For the first time in nearly 25 years, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) are moving closer to overhauling the Community Reinvestment Act (CRA) regulatory framework. The Office of the Comptroller of the Currency kicked off the current debate over the future of CRA in September 2018 with the release of its Advanced Notice of Proposed Rulemaking (ANPR).
Now after more than a year of negotiations among the bank regulators and a review of 1,500 public comments on the ANPR, the FDIC joined with the OCC to issue the long-awaited Notice of Proposed Rulemaking (NPR) outlining changes to the CRA regulations. Significantly, the Federal Reserve Board chose NOT to sign on to today’s proposal but is anticipated to put forth its own CRA recommendations shortly.
The stakes are extremely high for the community development finance industry. CRA-motivated loans and investments from banks have fueled the growth of the CDFI industry, particularly since the last update to the regulations in the mid-90s. In FY 2018 alone, OFN members received nearly $3.9 billion in borrowed funds from CRA-motivated banks—more than half of their total borrowed funds in that year.¹ But beyond the direct impact on CDFIs, OFN is even more concerned about the negative impact the proposed reforms could have on bank lending and investment in low- and moderate-income communities.
The goal of CRA reform must be to increase access to capital and credit for low- and moderate-income (LMI) people and places. While greater clarity and consistency for banks and other stakeholders is valuable, the focus of any reform must be on the statutory intent of the law: to meet the credit needs of LMI communities. Over the past 40 years, CRA has helped bring affordable housing, small businesses, jobs, and community facilities to underserved communities. Any modernization needs to improve on this record, not reverse or pull back.
While the OCC-FDIC proposal moves beyond the widely panned “single-ratio” approach in the 2018 OCC ANPR, it still relies heavily on an evaluation of the dollar value of eligible CRA activities compared to the dollar value of a bank’s retail deposits. Assigning a specific ratio for a bank to receive a satisfactory CRA rating risks creating a system where banks prioritize larger, simpler transactions to meet their obligation which would likely come at the expense of smaller, impactful activities like the ones undertaken with CDFIs. LMI markets where incomes and home values are lower would also be disadvantaged in attracting CRA-motivated bank investments.
The full 240-page proposed rule can be found here.
OFN will fully evaluate the details of the proposal and post updates in the coming days. Once the proposed rule is published in the Federal Register, the 60-day comment period will begin. After reviewing the comments, Comptroller Otting intends to publish the final rule in May. The next few months will be critical to the future of CRA, and we need the community development finance industry to weigh in with the OCC and FDIC on this proposal.
To learn more about how you can engage in OFN’s CRA advocacy, please contact OFN's Chief External Affairs Officer, Jennifer A. Vasiloff, at firstname.lastname@example.org.
1. Trends in Borrowed Funds for Current OFN Member Loan Funds: OFN Annual Member Survey, FY 2005-2018