On December 12, 2019, the Federal Deposit Insurance Corporation ("FDIC") and the Office of the Comptroller of the Currency ("OCC") together proposed extensive updates to their rules implementing the Community Reinvestment Act ("CRA"). The CRA requires insured depository institutions to participate in investment, lending, and service activities that help meet the credit needs of their assessment area, particularly low- and moderate-income communities and small businesses and farms. The last major revisions to the CRA regulations were made in 1995.
The proposed rules would significantly alter how the FDIC and OCC implement the CRA. Currently, the agencies require banks to direct their CRA activities within the bank's "assessment areas," which are determined based on a bank's physical locations, including its corporate office, branches, and ATMs. The proposal would redefine assessment areas to include additional areas where the bank collects a substantial portion of its deposits. Thus, a bank might have both facility-based assessment areas and deposit-based assessment areas. In addition, the proposed rules would allow banks to receive CRA credit for certain activities outside of their assessment areas. By clarifying and expanding when banks can receive credit beyond the immediate areas surrounding bank branches, the proposed rule would relieve pressure in certain saturated markets where banks are already meeting community needs.
The proposed rules would increase the size thresholds for a small loan to a business and a small loan to a farm to loans of $2 million or less to a business or farm and would include a provision for adjusting these loan limits for inflation going forward. These increased thresholds would, in part, account for inflation since the current thresholds were established in 1995.
One of the proposal's primary objectives is transparency. Under the proposed rules, the FDIC and OCC would establish a more transparent methodology for calculating each bank's CRA rating. The agencies would publish the equations used by examiners, as well as benchmarks required to receive particular ratings. In terms of scoring, proposed new performance standards would assess both units (i.e., number of qualifying activities) and dollars (the quantified value of the bank's qualifying activities). The proposal also would require the agencies to publish and maintain a publicly available list of examples of qualifying CRA activities and to introduce a process through which banks can seek the agency's determination as to whether an activity is a qualifying activity before projects are underwritten.
Although the Board of Governors of the Federal Reserve System (the "Fed") likewise has authority to issue regulations to implement CRA (and has done so jointly with the FDIC and OCC in the past), the Fed so far has declined to participate in this proposal. Reportedly, the Fed disagreed with the proposal's emphasis on dollars invested due to a concern that it incentivizes banks to invest in wealthier markets. At a press conference last Wednesday, Fed Chair Jerome Powell indicated that the Fed still hopes to reach agreement with the other agencies in order to avoid the inevitable confusion that would result from having two separate regulatory regimes applicable to insured depository institutions.
Mayer Brown is reviewing the proposal and will update this post with a more in-depth summary. Once the proposed rules are published in the Federal Register, they will be open for public comment for 60 days. Due to the substantial changes being proposed, we are expecting a large number of comment letters from banks, community groups and other stakeholders. This type of response could result in a longer comment period.
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