Two regulators on Thursday clarified what qualifies as Community Reinvestment Act activity and expanded assessment areas covered under the 42-year-old law meant to encourage banks to lend to and curb discrimination against poorer borrowers.
The new rules would apply to institutions supervised by the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC), which conduct about 85% of CRA oversight. Regulators couldn't have foreseen some of the changes addressing digital banking when the rule was last revised in 1995 — much less in 1977, when it was written.
"We have internet banks today that gather deposits all across the nation, but often they picked an assessment area, which was their headquarters," Comptroller of the Currency Joseph Otting told Banking Dive. "You could have a bank in Salt Lake City that has Salt Lake City as their assessment area, but less than 1% of their customers are from Salt Lake City, 10% are in L.A. and 10% in New York, and 5% Chicago. But they weren't supporting those communities where they have banking relationships with people."
Banks that take in more than half of their deposits from areas outside of a physical location, such as a branch or ATM, would be required to analyze the locations of those depositors under proposed changes to the CRA.
An area that has a concentration of more than 5% of a bank's deposits would qualify as a new CRA assessment area under the proposal, and the OCC would require those financial institutions to invest in those communities.
The OCC said it was not certain how many banks would see their assessment areas altered by the proposal, according to American Banker.
"At most, about 10 to 15 banks" would be "required to do more in markets that they’re not currently doing CRA activities today," Otting told the publication.
Other key changes include more timely and transparent reporting and a more objective approach to evaluating CRA performance.
The new CRA proposal allows the many banks that fall below the $500 million asset threshold to opt in. Smaller banks can choose to continue to be evaluated under the existing CRA framework or the new system.
The OCC has long voiced an intention to revise the rules. Otting embarked on a tour this summer of low-income areas in five cities to evaluate the potential impact of updates to the CRA.
Thursday's changes aim to protect "underserved communities, such as rural areas and tribal lands far removed from urban centers where bank branches are concentrated," the OCC said in a statement.
Although the FDIC has thrown its support behind the proposal, another major regulator, the Federal Reserve, has yet to sign on.
Otting said he was not concerned with the Fed’s lack of public support for the proposal, adding that the agency has provided significant input.
"This was a long journey where the Fed staff and principals met with us," he said. "We interacted a lot. We took a lot of their ideas and those ideas are embedded in the final [notice of proposed rulemaking]. They just, collectively, did not agree to move forward and sign off on the NPR."
The agencies said they are accepting comments on the proposed rules for 60 days after publication in the Federal Register.
Lawmakers have voiced concern ahead of the release of the proposal, expressing fear that any changes could make it easier for banks to pass their CRA exams. Rep. Maxine Waters, D-CA, chair of the Financial Services Committee, called on regulators to double the public comment period on the proposed rule — to 120 days.
"It is critical that the banking regulators do not jam through their proposal without giving the public ample time to weigh in, or without coordinating with the Federal Reserve," Waters said in a statement before the proposal was released.
Waters led a group of House Financial Services Committee members to the FDIC board’s meeting Thursday, where the agency planned to discuss the new rules. She attended the meeting along with Reps. Brad Sherman, D-CA; Bill Foster, D-IL; Cindy Axne, D-IA; Ayanna Pressley, D-MA; and Jesús “Chuy” García, D-IL.
"With our visit to the FDIC today, the members of the Committee are continuing to conduct oversight over financial regulators," Waters said in a release. "The Board should understand that we are very carefully monitoring their activities."
Otting said he hopes the revisions offer clarity and foster innovation.
"Since 1977, when this regulation has come into effect, no one has ever put forth a list and said communities, nonprofits, civil rights organizations, banks — here's what qualifies on a macro scale, and so what generally happened is people tilted back to the center of the bell curve and only did mortgages," Otting said. “But there was a lot more that they could do for communities across America. So we wanted to define for people what qualifies for CRA and we think we're in a good spot.
"We have a good list that people can work off of, but it’s just as important to encourage people to do creative things across America," he added. "We’ll also give people the ability to come in and do a front-end test on whether something would qualify. … We think that will help in attracting investments and capital into America."