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The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) recently announced a proposed Community Reinvestment Act (CRA) rule that would weaken bank obligations to invest, lend and provide services in low- and moderate-income (LMI) communities, while reducing transparency and accountability.
This deviates from their previous plan to withdraw the 2023 version of the Community Reinvestment Act Rule and replace it with the 1995 version.
NCRC has summarized the key takeaways from the rule. To read our full analysis, click here.
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PROPOSED CRA RULE HIGHLIGHTS
Type of Bank
Current Rule
Proposed Rule
Impact
Small Banks
Asset threshold: <$412 million
CRA obligations: lending test only (retail loans)
No: community development test, small business reporting
Asset Threshold: <$1 billion
Threshold change means 800 fewer banks have community development obligations; reduction of 40%
Intermediate Banks
Asset threshold: >$412 million to $1.649 billion
CRA Obligations: Lending test (retail loans) and a combined community development test (loans, investments, services, grants combined)
No: small business reporting
Asset Threshold: >$1 billion to $10 billion
417 banks now subject to “easier” combined community development test instead of more robust large bank test
Large Banks
Asset threshold: >$1.649 billion
CRA Obligations: lending test (retail and CD loans), service test (branches, products, volunteer hours); investment test (CD investments and grants)
Small business reporting required
Asset Threshold: >$10 billion
Changes service to test to only focus on credit services (not deposit services)
Branches lose scrutiny: eliminates branch evaluations for 417 banks
These banks have 5,000 branches in LMI census tracks (30% of all LMI branches) and 4,000 branches in majority people of color tracks (23% of all branches)
11% reduction in small business lending reporting
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Benefits of the Community Reinvestment Act
1
The Community Reinvestment Act (CRA) was passed in 1977 to combat redlining – a practice where banks would not issue loans in neighborhoods with high populations of people of color or working-class residents.
2
The CRA has been successful at ensuring working-class borrowers and neighborhoods have access to homeownership and entrepreneurship, with nearly $5 trillion in CRA-qualifying mortgages and small business loans made from 2010-2024. Click here to see how much CRA-qualified lending has gone into your community!
3
Working-class neighborhoods lose economic opportunity without CRA. The Federal Reserve of Philadelphia looked at how lending was affected in neighborhoods by changing eligibility for CRA-qualified loans. They found that mortgage lending slows down and small business lending decreases by nearly 10% in urban neighborhoods that lose eligibility for CRA-qualified loans.
4
The CRA drives affordable housing investment nationwide. The CRA is often referred to as the primary motivator of bank investment in Low Income Housing Tax Credits (LIHTC), with banks accounting for 85% of LIHTC investment dollars.
5
CRA has led to many banks supporting Community Development Financial Institutions (CDFIs), with banks being a significant source of lending capital for CDFIs in the form of loans, investments and deposits.
Benefits of the 2023 Rule
Modernization & Clarity
•
Updates assessment areas to account for online lending that was nonexistent the last time the CRA was updated in 1995, while tailoring new assessment areas to only apply to banks that do more than 20% of their lending outside of branch networks.
•
Takes the guesswork out of determining what is a “satisfactory” level of lending to working-class borrowers or small businesses by establishing transparent performance ranges that compare a bank’s lending to other lenders and local demographics. This clarity will save members of the public and banks considerable time.
•
Implements common sense updates that banks that choose to pursue strategic plans should post their draft plans online for public comment, instead of the current practice of posting them in trade papers that are not widely read. This update makes it easier for the public to comment on strategic plans, which has become more common in recent years as more online lenders and fintechs pursue bank charters and the strategic plan option.
Boosting Rural, Working-Class America
•
Allows banks to get credit for community development financing across the country to address the current lack of community development in communities without branches, such as rural areas and Native lands.
•
Encourages more loans, investments, and grants from banks in areas with economic hardship such as persistent-poverty counties that tend to be rural. These private investments complement federal, state, and local initiatives in these underserved areas so they can achieve greater impact than they would with only public investment.
•
Awards positive consideration for banks that offer checking accounts whose cost and features are tailored for the working class.
