United States: Bankers And Community Groups Offer Recommendations To Strengthen Community Reinvestment Act

Last Updated: June 28 2019
Article by Cadwalader, Wickersham & Taft LLP

Most Read Contributor in United States, July 2019

At a roundtable discussion hosted by the Federal Reserve Board ("FRB"), bankers and community groups ("participants") described their experiences with Community Reinvestment Act ("CRA") implementation and proposed amendments to better address underserved areas. The FRB issued a report on its findings titled Perspectives from Main Street: Stakeholder Feedback on Modernizing the Community Reinvestment Act. Here are some highlights:

Assessment Areas

There was "general agreement" among participants that the CRA's treatment of assessment areas should be updated due to the increasing use of technology in delivering banking products and services. Currently, a bank's assessment area is based in its physical locations (i.e., its main office, branches and ATMs). Participants said that the current approach works for smaller community banks that operate mostly through retail branches, but not for banks with primarily online presences. Additionally, participants supported expanding the definition of an assessment area to take account of a combination of a bank's lending activity, deposits and/or market shares.

Other common themes included (i) expanding assessment area designations to reflect community needs and (ii) implementing the consistent and clear treatment of community development activities across regulatory agencies.

CRA in Underserved Communities

Participants offered suggestions on amending the CRA to better address underserved communities, such as:

  • creating specific "CRA zones" that would provide CRA credit for any qualified activity in that specified area;
  • establishing clear standards for determining whether banks are satisfactorily meeting community needs;
  • including more rural assessment areas in its reviews; and
  • expanding the definitions of low- and moderate-income communities to include underserved communities and populations.

Performance Test Structure

During the discussions, there was general consensus that CRA performance test structures could be improved through the use of a variety of evaluation methods. Many community groups approved of implementing evaluation methods and expectations for banks based on their size. Conversely, participants expressed concern regarding the adoption of a single metric or ratio for evaluating community development activities.

Evaluating Performance

Participants requested improvement in CRA examinations in terms of consistency and timeliness. Bankers emphasized the importance of providing greater clarity regarding examination expectations before the review, as well as the level of activity needed to achieve certain ratings.

Participants also advocated updating bank performance criteria beyond the number and dollar amount of CRA activities. There was a general consensus that the CRA rating system does not provide enough detail to gauge a bank's true performance satisfactorily. Participants suggested that examiners should contact a wider range of community stakeholders to better understand both community needs and the success of banks in meeting those needs.

Defining Community Development Activities

Participants agreed that more clarity is needed regarding what qualifies as an eligible "community development" activity. Participants called on the FRB to (i) clarify eligible activities, (ii) improve applicable definitions and measurements, and (iii) include more eligible products and services.

Other Comments

Participants also recommended:

  • expanding the CRA to include credit unions, insurance companies, financial technology companies, mortgage brokers and other non-regulated and/or non-depository institutions;
  • establishing regulatory oversight and the enforcement of privately negotiated community benefits agreements;
  • improving the timeliness of examinations;
  • removing burdensome regulatory requirements, such as keeping a paper public file; and
  • addressing the lack of consistency between examinations from different agencies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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