The Community Reinvestment Act’s (CRA) central goal of remediating economic injustice cannot be effectively achieved without ample and direct input from the people CRA is meant to help. When regulators overhauled CRA rules in 2023, one of the most important pieces of the puzzle was how to improve public engagement with banks and the federal bank agencies to help fulfill the law’s mandate that banks serve community needs. There is no better way for banks to figure out how to serve community needs than consulting the community in a sustained and thorough manner. CRA must establish a regular and thoughtful process for dialogue among the stakeholders.
When considering the final rule issued this past October, two aspects of public engagement are key:
(1) Are processes and logistics for public input enhanced so that it is easier for the public to engage banks and agencies?
(2) Do the new quantitative and qualitative methods for assessing bank performance on exams facilitate public input, or frustrate it?
Processes & Logistics
Regarding the first point, the agencies have inconsistent processes for facilitating public input. For the Federal Reserve Board and the FDIC, the public can submit comments on CRA exams and merger applications over the internet. In contrast, the website of the Office of the Comptroller of the Currency (OCC) directs the public to submit comments to the “appropriate supervisory office.” The OCC website then provides a link to a section describing several offices of the agency. Most members of the public would be baffled and would need to engage in phone calling and emailing in the hopes of figuring out to whom to send comments. Moreover, the agencies are inconsistent regarding their timeliness in responding to public queries. Some are prompt while others take days unless a member of the public is persistent in calling and emailing.
The text of the final rule indicates the agencies are at least aware that current systems discourage the public. One passage contemplates the idea of creating a portal for submitting comments for the agencies that do not have an existing internet option. However, this is framed as a possibility; There is no interagency commitment to create such a portal.
The agencies should have made clear that the public will have an easy way to submit comments and that agency officials will respond to questions from the public in an expeditious manner (such as within 48 hours). A lack of an ironclad commitment to an approach that is standardized and straightforward for facilitating public comment is a profound disappointment in implementing a law whose effectiveness relies on public engagement.
On the positive side, the agencies did commit to some awareness-raising practices. Every four months – and 30 days before the start of each business quarter – they will send notices listing which banks are scheduled for a CRA exam in the coming six months. Community groups will be better able to develop and submit timely comments as a result. Moreover, public comments on a bank’s CRA performance must be published on banks’ own websites, making them more visible to the general public. These agency commitments foster a more transparent process – which only makes it more puzzling why the agencies did not standardize a method for submission of comments or answering questions. In addition, the agencies also should have pledged to email the quarterly CRA exam schedule to members of the public upon request.
Currently, it is common for a CRA exam or merger decision to not explicitly consider a comment from a member of the public. In these cases, the member of the public may want to ask the agency questions to increase the chances that future comments will be explicitly considered. A lack of a clear willingness on the part of the agencies to engage in dialogue with the public will discourage public input, particularly in cases when comments are not considered and commenters who feel ignored cannot find an agency representative to talk about why their input was not considered.
Facilitative or Frustrating?
Regarding the second question about facilitating public comments, user-friendly communication processes must be complemented by public-friendly examination methods. The public’s understanding of CRA exam methodologies is key for community organizations to effectively tailor their comments to the considerations of interest to examiners. The October 2023 rule moves the opposite direction in some ways: The quantitative benchmarks and the weighting of the benchmarks in the new rule became more complex, possibly making it harder for members of the public to comment on quantitative performance.
But the new tests do have clearer thresholds that are more objective – and thus easier for the public to understand. For example, on the new Retail Lending Test, a bank scores Outstanding on the metric of loans to low-income borrowers if the bank is 115% above the percentage of loans made by all lenders to low-income borrowers. For example, the bank would score Outstanding if it made 11.5% of its loans to low-income borrowers and all lenders in a metropolitan area made 10%.
A metric like this avoids arguments about the levels of performance that correspond with various ratings. And with some training, more people will hopefully use these metrics. NCRC will provide more training but it would also be helpful if the agencies hold meetings and webinars explaining the new exams over the next couple of years.
In addition to clearer metrics, the new exams may motivate the public to perform their own analyses because their communities will count more on the new exams. The new rule for large banks requires passing in 60% of their assessment areas in order to pass overall. This rule may encourage community organizations to analyze performance and comment on bank performance in their communities. Each community becomes more important because failure in a handful of areas may imperil a bank’s overall rating. This is as it should be: CRA requires banks to serve all communities, not just some of them.
The qualitative aspects of performance, particularly on the Community Development Finance Test, provide another important avenue for community input. When a bank engages in a large-scale economic revitalization or housing project, does this project benefit long-term neighborhood residents or fuel eventual displacement of modest income residents and people of color? The qualitative exam criteria emphasizing benefits to low- and moderate-income (LMI) populations provide a key means for neighborhood residents to express their views to examiners about these critical issues. It could lead to some banks changing their approach to affordable housing, for example by undertaking projects that set aside more units for LMI residents over longer periods of time. The qualitative criteria could also encourage banks to layer beneficial aspects of projects on top of each other, for instance by creating energy efficient housing and funding community development featuring green space, renewable energy, and weatherization.
While qualitative criteria on the Community Development Finance Test could have significant influence on the rating for that test, these criteria are treated like ‘bonus points’ on the Retail Services and Products Test instead of core considerations: They only count in a bank’s exam if the findings would improve its rating. If qualitative assessments indicate poor performance, they disappear from the Retail Services and Products Test. This bonus-point approach most likely dilutes the power of community input on the affordability and sustainability of bank deposit and credit products. This is an area the agencies should revisit.
A missed opportunity for significantly increasing public input opportunities and the effectiveness of the input is requiring banks that score poorly to submit a public improvement plan with measurable goals of how they will achieve a Satisfactory or Outstanding performance. Specifically, if a bank scored Low Satisfactory or worse in any assessment areas, the bank would submit an improvement plan for those assessment areas subject to public comment. This would reduce the binary aspect of CRA – a bank passes or fails – and would help make CRA a more continuous dialogue among stakeholders to jointly identify how a bank can better serve all of its communities. Unfortunately, the agencies declined to adopt this recommendation and instead noted that a bank which received less than a Satisfactory overall rating would need to add specific information on how it will improve its performance to its public file (the series of documents that a bank must make available upon request from a member of the public).
Josh Silver is a Senior Fellow at NCRC.