CRA Comments Review, Part 3: What Are Banks And Trade Groups Worried About – Or Embracing?


Part Three of a four-part series examining noteworthy trends in the comment letters sent to regulators as they finalize Community Reinvestment Act reform.

Nearly 5,000 organizations and individuals submitted public comment letters on the Community Reinvestment Act (CRA) Notice of Proposed Rulemaking (NPR) before the deadline on August 5, 2022. Only 13% of these comments have been made public, however. 

Despite this limited disclosure, we found notable trends in the comments that have been published. 

In Part One of this series on commenter themes, we looked at race and small business ideas. Part Two covered health care and climate resiliency themes. Here in Part Three, we identify areas of emphasis from the banking industry itself.

As expected, comments from banks were a mixed bag. There were areas of agreement but, of course, many other cases where NCRC and the banks were far apart policy-wise. Here are the main issues the bank comments touched upon.

Special Purpose Credit Programs

NCRC urged the agencies to require that CRA exams consider innovative Special Purpose Credit Programs (SPCPs) that target formerly redlined communities. We noted that SPCPs are not the complete solution but they are an important part of the remedy by targeting formerly redlined neighborhoods or people of color. The final regulation must indicate that SPCPs can include programs that focus on either people of color or communities of color. The final regulation should mention that SPCP programs can include home lending, small business lending, consumer lending or deposit products. This is where we found alignment with banks such as JP Morgan Chase, who noted that (SPCPs) can be a highly effective way to assist underserved individuals, communities and small businesses, and should carry appropriate weight in a CRA examination.

Retail Lending Test

Industry comments focused on the requirement that banks lend at 125% of the market benchmark to achieve an “Outstanding” rating. In other words, if all lenders, as a group, averaged 25% of their home loans to LMI borrowers in a metropolitan area, an individual bank would need to make 31.25% of its loans in order to receive an Outstanding on the performance measure of lending to LMI borrowers. The other performance measures such as home purchase lending in LMI neighborhoods would be scored in a similar manner.

NCRC agreed that for a bank to achieve an “Outstanding” rating on its CRA exam, it needed to be at 125% of the market benchmark. We believe this level is appropriate due to our observations over the years that banks cluster around the market benchmark. Knowing this, logically, it would make sense that to obtain the highest CRA rating level, a bank should perform significantly better than most of its peers.

Banks largely disagreed with this assessment.

Capital One, for example, held that banks that want to achieve the highest CRA exam rating would be forced to stretch their lending distribution in ways that could lead to unsafe and unsound banking practices. Capital One stated that the benchmark for “Outstanding” may also disadvantage banks that have a substantial market share, but banks with a smaller market share could more easily improve their lending distribution. As a result, it may be a “business impossibility” for large volume lenders to achieve 125% of the market benchmark.

Similar concerns about the proposed Retail Lending Test were also echoed by JP Morgan Chase. They were particularly concerned that the banks performance at 110% or below the Market Benchmark would result in a Low Satisfactory rating. They suggested that the agencies need to adjust the thresholds to “ensure that banks that achieve 100% of the Market Benchmark be rated higher than Low Satisfactory, and to reasonably allow for banks to achieve an Outstanding rating.”

In rebuttal, NCRC stated that large banks had abandoned Federal Housing Administration (FHA)-backed lending, which has helped mortgage companies serve LMI populations. At the same time, banks had not substituted FHA-backed lending with their own affordable conventional loan products geared to LMI borrowers. The agencies in the NPR detailed deteriorating performance of banks, particularly larger ones, in making loans to LMI borrowers. Finally, the Urban Institute has documented how millions of loans were not made to traditionally underserved borrowers over the years because banks had unreasonably tightened underwriting standards. In recent years, this tightening exceeds even the standards in place prior to the early-2000s surge in subprime lending. Thus, NCRC concluded that banks have ample room to improve their home lending to LMI borrowers and neighborhoods in a safe and sound manner. 

Retail Lending Assessment Areas 

In the NPR, CRA regulators proposed to create retail lending assessment areas (RLAAs). These RLAAs would be located where a large bank does not have branches but issues sizable numbers of home or small business loans. The NPR states it is “appropriate to evaluate large banks’ retail lending in retail lending assessment areas on a local basis because it accords with CRA’s focus on a bank’s local performance in meeting community credit needs. A local evaluation promotes transparency by providing useful information to the public and banks regarding their performance in specific markets.” 

NCRC’s comment agreed with the agencies’ rationale, noting that it furthers the law’s purpose that banks “are required by law to demonstrate that (they) serve the convenience and needs of the communities in which they are chartered to do business.” Regarding outside retail lending areas, we stated that “all large banks must have their outside retail lending areas evaluated at the institution level.” We believe that the weighting system that was proposed in the NPR would take note of differences in business models and percentages of outside Facility Based Assessment Areas (FBAA) and RLAA lending. Since the lesser weight would be given to lower levels of lending in RLAAs and lending outside of all assessment areas for banks with more of a traditional branch model, the rating system would not be unduly burdensome for banks and would hold them accountable for making loans to underserved populations. We also stated that no exceptions should be granted to this procedure such as exemptions for banks with 80% or more of their loans in FBAAs and RLAAs, which the agencies suggested as an alternative.

A number of banks disagreed with this section of the NPR. PNC Bank’s comment suggested that CRA regulators should exclude traditional banks that operate primarily through a branch network from Retail Lending Assessment Areas and the Outside Retail Lending Area. They felt the proposed RLAA framework was “unnecessary for traditional branch-based banks, create incentives that will harm lending in certain areas and further perpetuate an uneven playing field between traditional banks and largely branchless banks. They hold the view that the RLAA framework need only apply to banks engaging in 50% or more of its total retail lending outside of its FBAAs. It should then be mandatory that banks subject to the RLAA framework establish a RLAA only in an area where they are involved in a “significant amount” of retail lending.

Flagstar Bank argued that requiring large banks to define retail lending assessment areas would be overly burdensome and would discourage critical CRA activities by banks, contrary to the stated goals of CRA reform. The bank believed that due to potential increased costs and burdens of expanding retail lending, banks could potentially be discouraged from lending in areas where they do not have a branch presence in an assessment area. Flagstar cited the significant data collection, maintenance and reporting requirements imposed by the NPR as the primary reasons for the increased costs.

In rebuttal, NCRC maintained that the new procedures designed to capture most retail lending on CRA exams was critical to ensuring that all borrowers and communities, particularly modest income and people of color, were served by banks as CRA requires. Further, since the great majority of banks were still traditional lenders reliant on their branch networks for making loans, the numbers of banks required to establish RLAAs for home lending (91 out of more than 4,000) was small and the numbers of RLAAs (median was two RLAAs) was likewise small. This suggests that assessing lending outside of branches was feasible and not too burdensome. 

Transition To New Rule

NCRC supported the NPR proposal to transition to the new rule, finding the implementation parameters and timeline reasonable. As written, the proposed new performance standards, facility-based assessment area definitions and public file requirements would be effective 60 days after publication in the Federal Register. One year after the date of the final rule, most definitions, proposed tests and data collection requirements become effective. Banks required to report new data would start collecting such data 12 months after the final rule and would report their data to the agencies by April 1 of the following year. Finally, new CRA exams would start two years after publication of the final rule.

This was another area where there was disagreement between NCRC and industry. Banks such as First National Bank, Ames Iowa stated that 12 months was insufficient to implement the proposed changes in the NPR. They requested the agencies provide an implementation period of at least two years (24 months) following publication of the final rule in the Federal Register. They also requested the Agencies provide “extensive interagency training and support” so banks could understand the new rules. The Mortgage Bankers Association (MBA) had a similar view about the transition period. The MBA also noted that the final rule would overlap with the CFPB Section 1071 final rule.


Joseph Reed is the Senior Policy Advocate for NCRC.

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