Regulators move to narrow CRA, drawing fire from advocates

Federal banking regulators released a Community Reinvestment Act (CRA) proposal Friday that narrows how banks earn credit for community development while raising asset thresholds for small and midsized institutions. The plan drew immediate criticism from consumer and housing advocates.

The Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) issued a notice of proposed rulemaking (NPR) that they say is designed to refocus on the statutory objectives, ensure grants reach communities, cut compliance burdens and provide greater clarity around CRA evaluations. Comments are due 60 days after publication in the Federal Register.

Under the proposal, banks would still be evaluated under performance tests tied to their size, business model or an approved strategic plan. But the framework would more explicitly center on lending activity — which the agencies said is how a community’s credit needs are best met — while moving away from deposit products.

Lindsey Johnson, president and CEO of the Consumer Bankers Association (CBA), said in a statement that banks should receive CRA consideration for “responsibly providing loans, investing in their communities, supporting affordable housing, financing small businesses, and helping consumers achieve financial security.”

Johnson added that CBA “firmly believes that any new CRA rule should be finalized with the intention of establishing a durable regime with objective approaches grounded in statute that will last through administration shifts.”

Stricter grants

A central point of contention is how the proposal treats community development (CD) grants and operating support. The FDIC and OCC want to tighten CRA credit so that dollars are more clearly tied to projects where community development is the primary purpose.

For large banks with more than $10 billion in assets, the proposal would cap at 15% the share of a grant or donation that can be used for indirect or administrative costs by the recipient.

David M. Dworkin, president and CEO of the National Housing Conference (NHC), called the proposal’s approach to grants and operating support “particularly concerning.” He said it would restrict CRA consideration for private-sector operating support and likely reduce funding for Community Development Financial Institutions (CDFIs), affordable housing organizations, homeownership counselors, fair housing groups and other nonprofits.

“These organizations play an essential role in helping families achieve homeownership, expanding access to affordable housing, combating housing discrimination, and ensuring that community development investments deliver lasting results,” Dworkin said in a statement.

Higher asset thresholds

The proposal would significantly increase the size thresholds that determine how banks are evaluated under CRA.

• Small banks: Less than $1 billion in assets, up from $250 million
• Intermediate banks: $1 billion to $10 billion in assets
• Large banks: More than $10 billion in assets, up from $1 billion

Banks with less than $10 billion in assets would face fewer data collection, maintenance and reporting requirements. In addition, regulators propose to evaluate only a bank’s “major product lines” — e.g., home mortgages, small-business loans and consumer loans — rather than every category, to better tailor the lending test.

The proposal also would codify a preapproval process that allows institutions to seek confirmation from regulators that a specific community development program or initiative will receive CRA consideration before committing funds.

Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition (NCRC), said the proposal “weakens banks’ obligations to invest in working-class communities and threatens to undermine the affordable housing gains in the 21st Century Road to Housing Act entirely.”

“Banks will face weaker exams, get credit for projects with little connection to low- and moderate-income communities and gain more control over where and how they are evaluated,” Van Tol said in a statement. “CRA is supposed to put a thumb on the scale for working-class people; now it lets hundreds of banks off the hook, and dramatically reduces the obligation for others.”

The new proposal represents a sharp pivot from the broad CRA modernization rule the FDIC, OCC and Federal Reserve finalized in October 2023. That rule sought to overhaul assessment areas to reflect digital delivery channels, introduce new retail lending and community development tests, and standardize metrics across agencies.

Industry trade groups strongly opposed the 2023 framework, arguing it was overly complex, expanded CRA beyond its statutory intent and would be costly to implement.

In February 2024, the Texas Bankers Association and other plaintiffs sued to block the rule, claiming regulators exceeded their legal authority. A federal judge issued an injunction in March 2024, halting implementation and effectively reverting CRA enforcement to the longstanding 1995 framework.