hours, and charitable giving in one easy-to-use platform. Its CRA-eligible activity qualifications, approval workflows, tools for directly importing LMI loans & investments for reporting purposes, and on-demand exportable reports for audits and exams simplify CRA management so that financial brands can feel confident when it comes to compliance.
If the NPR is applied, tracking for compliance will certainly become top-of-mind, but metrics-based reporting requirements could also offer financial brands a unique opportunity: sharing their community development initiatives in quantifiable, impactful ways. Community Spark’s tracking and reporting features empower financial brands to effectively share their community impact stories, all while sourcing information, photographs, and videos from participants–making these stories as authentic and powerful as possible.