Protect and Improve the Community Reinvestment Act

Financial regulators are reviewing proposed changes to the Community Reinvestment Act (CRA).  The Office of the Comptroller of the Currency, FDIC, and Federal Reserve have published a joint Notice of Proposed Rulemaking (NPR). Some of the proposals are quite positive. However, we fear some proposals will lead to significantly decreased involvement of certain institutions and a direct loss of critical investments in vulnerable communities.

What is the Community Reinvestment Act and Why It Is Vital to Affordable Housing?

The Community Reinvestment Act (CRA) was enacted in 1977. It provided requirements for financial institutions to meet the needs of communities in which they operate, including low to middle-income households.  These financial institutions are monitored for compliance with CRA requirements by the Federal Reserve, FDIC, and Office of the Comptroller of Currency. 

The Federal Reserve makes banks’ Performance Evaluations public through an online database that can be searched using institution or exam criteria or by bank branch location. In addition, each bank is required to maintain a copy of the Performance Evaluation in its public file and make it available to customers upon request.

What is Being Proposed to the Community Reinvestment Act?

As part of the proposed amendments are provisions that would eliminate certain subtests for medium-sized and smaller banks. We believe this would eliminate their accountability for providing community development finance and expanding branch presence to underserved communities.  Small and medium-sized banks have been successfully performing these activities for years and urge the agencies to eliminate this aspect of the NPR at the risk of reducing reinvestment activity. 

While the NPR is an important step toward making parts of CRA exams more rigorous, we urge the agencies to extend the increased rigor of the large bank lending test to tests for small and medium-sized banks. There is no compelling reason to relax CRA at this time, as most banks have been successfully complying – especially when such relaxation could lead to targeted disinvestment in important community development projects. 

Create Reforms that Promote the Expansion of Affordable Housing

We fear changes to these CRA tests could lead to disinvestment in affordable housing properties. Eventually, it could lead to many planned and proposed affordable housing projects being stalled indefinitely. Financial institutions are critical to the success of affordable housing preservation efforts. Despite positive intentions, banks need the inducement of CRA to keep maintain this level of activity in underserved communities. More importantly, this proposed change would cause hardship in small cities and towns around the country where such investments are desperately needed.

We urge the agencies to modernize and update CRA in ways that will make it more appropriate for our evolving economy. Also, we agree with National Community Reinvestment Coalition and other advocacy organizations that persistent racial disparities in lending should compel the agencies to incorporate race and ethnicity into CRA exams. Ultimately, these updates could be a catalyst for the fairer and more equitable development of housing.