Without a doubt, the most difficult part of working the Compliance Alliance Hotline is that we are expected to know the ins and outs of any regulatory compliance question at any time, no matter how new the rule is, and we enjoy that challenge. And our members did not disappoint when the new 1,500 page CRA Final Rule was released. Within minutes our advisors, who by virtue of working the hotline had not fully digested all the nuances of the Rule, were being inundated with CRA questions. âMinutesâ may be a slight exaggeration but we really have received plenty of chats, emails, and calls on this topic since day one and we want to use this platform to go over some of the most commonly asked questions thus far.
First, to back up a second, on October 24th, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation issued a final rule modernizing their regulations implementing the Community Reinvestment Act. The agencies also issued a Fact Sheet and an Interagency Overview in which they highlight key elements of the Rule and changes from the proposal. The Rule updates the 1977 anti-redlining law for, effectively, the first time in nearly three decades.
Not surprisingly, the most common question thus far has been âwhat are the revised bank asset size thresholds? Please tell me Iâm still a small bank.â The good news is that if youâre a small bank now, youâll still be a small bank and some intermediate small banks will be small banks once the rule goes into effect. Per the rule, small banks are banks with assets under $600M (the threshold is $376M under the current framework); intermediate banks will be any bank between $600Mâ<$2B (from $376Mâ$1.503B); and large banks: â„$2B (from â„$1.503B). In the future the asset-size thresholds will be adjusted annually for inflation.
So, when do you need to comply? Although the Rule is effective April 1, 2024, the compliance date for the majority of the Ruleâs provisions is January 1, 2026. The Rule, in a change from the proposal, requires data collection beginning January 1, 2026, with reporting the following year, by April 1, 2027. The Ruleâs new data collection and reporting requirements do not apply to small and intermediate banks and certain of such requirements, such as the requirement to annually collect, maintain, and report deposits based on the location of the depositor, apply only to large banks with assets over $10 billion.
The next question youâre likely to have is something like, âAlright, weâre a small bank but what does that mean? How are we being tested?â The evaluation framework for banks includes six tests: Retail Lending Test, Retail Services and Products Test, Community Development Financing Test, Community Development Services Test, Intermediate Bank Community Development Test, and Small Bank Lending Test. The six tests apply as follows:
- Large banks will be evaluated under the Retail Lending Test, Retail Services and Products Test, Community Development Financing Test, and Community Development Services Test.
- Intermediate banks will be evaluated under the Retail Lending Test and Intermediate Bank Community Development Test or, at the bankâs option, the Community Development Financing Test
- Small banks will be evaluated under the Small Bank Lending Test or, at the bankâs option, the Retail Lending Test.
Banks of all sizes retain the option to request approval to be evaluated under an approved strategic plan. For large banks, the Rule reduces the proposed weight assigned to the Retail Lending Test and increases the proposed weight assigned to the Community Development Financing Test so that each test is weighted equally.
The Rule is too large to fully summarize here but hopefully this answers some of your initial questions. Please stay tuned as we update our CRA tools and develop a summary of this rule. As always, our hotline team is happy to help with any questions you may have about CRA or any other topic, no matter how recently it was updated.