The Community Reinvestment Act (CRA) is a law originally enacted in 1977 with the intent to address systemic inequalities in access to financial services for low- and moderate- income (LMI) communities (Speech by Governor Brainard).1 However, due to advancements in banking technology and shifts in consumer behavior, many stakeholders have advocated for “modernization” in order to update and strengthen the regulation.

The intent of modernization is to allow the regulation to adapt to the current sociopolitical climate and continue to effectively promote financial inclusion and racial equity.2

After years of taking stakeholder feedback into consideration, on June 5, 2020, the Office of Comptroller of the Currency (OCC) announced adoption of a “Final Rule” to modernize the existing CRA framework.3 The Final Rule is effective as of October 1, 2020 and requires large retail banks supervised by the OCC to be fully compliant by January 1, 2023.4

The Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Bank have not “opted in” for adoption. However, the roughly 110 national OCC-regulated banks covered by the Final Rule account for the majority of all US-based CRA activity (Community Reinvestment Act Regulations).5

What this means for banks

The Final Rule seeks to update the existing CRA framework regarding key areas including CRA qualifying activities, the quantification of such activities, delineation of assessment areas, evaluation methods, and data collection requirements.6 While many banks should be able to leverage their existing data warehouses, full compliance is expected to require additional analysis and reporting of CRA related data.

For example, in order to make sure banks are not excluding or providing different lending terms to LMI or minority communities, CRA’s current framework evaluates banks’ lending practices using metrics which measure the dollar-value of loans extended to LMI and minority communities in comparison to US census data.7 Under the Final Rule, banks are required to report the quantity, rather than the dollar-value, of loans extended to LMI and minority communities; thus, incentivizing a more objective method for evaluating CRA performance.8 As such, banks need to re-assess, or develop, a system to monitor, aggregate, and assess CRA qualifying loans generated from branches located in LMI census tracts.

In addition to loan data, the Final Rule requires reporting of deposit data for evaluation of CRA performance.9 Due to technology and consumer trends, the OCC recognizes that some banks now collect a notable amount of deposits outside of their physical branch footprint.10 As the intent of this addition is to encourage banks to engage in CRA qualifying activities within the areas they collect deposits, deposit data should be geocoded in order to appropriately delineate deposit-based assessments areas. (Community Reinvestment Act Regulations).11 As such, banks should re-assess, or develop, geocoding processes, methods for collection of consumer level domestic deposits, and methods for evaluating the distribution of deposit assessment areas.

Conclusion

In order to be fully compliant by January 1, 2023 it is vital for large retail banks to properly understand the modernized CRA regulation and prioritize assessment of its impacts. Banks should implement an updated and consistent metrics-based approach for collecting, compiling, reporting and analyzing CRA performance data and reporting to the OCC.

As such, it is important for banks to begin assessing the necessary changes to their processes and data and reporting elements, across their various departments (e.g., Retail, Commercial, and Consumer banking) and origination/servicing systems, as soon as possible. For these reasons, many banks are opting to allow time to run parallel reporting capabilities and targeting an early completion date of January 1, 2022.

Note 1: The intent of this post was to highlight key updates to the existing CRA framework as a result of the OCC’s Final Rule, and industry trends as banks begin to proactively respond to the updates. Additional information regarding specific impacts and implications should be covered in future posts as additional clarity is provided by the OCC.

Note 2: This analysis was conducted based on Accenture’s understanding of the modernization of CRA and the “Final Rule,” as of October 2020. This interpretation may shift based on US government administration changes.

References

  1. “Modernizing and Strengthening CRA Regulations: A Conversation with the Housing Community,” Federal Reserve, October 20, 2020. Access at: https://www.federalreserve.gov/newsevents/speech/brainard20201020a.htm.
  2. Ibid.
  3. “Community Reinvestment Act Regulations,” Federal Register, June 5, 2020. Access at: https://www.federalregister.gov/documents/2020/06/05/2020-11220/community-reinvestment-act-regulations.
  4. Ibid.
  5. Ibid.
  6. Ibid.
  7. “Modernizing and Strengthening CRA Regulations: A Conversation with the Housing Community,” Federal Reserve, October 20, 2020. Access at: https://www.federalreserve.gov/newsevents/speech/brainard20201020a.htm.
  8. Ibid.
  9. “Community Reinvestment Act Regulations,” Federal Register, June 5, 2020. Access at: https://www.federalregister.gov/documents/2020/06/05/2020-11220/community-reinvestment-act-regulations.
  10. Ibid.
  11. Ibid. 

Newsletter Author: Bailey Mayer; Sarah Johnson
Newsletter Contact Person:
Mairi Bryan

Disclaimer

This blog is intended for general informational purposes only, does not take into account the reader’s specific circumstances, may not reflect the most current developments, and is not intended to provide advice on specific circumstances. Accenture disclaims, to the fullest extent permitted by applicable law, all liability for the /development and completeness of the information in this blog and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professional.

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