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Notes from the Field

The CRA Is Important for Underserved Communities, and Your Input Can Help Modernize It

The Fed is seeking to modernize the Community Reinvestment Act in a way that significantly expands financial inclusion, and you can have a say in how it’s done.

The views expressed in this report are those of the author(s) and are not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System.

The Community Reinvestment Act (CRA) of 1977 is one of a number of landmark civil rights statutes1 passed to combat the legacy of discriminatory lending practices against lower-income borrowers and minority populations.  We are seeking to modernize CRA in a way that significantly expands financial inclusion, and you can have a say in how it’s done.

The goal of the CRA is to ensure that every insured depository institution (banks and savings and loans) is meeting the credit needs of its entire service area—low- and moderate-income (LMI) individuals and communities in particular. Institutions can meet such credit needs in a number of ways, including originating mortgages to LMI borrowers, making loans to small businesses, supporting economic development and affordable housing initiatives, and providing financial expertise to organizations that serve needs in the community. 

To ensure institutions are meeting CRA requirements, they are evaluated periodically by examiners from one of the three federal agencies that are responsible for regulating depository institutions: the Board of Governors of the Federal Reserve System (Fed), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).  Institutions receive ratings that reflect how well they are meeting their responsibilities under the CRA.

A bank’s CRA rating is taken into account by regulators when they are considering an institution’s application for opening or closing branches or for mergers and acquisitions. CRA ratings are public, which gives members of the community the opportunity to send comments to regulators about whether they think a bank is doing a good job investing in the community. For example, community groups have focused on a bank’s CRA activities to launch protests about a pending branch closure or bank merger.  Some protests have helped coalitions secure multi-billion-dollar community benefit agreements from banks before a merger has been approved. 

The three regulatory agencies recognize a lot has changed in the US banking industry since the last time major revisions were made to CRA regulations 25 years ago (in 1995).  Back then, physical branches were essential for the deposit and lending needs of bank customers.  Nowadays, mobile and internet banking are available—and popular.

As a result of these changes, the regulatory agencies have been seeking to modernize the CRA. They have been soliciting ideas from the public since 2013 on the ways in which CRA regulations might be updated to reflect modern banking practices and a digital economy.  That input has been used by the Fed to write a set of proposed changes to its CRA regulations, and it is now asking for the public’s comments on those proposed changes.

Commenting on the proposed changes now is more important than ever.

Some proposed changes are specifically designed to address inequities in access to credit and financial inclusion for LMI and other underserved communities. Input from financial institutions, community organizations, and other stakeholders will help the Fed decide how well these proposed changes address the issues and what the final form of the proposed rule will be.

The Fed seeks feedback on a number of the items: revised definition(s) of a bank’s assessment areas (that is, where a bank’s activity is evaluated); incentives for banks to serve LMI, unbanked, underbanked, and rural communities and eligible regions outside of assessment areas; recordkeeping and reporting requirements; the need for clarity regarding performance measures; the need for better training of examiners to ensure consistency in examinations; and refinement of CRA ratings.

The proposed changes—referred to as the Advance Notice of Proposed Rulemaking or ANPR—were published in the Federal Register on October 19, 2020, and are available for the public to review and comment on until February 16, 2021.  The Cleveland Fed is also hosting virtual conversations with financial institutions and community organizations to discuss the ANPR and answer questions.

  1. Other laws include the Fair Housing Act of 1968, the Equal Credit Opportunity Act (ECOA) of 1974, the Home Mortgage Disclosure Act (HMDA) of 1975, and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (CRA rating used to help determine whether to allow interstate branches). Return to 1