The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have proposed significant revisions to the Community Reinvestment Act (CRA), a landmark law enacted in 1977 to combat discriminatory lending practices like redlining. This marks the first major overhaul of the CRA's regulations in nearly three decades.
The proposed changes aim to modernize the law to reflect current banking practices and would reduce the number of institutions required to fully comply with its provisions. Under the new rules, the asset threshold for banks classified as "small" would increase from $412 million to $1 billion, and banks with assets between $1 billion and $10 billion would be considered "intermediate." This reclassification is expected to exempt approximately 800 banks, leaving only about 3% of financial institutions subject to the full extent of CRA requirements.
The regulators also propose shifting the emphasis in CRA examinations. Bank examiners would place greater weight on lending activities in specific geographies and less on factors like the number of branches or deposit-taking volume within a community. Additionally, the revisions could narrow the scope of community development groups and programs eligible for bank donations aimed at meeting CRA obligations. Regulators stated these changes would ensure community development grants are not "diverted to activist causes or consumed by excessive operating costs," while requiring banks to collect more detailed information on grant recipients for increased transparency.
Critics, such as Jesse Van Tol, CEO of the National Community Reinvestment Coalition (NCRC), have expressed concern that the proposed rules could discourage banks from making grants, particularly in rural areas, and politicize the grant-making process. The NCRC, an umbrella group for community development organizations, often receives funding from banks under the CRA.
The proposal was not jointly issued by all three major bank regulators, as the Federal Reserve was not included. Banking industry groups had advocated for a unified proposal from all three to ensure consistent requirements.
The CRA requires regulators to assess how well banks serve the credit needs of the low- and moderate-income communities where they operate. Banks are subject to regular examinations, and a poor CRA rating can restrict their ability to open new branches, merge with other institutions, or face other consequences. Data collected under the CRA is also utilized by the Department of Justice in redlining cases.
Previous attempts to revise the CRA's regulations, including those by the Biden administration, have faced challenges, with some being blocked by courts. The current proposal will undergo a 60-day public comment period before being finalized.