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Notes from the Field

Feedback Appreciated: What Community Members Told Us about Modernizing the Community Reinvestment Act (CRA)

Discussions to share info and seek public comment on proposed changes to modernize the CRA revealed two things key for ensuring access to capital for all people and communities.

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.

When the Board of Governors of the Federal Reserve System released its Advanced Notice of Proposed Rulemaking (ANPR) last September, proposing changes the Community Reinvestment Act (CRA), it asked the 12 Federal Reserve Banks to share information about the ANPR with its communities and encourage public comment. The Cleveland Fed hosted a series of virtual gatherings—a round to provide information and a round to seek information.

During these events, two things became clear:

  1. What the CRA is, and to what degree banks are obligated to comply with it, is not evident to many of our community members.
  2. Updating this act so that it better addresses how banks serve low- and moderate-income (LMI) people and communities is long overdue.

If we want to ensure access to capital for all people and communities, we must clarify regulations and recognize that each community’s needs are unique.

To address the general lack of understanding of CRA and bank obligations, we knew that we had to provide baseline information about CRA in addition to sharing information about the newly proposed approaches. We began by hosting information sessions in December 2020 for bankers and community-based organizations (CBOs) throughout the Fourth District (Ohio, eastern Kentucky, western Pennsylvania, and the northern panhandle of West Virginia). We also penned blog entries and focused two events in our FedTalk series on CRA-related topics so that we could reach an even wider audience.

The ANPR document is more than 200 pages, and it asked for public comment on 99 questions that cover a wide range of CRA topics, not all of which are applicable to all audiences. Asking for comments on such an extensive document and number of questions would have been neither helpful for our stakeholders nor conducive to productive conversations, so we broke it down and held additional feedback sessions for five key stakeholder audiences:

  1. State-chartered community banks
  2. Organizations serving Appalachia and other rural parts of the Fourth District
  3. Affordable-housing professionals
  4. Community Development Financial Institutions (CDFIs)
  5. Community development professionals in county government and academia

Making CRA work for communities

During these conversations, it became clear that our stakeholders’ unanswered CRA questions were standing in the way of their providing valuable input. Some asked about how assessment areas—the geographic areas that the banks are responsible for serving—are defined. Others were unaware of the types of projects that would qualify for CRA credit and motivate banks to invest in their communities. When we provided background information, stakeholders shared what they thought could make CRA more impactful within their communities:

  • Ensure CRA credit corresponds to long-term impacts to the community. If impacts may take years to come to fruition, it’s not helpful if banks can get credit from their initial (short-term) investment, as is the case under the current CRA rules. As an example, one participant shared a story about an affordable housing project that is now boarded up after the required compliance period expired. The bank got CRA credit at the beginning of the project, but the community finds itself again in need of more affordable housing.
  • Make it as clear as possible what counts for CRA credit. Having a list of criteria that prequalify will give more confidence to banks and help CBOs pitch projects that would meet both bank and community needs. Multiple stakeholders shared stories of projects that were important to the community, but banks were hesitant to invest in because they were uncertain if they would get CRA credit.
  • Create incentives for banks to invest in Appalachia and rural communities because investments that are made more frequently in urban areas may not work in rural areas. One stakeholder shared the challenge of attracting large-bank investments because banks did not understand how housing needs in rural communities differ from the affordable housing projects in urban areas.

Banking changes and the need for CRA updates

In addition to providing valuable insight about what would further CRA’s impacts in their communities, stakeholders told us that, based how banking has evolved—especially with the growing prevalence of online banking—CRA is overdue for an update. The consolidating of banks, closing of bank branches, and the lack of banking options, particularly in rural communities, have created issues for our stakeholders. They told us that with fewer physical branches, it is unclear which banks could be potential investors because they are unsure of each bank’s assessment area.

The increase in online banking and fully internet-based banks only adds to the confusion about assessment areas. When we asked if banks should get credit for investments outside of their assessment areas (ANPR questions 67–70), stakeholders’ answers were mixed, sharing that there is both an upside and a downside in banks' being able to receive CRA credit for investing in projects outside of their geographic footprint. Dollars might more easily flow into areas of need, but they might just as easily flow out, too. Stakeholders suggested that clear guidance be included in an update to the CRA regulation.

While this feedback was useful for informing what happens next with the ANPR, it also helped me understand the breadth of ways that the CRA can help a community. The goal of the CRA is to ensure banks are meeting the credit needs of all members in the communities they serve. When I listened to stakeholders speak in these feedback sessions, I heard a desire from both banks and CBOs to partner to address community needs. But I learned that as updates to CRA are shared, providing clear regulation and recognizing each community’s unique needs are key for making the goals of the CRA truly achievable.