A New CRA Is Reborn
The Community Reinvestment Act has a singular place in banking history.
Unlike a lot of banking laws, I think it’s safe to say that it’s mostly popular with activists and bankers alike. Created in 1977, the law is designed to ensure that banks serve low- and moderate-income neighborhoods. It created a grading system where regulators assign banks points to lend to people and businesses inside low- and moderate-income neighborhoods, as well as to invest in development projects that will benefit those communities. Community activists like the law, even if they want to strengthen it. And banks want to understand it and comply with it. Their activities benefit the community; they get recognized for their efforts; and regulators award them strong ratings on their CRA regulatory exams. Conversely, regulators may prevent banks from doing acquisitions or expanding branch networks for a “needs to improve” or “substantial noncompliance” rating.
“This is deep in the DNA of banks,” Alston & Bird banking attorney Clifford Stanford told me when I covered this topic for the first quarter 2021 issue of Bank Director magazine. “It’s been an important part of banking for a long time.”
Unfortunately, what’s been important to banking has been shrouded in uncertainty for years. The industry has been waiting for clarity and a modernization of the rules, which haven’t been substantially changed since 1995. In 2020, then-Comptroller of the Currency and former banker Joseph Otting proposed a new set of rules to update the CRA. The problem: He couldn’t get other regulators to endorse his plan. That left national banks, which are regulated by the OCC, with one set of rules that would go into effect starting January 2023, and other banks with another set of rules. Industry groups urged the regulators to come together on a unified plan.
Well, it’s finally here. The staff at the Federal Deposit Insurance Corp., the Federal Reserve and the OCC signed on to a new, unified CRA rule this month, with Federal Reserve Governor Lael Brainard and FDIC Acting Chair Martin Gruenberg as the point people. There’s a lot to unpack in the proposed rule, which will take time to digest. Bankers and other interested parties have until Aug. 5 to comment on the proposal.
Suffice it to say, the regulators are giving the banking industry at least one thing it wanted: clarity.
• Naomi Snyder, editor-in-chief of Bank Director