The Community Reinvestment Act

The Community Reinvestment Act (CRA) has long served to encourage commercial banks and savings associations to meet the credit needs of all segments of their communities, including low- and moderate income neighborhoods.  Since its inception in 1977, the CRA has leveraged trillions of dollars through community development lending, investments, and services.  CRA investments are highly important in Appalachia and other areas of the country containing persistent poverty counties.

Last week, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency released a proposed set of reforms to the Community Reinvestment Act (CRA). The Federal Reserve did not join in on this proposal but is anticipated to put out its own recommendations shortly.

Broadly, the proposed reforms would affect bank assessment boundaries, criteria for eligible CRA activities, and how banks are scored for their performance.  While it is possible that the proposed reforms would open under-banked areas to CRA investment, there are concerns that communities would almost certainly be negatively affected by the proposed changes.

Under the proposed change, there would be more emphasis placed on the dollar value rather than the quantity of CRA activities which could engage financial institutions to enter into the biggest and simplest deals.  Many deals conducted in Appalachian communities and other areas of persistent poverty are complex and require time and commitment.  The proposed deal could leave entire communities we serve neglected.

The changes could allow banks to receive a failing grade in half of their assessment areas and still receiving a passing grade overall on the CRA examination – something which is not currently allowed. Such an overall passing grade would be based in part on banks getting credit for CRA-eligible activities outside of their assessment areas. The proposal justifies these changes as a response to modern banking being less dependent on physical presence of branches and more flexible geographically with depositors doing most of their banking digitally. This could leave to significant underinvestment in distressed and rural communities.

The full 240-page proposed rule can be found here. 

The length of the comment period is currently being debated.