On October 24, the Federal Reserve Board (Fed), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (collectively, the agencies) finally issued their long-awaited final rule modernizing how they assess lenders’ compliance under the Community Reinvestment Act (CRA). The CRA was enacted in 1977 to address systemic inequities in access to credit and encourages banks to meet the credit needs of the entire community, including low- and moderate-income (LMI) communities, consistent with safety and soundness principles. The last meaningful, comprehensive revision to the CRA regulations occurred in 1995.

Key goals of the final rule are to encourage banks to expand access to credit, investment and banking services in LMI communities; adapt to changes in the banking industry, including mobile and online banking; provide greater clarity and consistency in the application of the CRA regulations; and tailor CRA evaluations and data collection to bank size and type. Although the final rule becomes effective on April 1, 2024, the final rule provides for a transition period for the new regulations. According to the OCC bulletin announcing the final rule, “the April 1, 2024, effective date is applicable to provisions of the final rule that are similar to the current CRA regulations: facility-based assessment area delineations, effect of CRA on applications, public file, bank public notice, and CRA examination schedule public notice provisions, as well as the new public engagement provision. As of January 1, 2026, banks are required to comply with all other provisions of the final rule, except for certain reporting requirements, which will be applicable on January 1, 2027.”

The final rule retains several key aspects of the proposed rule issued in June 2022, such as flexibility in retail lending evaluations for banks with less than $600 million in assets and new data collection and reporting requirements for banks over $2 billion in assets. The final rule also requires the activities of certain operating subsidiaries to be attributed to a bank’s CRA performance and gives banks the flexibility to decide whether to attribute the activities of bank affiliates to a bank’s CRA performance. Given the rise of digital banking, the final rule also requires banks to lend to LMI communities in areas where they have a concentration of mortgage and small business loans, not just where they have physical branches. However, several changes were made in the final rule in response to comments received during the agencies’ notice of proposed rulemaking. For example, the final rule exempts predominantly branch-based banks from having to delineate their retail lending assessment areas. Also, the final rule allows banks to obtain credit for retail lending that occurs outside of its assessment areas. Banks would also receive credit for all eligible community development activities conducted nationwide.

However, despite specific commenter requests to do so, the agencies determined that the final rule does not apply to nonbank lenders or credit unions. This is despite the fact that research shows credit union lending, in particular, has become an increasing source of residential mortgage originations over the past two decades. The impact to LMI communities from the inapplicability of the final rule to nonbank and credit union lending remains to be seen.

According to the agencies’ overview, the final rule updates the CRA to achieve the following objectives:

• Serve as a strong and effective tool to address inequities in access to credit. To achieve this, the final rule:
  • evaluates bank engagement with LMI communities, small businesses, and small farms using four tests: (1) retail lending, (2) retail services and products, (3) community development (CD) financing, and (4) CD services.
  • enhances financial inclusion by supporting minority depository institutions and community development financial institutions, native land areas, persistent poverty areas, and other high-need areas.
  • emphasizes smaller loans and investments that are more responsive to the needs of LMI communities.
• Adapt to mobile and online banking and hybrid models that combine physical footprints with online lending. To achieve this, the final rule:
  • maintains a focus on evaluating bank performance in areas where banks have deposit-taking facilities while also evaluating banks’ retail lending activities nationwide. The final rule also provides consideration for bank’s community development activities nationwide.
• Provide clarity and consistency in the application of the regulations. To achieve this, the final rule:
  • adopts new metrics and benchmarks that will be used by the agencies to assess retail lending performance.
  • encourages CD activities that are responsive to the needs of LMI communities, small businesses, and small farms by clarifying what activities will receive CRA credit, including providing a public list and approval process to confirm an activity’s eligibility.
• Tailor performance standards to differences in bank size, business models, and local conditions. To achieve this, the final rule:
  • updates asset size thresholds for small, intermediate, and large banks at less than $600M, $600M to $2B, and equal to or greater than $2B, respectively (to be adjusted annually for inflation).
  • utilizes community and market benchmarks that reflect differences in local conditions.
  • continues to provide a tailored performance evaluation framework with different performance tests based on bank size and business model.
• Tailor data collection and reporting requirements and use existing data whenever possible. To achieve this, the final rule:
  • exempts small and intermediate banks from new data collection requirements that apply to banks with assets of at least $2 billion and limits certain data collection and reporting requirements to large banks with assets greater than $10 billion.
• Promote transparency and public engagement. To achieve this, the final rule:
  • provides greater transparency for existing race, ethnicity, and income data available under the Home Mortgage Disclosure Act (HMDA) for large banks, by assessment area. Data will be provided on the agencies’ websites for disclosure purposes only.
  • codifies the agencies’ practice of forwarding to the bank all public comments received by the agencies regarding a bank’s CRA performance.
  • encourages the public to submit comments on community needs and opportunities.
  • provides that the agencies will develop data tools that use reported loan data to calculate metrics and benchmarks in different geographic areas in recent years, allowing banks and the public to have additional insight into the performance standards.
• Confirm that CRA and fair lending responsibilities are mutually reinforcing. The final rule affirms that, in meeting the credit needs of their entire communities, banks must do in a fair and equitable manner. To achieve this, the final rule:
  • continues to prohibit banks from delineating facility-based assessment areas that reflect illegal discrimination or arbitrarily exclude LMI census tracts.
  • retains and clarifies the provision that CRA ratings can be downgraded as a result of discriminatory and/or illegal credit practices.
• Promote a consistent regulatory approach. To achieve this, the final rule:
  • provides a unified approach from the agencies.

Troutman Pepper’s Financial Services attorneys will be digesting the 1494-page final rule and issuing further analysis through its blogs and podcasts over the coming weeks.