Introduction

On August 28, 2018, the Office of the Comptroller of the Currency (“OCC”) released an advance notice of proposed rulemaking (the “ANPR”) requesting public comment on how the regulatory regime that federal banking agencies have employed to implement the Community Reinvestment Act (“CRA”) should be updated to achieve the goals of the CRA, while reducing the regulatory burden imposed on banks by CRA compliance and evaluations.1

Background: The CRA

The CRA is designed to ensure that banks help to meet the credit needs of the communities they serve, including low and moderate income neighborhoods within those communities.2 The CRA has been in place since 1977, and the various federal banking agencies all have well-developed regulatory frameworks in place to enforce the CRA with respect to the financial institutions they supervise.3 Under this framework, a bank must demonstrate that it provides deposit services and makes loans to the communities in which it operates – geographies it must designate as its CRA “assessment areas.”4 The OCC and other federal banking agencies periodically prepare a performance evaluation for each bank’s CRA compliance.5 The tests employed vary depending on the size and complexity of the bank, but generally, the agencies evaluate banks’ lending, investments, and services provided to their communities for CRA purposes.6

The ANPR

In the ANPR, the OCC requests public comment “to solicit ideas for building a new framework to transform or modernize the regulations that implement the [CRA].”7 While the ANPR contains a number of open-ended questions for public input,8 it also contains some specific recommendations and provides general parameters on the portions of the CRA regulations that the OCC is considering for revision.9 

The OCC seeks comment on the best ways to develop a metric-based framework for evaluating CRA performance. Such a framework could, potentially, allow for alternative evaluation methods that could be tailored to banks of different sizes, complexities, and business models. The ANPR suggests a potential metric for evaluating CRA compliance: a ratio of the dollar value of all CRA-qualifying activities divided by each bank’s asset size (or some other appropriate denominator). This ratio or another similar one could set a benchmark for banks and their regulators to know which CRA rating a bank would receive at any given time.10

The ANPR also recommends broadening the definition of a bank’s assessment area. For example, under a new CRA framework, a bank might be able to include areas other than its current assessment areas that are tied to the bank’s business operations by, for example, concentrations of deposits or loans, affiliate offices, or loan production offices, rather than only by the locations of the main office, branches, and deposit-taking ATMs. The ANPR also suggests that banks might receive CRA credit for lending or other CRA-qualifying activities conducted in or focused on certain targeted areas, regardless of the bank’s physical presence or absence in those areas; for instance, in “remote rural populations or Indian country.”11

Further, the ANPR requests comment on expanding the range of activities that are CRA-qualifying, including but not limited to expanding the eligibility of small business lending and, potentially, making eligible certain student, auto, credit card, and/or affordably priced small-dollar consumer lending.

Context: Lead-up to the ANPR

In recent years, and particularly as new leadership took over the federal banking agencies in early 2017, the agencies have considered amending the regulatory framework implementing the CRA. In a June 2017 report (the “Treasury Report”),12 which covered a wide range of recommendations regarding the regulation of financial institutions, the Treasury Department took the position that the CRA is outdated and requires modernization, both at the statutory and regulatory levels:

The CRA statute is in need of modernization, regulatory oversight must be harmonized, and greater clarity in remediating deficiencies is called for. It is very important to better align the benefits arising from banks’ CRA investments with the interest and needs of the communities that they serve and to improve the current supervisory and regulatory framework for CRA.13

The Treasury Report also laid out Treasury’s then-proposed next steps regarding assessing the CRA, and the regulators’ implementation of it, explaining Treasury’s plans to assess the need for:

• Improvement in how banks’ CRA investments are measured;

• Harmonization of CRA supervision, given the oversight by multiple regulators;

• Changes in the way CRA geographic assessment areas are defined; and

• Improvement in the regulatory review and rating assessment process.14

After conducting this assessment of the CRA, in consultation with a number of stakeholders, including but not limited to community groups, regulatory agencies, and financial institutions themselves, the Treasury Department issued a memorandum to the OCC (“Treasury Memo”) with Treasury’s findings regarding the CRA.15 The recommendations in the Treasury Memo focused on four areas:

• Updating the definition of “assessment area” in order to reduce the rigid geographic limitations of the current definition, because, according to the Treasury Memo, consumer use of banking services is less dependent on brick and mortar facilities and in-person interactions than it was when the CRA was enacted;

• Making the criteria used by the banking agencies to evaluate CRA compliance more clear for financial institutions, and providing a broader set of activities that will qualify for CRA consideration;

• Harmonizing evaluation times across agencies and shortening both the lag times between evaluations and between evaluation and results; and

• Providing better incentives for financial institutions to improve CRA performance.16

Conclusion

The CRA affects all banks of all sizes and business models. All banks should consider submitting a comment letter to the OCC with suggestions for a new streamlined CRA regulatory framework.