In Depth: A Look at Federal Banking Agencies’ Proposal to Update Community Reinvestment Act Rules | Cadwalader, Wickersham & Taft LLP


As we mentioned briefly in our newsletter last week, the Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve Board (“FRB”) and the Office of the Comptroller of the Currency (“OCC”) ( together, “The Agencies”) has issued a notice of proposed rulemaking to amend and update the rules implementing the Community Reinvestment Act (“CRA”). The comment period on the proposal will be open until August 5, 2022.

The proposal reflects the progress made between the agencies in terms of cooperation and coordination. The OCC had previously gone its own way in a June 2020 regulation, rather than following the tradition of issuing joint regulations. In 2021, the OCC then rescinded this rule and reverted to the 1995 interagency version of the rule. At that time, the OCC said the agency’s intent was “to facilitate ongoing interagency work to modernize the CRA’s regulatory framework and promote uniformity for all insured depository institutions.” . Last week’s action reflects this intention to modernize the CRA on a cross-agency basis and to “maintain a unified approach”. Acting FDIC Chairman Gruenberg noted at the FDIC public meeting that the FRB’s 2020 advance notice of proposed rulemaking served as a template for this proposal and helped bring the agencies together.

As noted in the Federal Reserve staff memo to the Board of Governors summarizing the proposal, the agencies hope to achieve the following goals:

(1) Strengthen the achievement of the objective of the law. ARC should continue to be a strong and effective tool to support a robust and inclusive financial services industry. To achieve this goal, the draft proposal assesses banks’ engagement across geographies and businesses, and promotes financial inclusion and transparency by providing enhanced data disclosures.

(2) Adapt to changes in the banking industry, including the increased role of mobile and online banking. There have been significant changes in the way banking services are provided, including through the use of internet and mobile banking and hybrid models that combine physical footprints with online lending. To achieve this objective, the proposal updates the areas of assessment, while emphasizing the areas of assessment by branch and proposes an approach adapted to the areas of assessment.

(3) Bring more clarity and consistency in the application of regulations. The proposal responds to comments on the need for greater clarity and consistency in the application of CRA regulations. To achieve this goal, the proposal introduces the use of standardized measures in ARC assessments for certain banks and clarifies eligible ARC activities focused on IMT communities and non-metropolitan communities.

(4) Adapt performance standards to account for differences in bank size, business models, and local conditions. Agencies seek to adapt the ARC framework to recognize differences in bank size and business models. To achieve this objective, the proposal adapts the performance standards for small (less than $600 million in assets), intermediate banks (from $600 to $2 billion in assets) and large banks (more than 2 billions of dollars in assets).

(5) Adapt data collection and reporting requirements and use existing data where possible. The proposal aims to strike an appropriate balance between greater clarity and consistency in the way banks are assessed by establishing the use of standardized metrics and adapting the associated data collection and reporting requirements.

(6) Promote transparency and public engagement. The proposal recognizes that transparency and public participation are fundamental aspects of the ARC evaluation process.

(7) Confirm that ARC and Fair Lending Reviews reinforce each other. Agencies ensure that banks meet the credit needs of their communities and do so in a fair and equitable manner, and agencies seek to coordinate ARC and fair loan reviews where possible.

(8) Create a consistent regulatory approach that applies to banks regulated by the three agencies. The proposal reflects a unified proposal to be applied to banks regulated by the three agencies and reflects stakeholder feedback as provided in meetings, roundtables and comment letters on past agency actions.

As noted in our summary last week, the proposal says it would make substantial changes in five key areas:

  1. Delimitation of assessment areas: The proposal would retain the current “facilities-based assessment zones” (focused on where banks have physical facilities, such as branches), but would also add a “retail lending assessment zone” for large banks in locations where the bank originated more than 100 home mortgages or more than 250 small business loans in each of the previous two years.
  2. General framework, standards and performance measures: All three categories of bank size from the current rules would be retained, but all would have higher thresholds, with small banks defined as having assets up to $600 million, large banks having assets over $2 billions of dollars and the intermediary banks between them. two levels. Large banks would generally be assessed on these four proposed tests: (1) Retail Lending, (2) Community Development Finance, (3) Retail Services and Products, and (4) Community Development Services. Intermediary banks would be assessed against the proposed test for retail loans and the current community development test. Small banks would continue to be assessed under current small bank standards, but would have the option of opting in to the proposed new tests. The proposed tests would also incorporate a broader use of metrics.
  3. Community development activities: The proposed rule would continue to include activities that currently receive CRA credit as community development activities, but would also create more criteria for the type of activities that qualify for community development credit from the CRA. ARC, with perhaps fewer geo-restrictions.
  4. Data collection, maintenance and reports: The proposal would aim to adapt the data requirements according to the size of the bank.
  5. Conclusions and performance evaluations: The proposal would assign ratings in component testing under the familiar common ratings of Excellent, Highly Satisfactory, Poorly Satisfactory, Needs Improvement, and Substantially Non-Compliant to arrive at the overall statutory final ratings (that is to say., no differentiation between high satisfactory and low satisfactory).

As noted earlier, the CRA rules in place today were primarily written in 2015, and industry advocates and community development advocates agree that the rules need to be updated. Case in point: Using smartphones to transact with a bank was clearly not contemplated by the 1995 rules. Although the initial reaction to the proposal was not necessarily universal praise from the industry banking and community development advocates, it also did not elicit universal criticism. Community development advocates have indicated that they hope the proposal may add more requirements in terms of supporting IMT communities, and they seem to like that there may be “stricter scoring” of community assessments. ‘BOW. Similarly, while the banking industry may not be enthusiastic about “tighter classification”, the industry seems to welcome efforts to provide more standardization and more predictability on which community development activities would receive a CRA credit. Reading the comments will certainly be interesting.

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