Date: May 5, 2022

This proposal will change the rules of the CRA from how it is governed as we know it today. It will finally even the playing field.

First, the proposal would improve the Community Reinvestment Act framework’s responsiveness to the characteristics and needs of rural communities by expanding large banks’ retail assessment areas beyond where they merely have a physical presence to include geographies where they conduct mortgage and small business lending.7 This will allow for better coverage of rural areas that have experienced substantial branch closures in recent decades.

The proposal also eliminates the distinction between “limited” and “full-scope” assessment areas, which likely limited the Community Reinvestment Act’s effectiveness in rural and Native communities in the past. Eliminating this distinction would ensure more rigorous Community Reinvestment Act exams in these communities and lead to increased investment and improved quality and availability of needed retail lending and services.

Under the proposal, banks would also have stronger incentives to finance activities that support very small businesses and farms with $250,000 or less in revenue – the backbone of many rural economies.

In addition, the proposal would increase incentives for banks to finance community development projects in areas experiencing persistent poverty, as well as areas with low levels of past community development financing, including rural communities. The proposal also includes explicit incentives for community development financing and services in Native communities.

Second, the proposal is tailored to adjust obligations based on the asset size of the bank. The updated thresholds, set at $2 billion (cutoff between a “large bank” and an “intermediate bank”) and $600 million in assets (cutoff between an “intermediate bank” and a “small bank”), are intended to reflect the differences between banks of varying sizes. Picking specific size thresholds is never easy, and I look forward to receiving the public’s views as to whether these proposed cutoffs are calibrated appropriately.

The regulator is pleased that the proposal takes steps to minimize duplicate data reporting by financial institutions. The framework for evaluating banks will continue to rely on the required Home Mortgage Disclosure Act (HMDA) data reporting, and, once a small business lending data collection rule is finalized, the framework will rely on small business lending data reported by financial institutions.

Third, the proposal better reflects congressional intent by more explicitly acknowledging race and ethnicity and creating greater transparency about retail lending. For large banks, the proposal would disclose mortgage lending data broken out by race and ethnicity. The proposal would also enhance incentives for banks to invest in Minority Depository Institutions and Community Development Financial Institutions, and the proposal seeks comment on the role of Special Purpose Credit Programs.

Fourth, the proposal takes steps to address past problems with grade inflation. Currently, almost every bank passes its Community Reinvestment Act exam, and most do so comfortably. Grade inflation disadvantages high-performing institutions, which are lumped in with those with much lower performance but nonetheless pass. The proposal helps to distinguish between banks that are barely passing and banks that are meaningfully above the satisfactory threshold. The proposal raises the bar for institutions to earn an “outstanding” rating.

Fifth, the proposal helps to recognize banks that assist low- and moderate-income communities with clean energy transition and climate resiliency. While higher-income communities can more easily finance capital investments associated with mitigating and adapting to climate risk, many communities, including rural and Native communities, are often left to bear this risk alone. For example, Native families who depend on farming for both subsistence and commercial gain face increasing threats from drought, flood, and rising temperatures, with limited resources at their disposal to invest in climate mitigation solutions.

The proposal would give banks Community Reinvestment Act credit for a range of activities that promote climate resiliency, such as funds to family farmers facing drought conditions, or investments that help family farmers shift to renewable energy sources.

The CFPB is particularly eager to evaluate comments on these five aspects of the FDIC’s proposal before the rule is finalized.

Source: CFPB's Proposal Commentary