On July 16, the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (collectively, the federal banking agencies) jointly published a proposed rule to rescind the 2023 Community Reinvestment Act (CRA) final rule. This proposal aims to revert to the CRA framework that was in effect prior to the 2023 amendments, with certain technical updates. This decision follows ongoing litigation in the Fifth Circuit, where banking trade associations challenged the 2023 rule, alleging regulatory overreach.
Background: The 2023 CRA Final Rule
As discussed here, the CRA, established in 1977, was designed to ensure that banks meet the credit needs of their communities, including low- and moderate-income areas, while maintaining safety and soundness. The 2023 CRA final rule was intended to modernize the assessment of lenders’ compliance, encouraging banks to expand access to credit and adapt to changes in the banking industry, such as mobile and online banking. Despite these intentions, the rule faced criticism for not addressing nonbank lenders and credit unions, and for altering the CRA performance evaluation process in ways that some argued did not align with the law.
Proposed Rescission and Return to 1995 CRA Regulations
The federal banking agencies have proposed to rescind the 2023 CRA final rule and revert to the 1995 CRA regulations, with updated provisions to reflect inflation adjustments for 2025.
These updated provisions include:
- The definition of “small bank” is updated to include those with assets of less than $402 million as of December 31 of either of the prior two calendar years. “Intermediate small banks” are defined as those with assets between $402 million and $1.609 billion. “Large banks” are those with assets over $1.609 billion. These thresholds are critical for determining the appropriate CRA performance tests and standards applicable to each bank category.
- Amendments to align asset-size thresholds with inflation adjustments, based on the annual percentage change in the Consumer Price Index. The asset-size thresholds set forth in this proposed rule are accurate through December 31, 2025, as detailed in the relevant Federal Register notices and OCC bulletins. By incorporating inflation adjustments, the agencies aim to provide a stable and predictable regulatory environment that reflects the economic realities faced by banks.
- Different methods for evaluating a bank’s CRA performance based on its asset size and business strategy. Small banks are primarily evaluated under a lending test, with the potential to receive an “outstanding” rating based on their retail lending performance. Intermediate small banks undergo both a lending test and a community development test, which evaluates all community development activities combined. Large banks are subject to separate lending, investment, and service tests, requiring annual reporting of data on community development loans, small business loans, and small farm loans. This comprehensive evaluation framework ensures that banks of all sizes are assessed fairly and consistently, promoting transparency and accountability in meeting community credit needs.
Request for Comments
The agencies are seeking feedback on all aspects of the proposed rule. Comments must be submitted within 30 days after publication in the Federal Register.
