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CRA Rollback
Complying with the Community Reinvestment Act has been consistently a part of banking since the law was passed in 1977. What hasn’t been consistent is the regulatory guidance to comply.
The anti-redlining law aims to make sure banks support low- and moderate-income neighborhoods. But the rule banks currently use is largely the same as it was in 1995 — predating the internet, mobile banking and banking as a service. Regulators under different administrations tried to modernize the rule that implements the law at least two times since 2020, only to have a new leadership trash it. After ditching a major rewrite of the rulemaking last year, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency issued a joint regulatory proposal last week that would dramatically roll back regulations for small banks and shift the focus to lending activities. The Federal Reserve System did not participate.
On the surface, it looks broadly good for banks. The current regulation has a variety of tests for lending, investments and service, based on the size of the bank. It defines a small bank as having less than $412 million in assets — the proposal would have that go to $1 billion. An intermediate bank would go from having $1.65 billion in assets to $10 billion in assets, and those banks would be exempt from some data collection requirements under the proposal. The National Community Reinvestment Coalition estimates that raising the thresholds will mean 417 banks would lose evaluations designed to ensure they maintain branches in low- and moderate-income communities. More than 800 banks would lose the community development test, the group said.
But the proposal also adds a new requirement. Large banks above $10 billion in assets would need to document that grants to community development organizations don’t pay for more than 15% of an organization’s indirect expenses, or overhead, so that more funds go directly to programs. The provision seems designed to minimize a long-standing critique — that banks were forced to fund the “activist” activities of nongovernmental organizations that offer foreclosure assistance and other services to low-income communities.
“Today’s proposed reforms will help ensure the CRA is no longer used as a social credit score for banks, nor as a funding mechanism for activist NGO networks under the guise of community development,” Comptroller of the Currency Jonathan Gould wrote on the social media platform X.
• Naomi Snyder, editor-in-chief of Bank Director
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