I would like to thank the members and leadership of the National Community Reinvestment Coalition (NCRC) for inviting me to speak today.
For over 30 years, NCRC has been a powerful advocate for expanded access to credit, investment, and basic banking services for low- and moderate-income communities across the United States.
Your 600 grassroots member organizations have been a critically important voice for those communities.
In particular, and relevant to my comments today, there has been no more important supporter of the Community Reinvestment Act (CRA)1 than NCRC during that period. The continued importance and impact of CRA is in considerable measure a result of your sustained commitment.
Before I proceed further, I would like to take a moment to acknowledge John Taylor, the founding leader of NCRC. I believe this is the first NCRC Conference since John retired last August, and I understand he is being presented with a Lifetime Achievement Award tonight. I have known John since the beginning of NCRC. His vision, passion, and dedication laid the foundation for NCRC’s success. That leadership is now being ably carried forward by Jesse van Tol. I want to thank John for his lifelong commitment to social justice.
Notice of Proposed Rulemaking on CRA
I would like to focus my remarks today on the Notice of Proposed Rulemaking (NPR) on CRA adopted by the three federal banking agencies – the Federal Reserve, the OCC, and the FDIC – on May 5.2
This joint NPR has been a long time coming. The last major revision of the rule implementing CRA occurred in 1995, over 25 years ago.
A lot has changed in the banking industry during that time. It was imperative that the banking agencies take up the challenge of adapting CRA in a way that responds to those changes and strengthens its impact.
The Community Reinvestment Act seeks to address one of the most intractable challenges of our financial markets – access to credit, investment, and basic banking services for low- and moderate-income communities, both urban and rural.
As you well know, CRA was a response to the redlining practices of government housing programs and private sector lending institutions that denied credit to neighborhoods with poorer households and large minority populations.
The provisions of CRA as originally enacted in 1977 were deceptively simple but groundbreaking.
The key operative provision of the Act states, “In connection with its examination of a financial institution, the appropriate Federal financial supervisory agency shall ... assess the institution’s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods....”3
Since its enactment, CRA has become the foundation of responsible finance for low- and moderate-income communities in the United States.
The NPR approved by the federal banking agencies on May 5th would significantly expand the scope and rigor of CRA and assure its continued relevance for the next generation.
A CRA NPR Top Ten List
There is a lot in the NPR. In my remarks today, I would like to highlight ten important provisions of the proposed rule.
Expanding the Scope of CRA – New Retail Lending Assessment Areas
First, the NPR would establish new retail lending assessment areas to allow for CRA evaluation in communities where a bank may be engaging in significant lending activity but where the bank does not have a branch.
Currently, CRA assessment areas are tied to bank branches. Bank lending in communities in which the bank does not have a physical presence is generally not subject to CRA. While bank branches continue to play a critical role in serving communities, technology has made possible an increasing portion of bank lending activity unrelated to the branch network. Some banks have only one branch or no branch at all, yet engage in large scale lending across a broad geographic area.
These new retail lending assessment areas are a means of subjecting that lending activity to a CRA review, regardless of the business model of the bank. The retail lending test under the NPR would require an evaluation of mortgage and small business lending, and for banks with more than $10 billion in assets, auto lending as well, the first time CRA would be expanded to include consumer lending.
These new retail lending assessment areas represent a critically important adaptation of CRA to the changing nature of the banking business.
It is worth noting that in addition to the branch-based assessment areas and the new retail lending assessment areas, a bank would also be subject to a statewide test to capture areas not included in the other two, as well as a multistate MSA review and an institution-wide review. The objective here is to subject all of the bank’s lending activity to a CRA evaluation.
Raising the Bar for Retail Lending Performance
Second, the NPR would raise the bar for CRA performance on the retail lending test in order for a bank to earn an outstanding or high satisfactory rating.
The NPR incorporates detailed metrics on bank lending activity. As a result, the NPR is able to establish standards for bank performance to achieve a particular CRA rating that would be higher than past experience. The objective is to provide an incentive for increased bank lending to underserved communities.
Greater Clarity, Consistency, and Transparency for CRA Evaluations
Third, the proposal would provide for greater clarity, consistency, and transparency in the CRA evaluation and compliance process for all stakeholders – banks as well as community organizations.
One way the proposal would accomplish this is by adopting a metrics-based approach to CRA evaluations for retail lending and community development financing, which will also include public benchmarks for greater transparency, certainty, consistency, and accountability.
The proposal would also more clearly define community development activities by establishing eleven proposed categories of community development. While retaining a focus on low- and moderate-income communities, the NPR seeks to provide stakeholders with greater certainty about what activities qualify for community development credit, including through the publication of an illustrative and non-exhaustive list of qualifying activities and through a pre-approval process.
Tailoring CRA Requirements to Bank Size, Complexity, and Business Type
Fourth, the proposal tailors CRA evaluations and data collection to bank size, complexity, and business type.
All banks are not the same, and all communities are not the same. The proposal tailors the CRA tests and data collection to each bank category – small, intermediate, and large. For instance, small banks would continue to be evaluated under the existing regulatory framework but would have the option to be evaluated under aspects of the new proposed evaluation framework.
There would be no new data collection for small or intermediate banks. The agencies sought to leverage existing data as much as possible. For the larger banks, those over $10 billion, there are additional evaluation elements and data requirements relating to deposits, community development, and auto lending.
Enhanced Transparency for Lending to Communities of Color through Use of Publicly Available HMDA Data
Fifth, in furtherance of the agencies’ objective to promote transparency, the NPR would require large banks to disclose the distribution of home mortgage loan originations and applications in each of the bank's assessment areas by race and ethnicity utilizing publicly available data under the Home Mortgage Disclosure Act (HMDA).
The proposal is intended to provide transparent information to the public in regard to the bank’s lending to communities of color. Although providing the data in this disclosure would not have an independent impact on the CRA ratings of the bank, it would allow the public to compare lending by the bank in those communities to other communities, as well as allow comparisons to other institutions.
One further point -- the current CRA rule prohibits banks from drawing assessment areas that reflect illegal discrimination or arbitrarily excluding low- and moderate-income census tracts. That provision is retained in the proposal. In addition, and related to the issue of redlining, which precipitated the enactment of CRA, large banks would be required to include whole counties in establishing their assessment areas. This would ensure that low-income or minority areas will not be carved out of assessment areas.
Expanding Consideration of Scope of Illegal and Discriminatory Conduct to Include Deposit or Other Bank Activities
Sixth, currently illegal or discriminatory credit practices are a potential basis for downgrading a bank's CRA rating. These criteria would be retained and expanded so that all discriminatory practices, whether or not they are tied to the provision of credit, could be a basis for possible downgrade. Such practices could be credit practices, but could also be practices related to deposit products or other products and services offered by the bank. For example, discrimination in opening deposit accounts would be covered by the proposal.
Provisions Related to MDIs and CDFIs
Seventh, the NPR recognizes the importance of minority depository institutions (MDIs), Treasury Department-certified Community Development Financial Institutions (CDFIs), Women's Depository Institutions (WDIs), and Low Income Credit Unions (LICUs) in providing financial access to underserved consumers and communities. For example:
- The NPR creates a specific community development definition for eligible activities, such as investments, loan participations, and other ventures conducted by all banks with these institutions, including such activities undertaken by an MDI or WDI in cooperation with a different MDI, WDI, or LICU.
- The proposed definition specifies that loan, investment, or service activities by any bank undertaken in connection with a Treasury Department-certified CDFI would be presumed to qualify for CRA credit as community development.
- All community development activities conducted by banks with MDIs, CDFIs, WDIs, or LICUs in facility-based assessment areas, states, multistate MSAs, and nationwide areas would get credit under the proposal.
- Community development activities that support or are conducted in partnership with an MDI, CDFI, WDI, and LICU are considered particularly high impact and responsive when assessing a bank’ s community development activities.
- The NPR specifies, under the Retail Services and Products Test, that retail lending-focused partnerships with MDIs, CDFIs, WDIs, and LICUs, should be considered when assessing the responsiveness of a bank's credit products in meeting the needs of low- and moderate-income communities under CRA.
Addressing Credit or Banking Deserts, Including Rural Areas, Native Lands, and Areas of Persistent Poverty
Eighth, the new Community Development Financing test would provide credit for lending and investment activities outside of the bank’s branch-based assessment areas. This will provide incentives for banks to provide community development financing in underserved areas, including rural areas and Native Lands, even if they are outside of their existing “brick-and-mortar” area of service. In addition, activities in areas of persistent poverty are provided additional consideration.
The NPR includes provisions specific to bank lending and services in rural areas and Native Lands, including giving credit for loans and investments for essential community facilities like schools or healthcare facilities, essential community infrastructure like broadband, and disaster preparedness and climate resiliency activities that benefit or serve middle-income rural census tracts and Native Lands that are distressed or underserved.
The proposed rule provides for consideration for lending to small businesses and small farms, essential to rural communities. Banks that are particularly responsive to the needs of smaller businesses and smaller farms - those with gross annual revenues of less than $250,000 - will receive heightened consideration for such loans. The proposed rule also provides that banks will be evaluated on their lending to these smaller businesses and smaller farms once the data is available.
Of particular note, the proposed rule would provide that all bank assessment areas would be reviewed and assigned a performance conclusion, eliminating limited scope assessment area reviews. This will ensure that bank performance in rural markets is evaluated and considered as part of the ratings process.
The NPR also proposes a new community development definition for activities in Native Land Areas to recognize the unique status of Native and tribal communities and encourage bank engagement in these communities.
It also proposes an impact review factor for all eligible community development activities taking place in Native Land Areas. In addition, under the Retail Services and Products Test, if a bank operates branches in Native Land Areas, it would receive positive qualitative consideration.
Encouraging the Retention or Establishment of Branches in LMI Communities and Low-Cost Transaction Accounts
Ninth, while we know that technology has led to significant changes in the provision of bank services, bank branches continue to play a crucial role for consumers and communities. Nearly 80 percent of mortgages continue to be originated in branch-based assessment areas.
In recognition of the important role branches still play, the proposed rule would provide consideration for banks that maintain or establish a branch where there are few or no branches in LMI communities. The rule proposes methods for branch access that are tailored to recognize that reasonable access is different in rural areas than in urban areas.
Access involves more than the availability of a branch. A consumer must also have access to products and services that are affordable and responsive to their needs. Expanding access to federally insured banks has been a priority of the FDIC. For the first time, the NPR would evaluate for large banks the offering and usage of low-cost transaction accounts to consumers – accounts with low or no minimum balance requirements and no overdraft fees.
Strengthening Disaster and Climate Resilience in LMI Communities
Tenth, the NPR would give credit to community development activities designed to strengthen disaster and climate resilience in low- and moderate- income communities.
Activities that mitigate the effect of disasters and climate-related risks, such as earthquakes, severe storms, droughts, flooding, and forest fires would be eligible. Examples of eligible activities could include:
- supporting the establishment of flood control systems in a flood prone targeted area;
- retrofitting affordable housing in a targeted area to withstand future disasters or climate-related events;
- promoting green space in low- or moderate-income census tracts in order to mitigate the effects of extreme heat, particularly in urban areas;
- financing community centers that serve as cooling or warming centers in targeted areas that are more vulnerable to extreme temperatures;
- infrastructure to protect targeted areas from the impact of rising sea levels;
- assistance to small farms in targeted areas to adapt to drought challenges.
That’s my top ten list.
CRA’s simple premise – that banks have an affirmative obligation to serve the local communities in which they do business – is as powerful and relevant today as it was in 1977.
I would like to thank all of the neighborhood and com’s effectiveness is ultimately premised on your participation, leadership, and support. We have come a long way in forty-five years. I have no doubt that we still have a long way to go.
As you know, the NPR provides a 90-day comment period. Comments are due by August 5. We encourage you to review the NPR carefully and provide us with detailed comments.
This NPR is an important opportunity to shape the future, and to make CRA stronger and more effective.
Thank you very much.
1 Community Reinvestment Act of 1977, Pub. L. 95-128, title VIII, October 12, 1977, 91 Stat. 1147, available at https://www.govinfo.gov/content/pkg/STATUTE-91/pdf/STATUTE-91-Pg1111.pdf, codified at 12 USC 2901 et seq.
2 Joint Notice of Proposed Rulemaking: Community Reinvestment Act, 87 FR 33884 (June 3, 2022), available at https://www.govinfo.gov/content/pkg/FR-2022-06-03/pdf/2022-10111.pdf.
3 12 USC 2903, available at https://www.govinfo.gov/content/pkg/USCODE-2011-title12/pdf/USCODE-2011-title12-chap30-sec2903.pdf.