Key facts
- US bank regulators proposed changes to the Community Reinvestment Act (CRA).
- The proposal narrows credit for community development grants and raises asset thresholds for compliance.
- The number of banks subject to full CRA compliance would be significantly reduced.
- The changes aim to focus on lending and reduce emphasis on branch count and deposits.
- Consumer advocates criticize the proposal, fearing reduced lending in underserved communities.
US bank regulators have proposed significant changes to the Community Reinvestment Act (CRA), a law enacted in 1977 to combat redlining and encourage lending in low-to-middle income communities. The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) jointly announced the proposed revisions, which represent the first major update to the law in nearly three decades.
The proposed rules would shift the focus of CRA examinations, giving more weight to a bank's lending activities in specific communities and geographies, while diminishing the importance of factors like the number of branches a bank operates or the volume of deposits it collects locally. A key change involves raising the asset threshold for what is considered a small bank, increasing it from $412 million to $1 billion. Banks with assets between $1 billion and $10 billion would be classified as intermediate banks. These adjustments are expected to reduce the number of banks requiring full CRA compliance by approximately 800, leaving only about 86 institutions, or 3% of all banks, subject to the law's most stringent requirements.
Further changes target how banks receive credit for community development grants. The proposal suggests narrowing the scope of eligible groups and programs for these grants, potentially limiting donations to national organizations and prioritizing local initiatives. Banks would also be required to provide more detailed information on grant recipients. Regulators stated these changes aim to prevent grants from being diverted to "activist causes or consumed by excessive operating costs."
However, the proposed overhaul has already drawn criticism. Jesse Van Tol, CEO of the National Community Reinvestment Coalition (NCRC), expressed concern that the changes would politicize grant-making and discourage banks from providing support, particularly in rural areas, potentially leading to significant drops in activity. The proposal notably excludes the Federal Reserve, a third major bank regulator, which banking groups had hoped would join in a unified proposal.
The CRA requires banks to document their business activities in their operating areas and undergo regular examinations. A poor CRA rating can restrict a bank's ability to open new branches or merge with other institutions. The data collected under the CRA is also utilized by the Department of Justice in redlining cases. Previous attempts to revise the CRA's regulations, including those by the Biden administration, have faced legal challenges and failed to gain full regulatory alignment.