On October 24, 2023, the updated final rule for the Community Reinvestment Act (CRA) regulations were released by the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, the Federal Reserve System, and the Federal Deposit Insurance Corporation. The main objective behind releasing the final rule was to revise CRA regulations to “better achieve the CRA’s core purpose of encouraging banks to help meet the credit needs of their local communities.” The updates are also designed to adapt to changes in the banking industry (including the expanded role of mobile and online banking) as well as other elements such as data collection and reporting requirements, performance standards, and community engagement. The final rule will take effect on April 1, 2024, with staggered compliance dates of January 1, 2026, and January 1, 2027.
There are several resources available and in development to help advocates and practitioners understand this updated final rule, many of which we’ll include in this piece along with a refresher on CRA regulations and their importance in the world of housing and community development.
Overview of the Community Reinvestment Act (CRA)
The Community Reinvestment Act of 1977 (CRA) was intended to combat the deep and insidious effects of redlining, a practice used by mortgage lenders that involved drawing red lines around portions of a map to indicate areas or neighborhoods in which they do not want to make loans. This practice disproportionately impacted African American neighborhoods and communities and was ultimately deemed by courts to be an illegal practice when used on a racial basis. The CRA gives low- and moderate-income (LMI) borrowers and borrowers in LMI neighborhoods a CRA credit for bank lending. As a result of these regulations, there has been expanded credit access to underserved communities and borrowers; however, it has been discussed for years that the current regulations, despite “expanding access,” do not actually ensure equitable outcomes, particularly for Black Households in underserved communities.
How do we know this? In part, because of the data available to us through the Home Mortgage Disclosure Act (HMDA) which was enacted by Congress in 1975 and requires many financial institutions to maintain, report, and publicly disclose information about mortgages. Ultimately, the data provides insight into lending patterns that could be discriminatory. You can find that data here.
Table 1. Black Borrowers Received a Disproportionately Smaller Share of Bank Lending at All Income Levels
An Overview of the Final Rule Updates
In addition to the data that consistently points to the failure of the CRA to address and eliminate the systemic inequities perpetuated through discriminatory lending practices, the updated final rule builds upon feedback from stakeholders and research. It also recognizes that there have been significant changes in the banking industry since the last update in 1995.
The Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Corporation were responsible for issuing the final rule in an effort to strengthen and modernize the CRA regulations to try to better achieve the purposes of the law. According to these agencies, the final rule was developed with the following eight key objectives in mind:
- Strengthen the achievement of the core purpose of the statute
- Adapt to changes in the banking industry, including the expanded role of mobile and online banking
- Provide greater clarity and consistency in the application of the regulations
- Tailor performance standards to account for differences in bank size, business models, and local conditions
- Tailor data collection and reporting requirements and use existing data whenever possible
- Promote transparency and public engagement
- Confirm that CRA and fair lending responsibilities are mutually reinforcing
- Promote a consistent regulatory approach that applies to banks regulated by all three agencies.
Key changes in the final rule released on October 24, 2023 include:
- Reduced complexity and data requirements while still providing a comprehensive and consistent approach to evaluating banks under the Retail lending test
- Adjustments in retail lending ranges while maintaining high standards; also increases weighting of CD financing activities
- Retains the evaluation of banks with significant retail lending outside of branches while increasing tailoring of retail lending assessment area approach
- Adds additional metrics and impact factors to evaluate bank CD investments under the CD Financing Test
- Additional flexibility granted under the strategic plan option while continuing to meet the credit needs of communities
- Regarding the need to have additional time for banks to implement the new rule
- Increases the amount of time banks have to come into compliance with the new requirements
- Retains and clarifies the provision detailing CRA ratings downgrades
- Ensures consideration of certain small business loans under the economic development category of community development.
The Role of CRA in Housing & Community Development
Lending plays a pivotal role in housing and community development. This is a core reason why the CRA matters to the field and to communities across the country. It isn’t just a complex, lengthy document for banks, but a manual meant to meet a community’s credit needs, particularly those that have been systematically denied access to credit. One of the updates to the CRA final rule includes an update to the definition of community development in order to “provide banks with additional clarity regarding the loans, investments, and services that the agencies have determined support community development.”
The following categories are included in the final rule’s updated community development definition:
- Affordable Housing
- Rental housing in conjunction with a government affordable housing plan, program, initiative, tax credit, or subsidy
- Multifamily rental housing with affordable rents
- One-to-four family rental housing with affordable rents in a nonmetropolitan area
- Affordable owner-occupied housing for low- or moderate-income individuals
- Mortgage-backed securities
- Economic Development
- Investments, and services undertaken in conjunction or in syndication with government programs
- Loans, investments, and services provided to intermediaries
- Other forms of assistance to small businesses and small farms.
- This category does include direct loans to small businesses and small farms in conjunction or in syndication with government programs that meet a size and purpose test.
- Community Supportive Services
- Activities that “assist, benefit, or contribute to the health, stability, or well-being of low-or moderate-income individuals
- Replaces the current rule’s ‘community services targeted to low-or moderate-income individuals’ category”
- Place based activities with a focus on targeted geographic areas and common place-based eligibility criteria that have to be met. The activity categories are:
- Revitalization or stabilization activities
- Essential community facilities
- Recovery activities that promote the recovery of a designated disaster area
- Disaster preparedness and weather resiliency activities
- Qualifying activities in Native Land Areas
- Activities with minority depository institutions (MDIs), women’s depository institutions (WDIs), low-income credit unions (LICUs), and community development financial institutions (CDFIs).
- Financial Literacy
Many of the qualifying activities under the CRA support programs that we advocate for bigger and deeper investments in, from the low-income housing tax credit (LIHTC) to affordable homeownership opportunities.
Will all these changes be enough?
Although there are many changes, it is too early to tell if these changes will have the impact desired. The final rule will take effect on April 1, 2024, with staggered compliance dates of January 1, 2026, and January 1, 2027. There is still quite a bit of time before we could see the benefits or consequences of these changes. Ultimately, what we do know is that in the 45 years since the passing of the Community Reinvestment Act, there are still significant disparities in lending and investment patterns that hurt low- and moderate-income households and the BIPOC community. It will likely take significant effort and intention beyond these guidelines to reverse and repair the systemic damages.
To learn more about the updated CRA Final Rule, check out the resources at the end of this post, many of them were used to describe the updates to the CRA final rule in this post.
Engage with NCHC!
If you are interested in learning more about how to engage banks in your community or region in housing and community development activities, have questions about how to do so, or are interested in learning from CRA and Community Development professionals about best practices, please email me at swatkinscruz@nchousing.org.
If you are a member of an organization or work in housing and community development and submitted comments on the CRA final rule, or if you’ve reflected on how these changes do or do not accomplish what the original purpose of the law set out to do, please email me your thoughts at swatkinscruz@nchousing.org.
Additional resources on the updated Final Rule for the Community Reinvestment Act
To view the final rule text, click here.
To view the Federal Deposit Corporation’s CRA Fact Sheet, click here.
To view the Office of the Comptroller of the Currency’s Fact Sheet, click here.
To view the Interagency Overview of the Community Reinvestment Act Final Rule, click here.
To view an opinion about the impact of the updated CRA final rule on LIHTC, click here.
