On May 5, 2022 the OCC, FRB and FDIC issued an interagency notice of proposed rulemaking, seeking comments on their updates to the CRA regulations. This proposal is essentially the replacement to the OCC’s modernization rule, which was published in 2020 and rescinded in 2021. The industry has been anticipating the arrival of the interagency attempt at updating the CRA regulations, and it seems that day has arrived. The proposed rule tips the scales at 679 pages, which should make for light reading for compliance and non-compliance folks alike. The proposed rule contains about 200 pages of regulations, and nearly 500 pages of discussion about the proposed rule. Comments are due on or before August 5, 2022.
The Community Reinvestment Act, originally passed in the late 1970s, encourages banks to help meet the credit needs of the local communities in which they’re located, consistent with safe and sound practices. Because time marches on, the industry changes, and technology changes, the agencies feel that the CRA regulations should be updated in order to keep pace with the purpose of the CRA.
Some of the major stated objectives in updating the CRA regulations include 1) strengthening the achievement of the core purpose of the CRA, 2) adapting to technological changes such as mobile and online banking, 3) providing greater clarity and consistency, 4) tailoring data collection, reporting requirements, and performance standards, 5) creating a consistent approach between all three agencies.
To achieve the objectives stated in the proposed rule, the agencies have proposed a rule with the following major themes:
- Increase credit and investment in LMI areas.
a. The agencies are proposing evaluate performance of the activities conducted and the communities in which the banks operate so that CRA remains the effective tool it was designed to be. This proposal also emphasizes smaller loans and investments, which can be vitally important to meeting the needs of LMI areas.
- Modernizing to include internet and mobile banking.
a. The agencies are proposing to update CRA assessment areas to include activities associated with online and mobile banking, branchless banking, and hybrid models, to more accurately capture the areas and ways in which banking is done.
- Provide a clearer, more understandable CRA.
a. The agencies are proposing a metrics-based approach to evaluations, for greater clarity and to help with consistency. The rule would also seek to more clearly identify eligible CRA activities. This element alone should draw numerous comments, as this is one of most questioned aspect of the current CRA regulations.
- Customize data collection and evaluations specific to bank size and type.
a. The agencies are proposing to recognize differences in bank sizes and types, by providing those smaller banks the ability to continue to be evaluated under the existing CRA regulatory framework with the option to be evaluated under aspects of the new proposed framework.
It’s hard to say what the ultimate effects will be of the proposed CRA rule. We’ll have to wait and see how the agencies digest the inevitable comments on this significant proposal, and what shape the final rule takes. In the meantime, Compliance Alliance is working diligently to prepare a summary of this nearly 700-page rule to help you understand it. This summary will be available on our website as soon as it is available.