The OCC and other regulators have made it clear that Community Reinvestment Act (CRA) compliance is a top priority in 2018. Specifically, regulators are looking to implement big changes to the decades-old regulation. Have you heard the latest?
Since the 1970s, financial institutions in the US have had to comply with the Community Reinvestment Act, or CRA. Since then, the regulation has remained substantially the same; the changes so far have primarily made the examination process more consistent and the results more public. This year, we are already seeing movement towards updating the CRA compliance requirements. If you haven't been paying attention to this developing story yet, now is the time to start.
In this post, you'll learn about changes signaled by the federal financial and regulatory agencies, and tips to help you prepare for sweeping updates.
Here's the first thing you need to know: multiple agencies are involved, and they are signaling a lot of healthy cooperation. This means that there is a lot of potential for speedy and considered changes.
Based on everything we've heard so far, here are the topics that seem to be the most common, and the most likely to be involved in any sweeping regulatory overhaul:
- Focusing on Community Development
- Pro Tip: Like Redlining, Community Development is a popular concept among regulators, community groups, and journalists. We are anticipating more public focus on Community Development in the months to come, and recommend that you take a closer look at your investments, services, and activities.
- Redefining Assessment Areas
- Improving the CRA Examination Process
One of the more interesting implications was that credit unions might be subject to CRA compliance, but we will touch on that more later.
So far, the following agencies have spoken out on CRA updates:
- U.S. Department of the Treasury
- Office of the Comptroller of the Currency
- Federal Reserve Board
- Government Accountability Office
(You may notice that a few of the federal regulatory agencies have yet to weigh in; we're expecting to hear a lot more in the coming months.)
"The time is ripe to modernize the CRA regulations to make them more effective in making credit available in low- and moderate-income areas at a time when technological and structural changes in the banking industry allow banks to serve customers outside of the areas with branches that have traditionally defined a bank's community."
- Lael Brainard, Governor of the Federal Reserve Board
Big Ideas from the U.S. Department of the Treasury
As far as real ideas go, the Treasury Department has been the most direct. Last month, the Treasury released a lengthy report outlining ideas for how to modernize the CRA. In general, these modifications can be grouped into the following categories:
- Assessment Area Definitions
- Examination Clarity and Flexibility
- Examination Process
- Performance Evaluation Criteria and Grading
In our in-depth article a few weeks ago, we outlined what these proposed changes would mean for you. In your efforts to prepare, we highly recommend that you take a look at this piece.
The OCC Seems Particularly Focused on Practical CRA Matters
The Office of the Comptroller of the Currency has also been prominent in this discussion. Amending the CRA is one of the OCC's top priorities in 2018, according to Comptroller of the Currency Joseph Otting. He said as much during the American Bankers Association’s Government Relations Summit last month. “I’m a big believer that we should stretch that to more small business, more community development,” Otting said at the conference.
According to the OCC, the banking industry should expect a Notice of Proposed Rulemaking sometime this month.
This proposal is expected to outline sweeping changes to Community Reinvestment Act compliance. In particular, the OCC is expected to focus on:
- Finding better ways to measure CRA performance.
- Identifying simpler methods of verifying compliance.
- A broader definition of what qualifies for CRA credit.
Over the past few months, the OCC has also issued regulatory guidance regarding the following aspects of CRA compliance:
- Impact of CRA Ratings on Licensing Applications
- Amending CRA Regulations to Conform to HMDA Regulation Changes and Remove References to the Neighborhood Stabilization Program
- Adjusted Civil Money Penalty Limits for 2018
At the National Community Reinvestment Coalition conference, the OCC's Grovetta Gardineer, Senior Deputy Comptroller for Compliance and Community Affairs, also shared some practical insights.
“Twenty-three years is a long time to go without making any changes in a regulation that has this type of grounding in economic development and meeting financial needs. In the unlikely event that we don’t open this up again for another 23 years, we need to think not just about today, but we need to be looking toward the future.”
- Grovetta Gardineer, Senior Deputy Comptroller for Compliance and Community Affairs, OCC
The Federal Reserve Board is Committed to the Spirit of CRA Compliance
Leadership at the Federal Reserve Board has also spoken out about community development and CRA modernization. Also in April, Governor Lael Brainard said, "I have seen the value of the Community Reinvestment Act (CRA) as a vital tool to address the credit needs of low- and moderate-income communities, and I believe the time is ripe for a refresh to make it even more relevant to today's challenges."
She outlined the five following key changes she expects the updated regulation to address:
- Modify the definition of assessment areas so that the core focus remains the credit needs of local communities.
- Encourage banks to seek opportunities in under-served areas.
- Regulations should be tailored to accommodate the unique institutions and the communities they serve.
- Establish more consistency in exams and ratings across the agencies and in each agency.
- Support the CRA's position as one of the laws designed to promote an inclusive financial services industry.
She is not the only leader at the FRB focused on balancing community needs with bank hopes. Vice Chairman for Supervision Randal Quarles has also spoken about the ways CRA can be refreshed for today's banking realities. In particular, he spoke about how FinTech is changing the industry, and how the CRA relates to small business lending and community growth.
Could CRA Be Extended to Credit Unions?
The Government Accountability Office thinks that credit unions should be required to comply with the Community Reinvestment Act. In this report, the GAO recommended that:
- Financial institutions, including credit unions, be incentivized to to provide banking services and small-dollar consumer loans in low- to moderate-income communities.
- Consider modifying the tests conducted as part of the CRA exam to focus more on how institutions are offering these products and expanding the scope of entities examined to capture more types of institutions, including credit unions and other non-banks.
This report was submitted to the Treasury by the GOA in March.
Despite positive feedback that these changes would make CRA compliance easier and more responsive to the changing banking landscape, consumers and community groups are skeptical. They see this as an attempt to reduce the mandate that banks truly serve their communities.
The official details about what CRA modernization would entail remain a mystery, but the federal and regulatory agencies do seem to be moving fast. At the very least, we expect to hear from the OCC about their plans to modernize the CRA in May.
TRUPOINT Viewpoint: As you look to navigate the changing CRA compliance currents, the wisest thing to do is remember why CRA matters in the first place. If you approach your CRA compliance with the goal of serving everyone in your community, including under-served communities, you'll be in a good position to pivot as changes are announced.
In that spirit, we'd like to invite you to an upcoming CRA webinar, "CRA: From Analysis to Action!" This 30-minute webinar will be hosted by TRUPOINT's own Justin Smith and Karina Mariotti. In this quick, insightful session, you'll learn how to use your CRA analysis to inspire real action at your financial institution.