An advance notice of proposed rulemaking for an “approach” to modernization of rules implementing the anti-redlining Community Reinvestment Act (CRA) was released by the Federal Reserve Board during its open meeting Monday by unanimous vote of all five governors, with comments due 120 days after publication in the Federal Register.
The Fed, in Monday’s release, said the approach contemplated is aimed at “strengthening, clarifying, and tailoring” the CRA rules to reflect the current banking landscape and better meet the core purpose of the underlying statute. It highlighted the Fed’s desire for feedback on ways to evaluate how banks meet the needs of low- and moderate-income (LMI) communities and address inequities in credit access.
“By releasing a thoughtful and balanced ANPR and providing a long period for comment, the Federal Reserve is hoping to build a foundation for the banking agencies to come together on a consistent approach to CRA that has the broad support of the intended beneficiaries as well as banks of different sizes and business models,” said Federal Reserve Board Chair Jerome H. (“Jay”) Powell.
“The CRA is a seminal piece of legislation that remains as important as ever as the nation confronts challenges associated with racial equity and the COVID-19 pandemic,” said Federal Reserve Board Gov. Lael Brainard, who has led the Fed’s work on this issue. “We must ensure that CRA continues to be a strong and effective tool to address systemic inequities in access to credit and financial services for LMI and minority individuals and communities.”
Only the Fed is listed as a party to this ANPR, and whether the Federal Deposit Insurance Corp. (FDIC) or the Office of the Comptroller of the Currency (OCC) will join in the exercise remains to be seen.
The OCC, under the leadership of Comptroller Joseph P. Otting, went out with its own ANPR in 2018 and was joined in the proposed rulemaking last year by the FDIC. Only the OCC, however, was party to the final rule issued this May. Otting resigned just after taking that action, which left the banking industry with two sets of federal CRA rules: one, last revised 25 years ago, that applies to banks primarily supervised by the Fed and the FDIC; and one for OCC-supervised banks, though the OCC has noted that full compliance with the rule changes won’t be required until 2023.
That said, the timing of the Fed’s ANPR, and the 120-day comment period accompanying it, effectively assures that any proposed rule that may follow is likely to come well after this year’s presidential election and after the January inauguration of the next president. That president will be in a position to decide which individuals lead key federal agencies and departments, including the financial institution regulatory agencies.
In its release, the Fed said its ANPR seeks feedback that will help the board “in refining” CRA modernization proposals to:
- Strengthen CRA’s core purpose of meeting the wide range of LMI banking needs and addressing inequities in financial services and credit access
- Address changes in the banking industry
- Promote financial inclusion by including special provisions for activities in Indian Country and underserved areas, and for investments in minority depository institutions and community development financial institutions
- Bring greater clarity, consistency, and transparency to performance evaluations that are tailored to local conditions
- Tailor performance tests and assessments to account for differences in bank sizes and business models
- Clarify and expand eligible CRA activities focused on LMI communities
- Minimize data burden and tailor data collection and reporting requirements
- Recognize the special circumstances of small banks in rural areas
- Create a consistent regulatory approach
In formal statements, all five Fed governors emphasized a desire for consistency in CRA rules across the federal banking agencies, as well as clarity and a better fit with the present-day environment.
“Stakeholders have expressed strong support for the CRA and its goals and have called for the banking agencies to work together on a modernization plan,” said Powell. “This proposal is an important step forward in laying a foundation for the agencies to build a shared, modernized CRA framework that has broad support.”
The CRA is a seminal statute that remains as important as ever as the nation confronts challenges associated with racial equity and the COVID-19 pandemic,” said Brainard. “We must ensure that CRA is a strong and effective tool to address ongoing systemic inequities in access to credit and financial services for low- and moderate-income (LMI) and minority individuals and communities.”
Fed Vice Chair Richard Clarida said Monday’s proposal “seeks to strengthen the CRA for the law’s intended beneficiaries while also providing greater certainty and tailored regulations for financial institutions.” He called the ANPR “a solid step toward updating the regulation to better reflect the current banking landscape while continuing to meet the core purpose of the CRA.”
Vice Chair for Supervision Randal Quarles, emphasizing that the Fed has been working jointly with the OCC and FDIC on CRA modernization, said “there is a shared view among all of the regulatory agencies, among community groups, among banks, and among everyone who is affected by this regulation that it can be improved and that the implementation of the statutory requirement is not as well served as it could be by existing practice.” He said there is “significant interagency agreement” on the objectives of CRA reform and that many of the ideas in the ANPR reflect interagency discussions and regulatory proposals.
Fed Gov. Michelle Bowman, specifically designated as the board’s community banking representative, said she viewed the ANPR as offering “a foundation to develop performance standards that could provide greater transparency and consistency as banks plan and execute CRA initiatives.” She added, among other things, that she hopes to see “a consistent, simplified approach for all banks that is flexible enough to take into account the unique aspects of the community bank business model.”