The Federal Reserve Board (FRB) released a draft advance notice of proposed rulemaking (ANPR) on September 21, 2020 related to its effort to modernize its approach to supervising institutions under the Community Reinvestment Act (CRA). This effort seeks to make changes by “strengthening, clarifying, and tailoring” the FRB’s CRA framework.

The FRB has several objectives for modernizing its CRA framework, including:

  • Addressing the changing landscape of the banking industry;
  • Ensuring banks meet the needs of low- and moderate-income (LMI) communities and families;
  • Promoting financial inclusion for minority and women-owned financial institutions, low-income credit unions and underserved areas; and
  • Enhancing the consistency and transparency of performance evaluations while tailoring them to account for differences in bank size and business models.

In the ANPR, the FRB offered several proposals to achieve these and other objectives. A key proposal includes updating how banks can define their CRA assessment areas from the facility-based delineations to consider other factors, such as the distribution of loan production offices, lending activity and deposits. Separately, the FRB proposes reorganizing the performance testing framework into a Retail Test – consisting of Retail Lending and Retail Services Subtests – and a Community Development (CD) Test – consisting of CD Financing and CD Services Subtests. Small banks may opt into only being examined under the Retail Lending Subtest. To enhance consistency, the FRB proposes specific quantitative metric thresholds for Retail Lending and CD Financing activities that cannot be contradicted by examiners’ reviews of qualitative factors; however, qualitative factors will continue to play an important role in evaluating Retail Services and CD activities.

The FRB’s ANPR comes over two years after the Office of the Comptroller of the Currency (OCC) initially released an ANPR seeking ideas to modernize its CRA regulatory framework. This was followed by a joint ANPR between the OCC and the Federal Depository Insurance Corporation (FDIC) in December 2019 and a final rule released by the OCC in May 2020. The FRB’s ANPR shows that all three agencies responsible for regulating and supervising banks under the CRA are actively engaged in modernizing their respective frameworks. Yet it remains to be seen if the three agencies will continue to head down different paths toward modernization or if they will agree on a uniform CRA framework.