Last week, the Federal Reserve Board (Fed), the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) announced their joint commitment to strengthen and modernize the Community Reinvestment Act (CRA). The OCC also announced its plans to rescind its May 2020 final rule, which it issued independently from the other agencies.
What is the CRA?
The OCC, the Fed and the FDIC are the three banking regulators charged with overseeing the CRA, a law which aims to help low- and moderate- income (LMI) communities gain access to financial services, loans, and community development investments that would otherwise be unavailable. Notably, approximately 85 percent annual Low-Income Housing Tax Credit (Housing Credit) investment is CRA-driven. The CRA, first put into law in 1978, has only been amended twice since – in 1995 and 2005.
Given the changes to the financial services industry since its last revision, there is widespread recognition – both among the three banking regulators as well as other stakeholders in the industry – of the need for modernized CRA regulations. However, during the Trump Administration, the three agencies diverged for the first time in CRA history and were unable to come together to issue a common joint final rule, resulting in OCC-regulated banks operating under a different CRA regime than banks regulated by the Fed or FDIC.
Recent Efforts to Modernize the CRA
After initially issuing a widely objected-to advance notice of proposed rulemaking (ANPR) in August of 2018, the OCC followed up by issuing a joint notice of proposed rulemaking (NPR) with the FDIC in December of 2019. Shortly after the close of the comment period in April 2020, the OCC issued its own final rule in May 2020, to which the FDIC ultimately did not sign on.
In response to the OCC and FDIC’s NPR, Enterprise submitted comments to the two banking regulators, urging them to delay changes to CRA regulations in the face of COVID-19 and to find common ground with the Fed. The comments also reinforced the need for a strong regulatory framework to properly give banks credit for sound community development work, including helping LMI communities gain access to capital and strengthening the affordable housing finance system, all while retaining a focus on community voice.
More recently, in October of 2020, the Fed published its own ANPR to modernize the CRA, which differed significantly from the OCC’s final rule. Enterprise provided comments to the proposed rule, noting how the CRA has been an important driver of financial institution investment in the Housing Credit, the New Markets Tax Credit, and Community Development Financial Institutions. Enterprise also commended the Fed for its emphasis on addressing discrimination and redlining as central to the purpose of the CRA and urged the Fed to join together with the other two banking regulators to establish one, final CRA rule.
The announcement of the OCC’s intent to rescind the final CRA rule now in effect, as well as the three banking regulators forthcoming joint CRA rulemaking effort, is noteworthy, as experts – including those at the three regulatory agencies – have widely expressed the importance of a unified approach to CRA modernization.
At the moment, there are few details on what the rulemaking process and timeline may look like, though a formal, joint proposal is not anticipated for several more months. The OCC’s recission will follow the standard rulemaking process, likely with a short comment period. Because some banks have already begun operating under the OCC final rule’s guidance on qualifying activities, it is possible that activities conducted under the rule would still be eligible for CRA credit even post-recission.
Despite this uncertainty, Enterprise applauds the three banking regulators for coming together to issue a unified, modernized CRA regulatory framework. Enterprise will continue to advocate for final CRA regulations that are broad and flexible given the infrequent changes to the rules, but which ultimately maintain the original purpose of the law: to help LMI communities gain access to financial services, loans, and community development investments that would otherwise be unavailable to them, so that they may access platforms for resilience and upward mobility.