The pendulum to reframe the Community Reinvestment Act has swung again.
The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. proposed a rule Friday that would limit grants banks can give to community advocacy groups the agencies label “activist.”
The regulators said the proposal is intended to “increase the focus on lending and ensure that community development grants and donations reach the communities they are intended to benefit instead of being diverted to other activities or excessive operating costs.”
The proposal would require large banks to document that recipients of community development grants have overhead costs of 15% or less.
But the measure also reduces the number of banks that would need to comply with CRA data collection and reporting requirements.
The current rule exempts “small” banks – those with less than $412 million in assets – from community development requirements. Friday’s proposal would increase that asset threshold to $1 billion. It would also create an “intermediate” size category that would extend to banks with up to $10 billion in assets.
In a statement Friday, Jesse Van Tol, CEO of the National Community Reinvestment Coalition, an advocacy group, said the proposal “dramatically weakens banks’ obligations to invest in working-class communities and threatens to undermine” affordable housing measures put into law just two weeks ago.
“Bank capital drives the creation of affordable housing in this country, and they do it because of CRA,” Van Tol said. “Now hundreds of banks won’t have the obligation to do so, and hundreds more will have a weaker requirement, which will further deepen our housing crisis.”
The CRA, initially passed in 1977, operates as an anti-redlining law that governs lending in low-income neighborhoods. But regulators under both the Trump and Biden administration have see-sawed in recent attempts to give the law its first facelift since 1995.
The FDIC and OCC’s efforts Friday to narrow the CRA evaluation’s focus on lending means exams of banks’ retail services will prioritize credit activity and exclude deposits.
Regulators will monitor banks that provide community development grants to ensure the funds are “directly used for a plan, project, or initiative with community development as a primary purpose,” the OCC and FDIC said in a summary of the proposal.
Regulatory officials said the list of activities that would count for CRA credit is still in development. They declined to say whether it would include projects that recognize climate change, such as solar panel installation or flood mitigation.
“Banks will face weaker exams, get credit for projects with little connection to low- and moderate-income communities and gain more control over where and how they are evaluated,” Van Tol said. “CRA is supposed to put a thumb on the scale for working-class people; now it lets hundreds of banks off the hook, and dramatically reduces the obligation for others.”
A third regulator with responsibility over CRA evaluations – the Federal Reserve – did not sign on to Friday’s proposal. That hasn’t stopped agencies in the recent past from attempting to push through a CRA revamp alone.
The OCC tried to do just that in 2020 but faced pushback – particularly from community advocates who labeled the update “awkward, disjointed and rushed.”
The Biden-era OCC rescinded the revamp in 2021, then regulators issued their own update – which saw objections from the Fed’s now-vice chair of supervision, Michelle Bowman. Several state banking organizations sued to stop the update in 2024. The OCC and FDIC dropped an appeal to that suit last month.
