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Fed Invites Feedback on Changes to Community Reinvestment Act 

by Wes Scott, Kevin Tran

Published: October, 2020

Submission: October, 2020


The Federal Reserve Board (“Fed”) recently issued an Advance Notice of Proposed Rulemaking (ANPR) inviting public comment on an approach to revise and modernize the regulations implementing the Community Reinvestment Act (CRA). Enacted in 1977, the CRA served as a landmark piece of legislation in the wake of the civil rights movement to address systemic inequities that inhibited access to credit markets for low- and moderate-income (LMI) communities and minorities.

The Fed, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) implement the CRA through their respective CRA regulations. The CRA regulations establish the framework by which regulators can evaluate a bank’s record for helping its community, including LMI neighborhoods. The ANPR aims to solicit feedback on the Fed’s proposed revisions to strengthen and modernize the CRA to better meet the core purpose of the CRA in light of the changing banking landscape. Specifically, through the ANPR, the Fed is seeking comment on several proposals, including:

  • Improving access to credit and other financial services to LMI communities by using separate tests (a Retail Test and a Community Development Test) to ensure large retail banks are appropriately evaluated and rated on their retail and community development activities.
  • Promoting financial inclusion by creating special provisions and incentives for bank investments in minority depository institutions (MDIs), women-owned financial institutions, low-income credit unions, and underserved communities.
  • Clarifying and tailoring performance evaluations by establishing a framework that incorporates standardized metrics, which would be tailored to local market conditions, into the examination process.
  • Recognizing the importance of small banks in rural areas by providing such banks greater clarity and flexibility in defining their assessment areas and by tailoring the facility-based assessment area definition based upon bank size.
  • Expanding eligible community development activities by publishing an illustrative, non-exhaustive list of qualifying activities.
  • Minimizing reporting burdens by proposing metrics that rely more on existing data and by tailoring any additional reporting requirements.

The Fed’s ANPR comes on the heels of the CRA reforms finalized by the OCC in May 2020, which were issued without support from the FDIC or the Fed. When the OCC issued its CRA changes, advocacy groups criticized the changes for straying from the CRA’s intended goals and for fracturing the interagency consensus around CRA enforcement. The OCC suffered an additional blow when the House of Representatives passed a joint resolution on June 29, 2020, disapproving the OCC rule and stating that such rule “shall have no force and effect.”

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