The Department of the Treasury has released a report with recommendations for “modernizing” the Community Reinvestment Act. The recommendations this week were issued to the primary CRA regulators, the Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corporation. 

Treasury’s stated objective in developing these recommendations “is to better align CRA activity with the needs of the communities that banks serve, while being conducted in a manner consistent with a bank’s safety and soundness.”

“Forty years since the passage of CRA, it is time for modernization to fit today’s banking landscape and community needs,” said Treasury Secretary Steven Mnuchin. “Our recommendations will improve the effectiveness of CRA by enhancing the assessment and examination process, enhancing the ability of banks to deliver services in the communities they serve while considering technological advances in the financial industry.”

Treasury’s recommendations include:

Updating the definitions of geographic assessment areas to reflect the changing nature of banking arising from changing technology, customer behavior, and other factors;

 Increasing clarity and flexibility of CRA examinations to increase transparency and effectiveness of CRA rating determinations; 

 Improving the examination process to increase timeliness of evaluations and increasing accountability for banks’ planning of their CRA activity; and

Incorporating performance incentives to better serve the CRA’s intended purpose of encouraging banks to meet the credit and deposit needs of their communities.  Treasury’s recommendations will incentivize bankers to do more for low- and moderate-income communities, especially in cases where the bank has underperformed in prior assessment periods.

The Community Reinvestment Act of 1977 was enacted to encourage banks to meet the credit and deposit needs of communities that they serve, including low- and moderate-income communities, consistent with safe and sound operations. It was intended as a response to concerns about disinvestment and redlining as well as a desire to have financial institutions “play the leading role” in providing the “capital required for local housing and economic development needs.”  

Banks are periodically assigned a CRA rating by its primary regulators based on performance under the appropriate CRA tests or approved Strategic Plan.

“The U.S. banking industry has experienced substantial organizational and technological changes; however, the regulatory and performance expectations under CRA have not kept pace,” the Treasury report says. “Interstate banking, mortgage securitization, and internet and mobile banking are just a few of the major changes that have come about in the past four decades.  In this evolving banking environment, changes should be made to the administration of CRA in order for it to achieve its intended purpose.”

The Financial Services Roundtable welcomed efforts to “better meet the needs of 21st-Century consumers.”

“Treasury’s report includes many common-sense recommendations to ensure banks are meeting the needs of American consumers and communities across the country,” Senior Counsel for Regulatory and Legal Affairs Rich Foster said. “The 1977 statute never contemplated regulations such as today’s technological and digital banking advancements that allow banks to provide greater consumer access to lending and deposit services while addressing the needs of the communities in which they operate.”

Financial institutions should be able to more easily provide low to moderate-income consumers with a variety of products and services that meet their unique financial goals, FSR added, urging regulators “to pursue a unified interagency initiative to achieve this goal.”

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