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Financial Services Law Insights and Observations

Treasury releases recommendations for modernizing the Community Reinvestment Act

Agency Rule-Making & Guidance Department of Treasury CRA Federal Reserve OCC FDIC Examination GAO

Agency Rule-Making & Guidance

On April 3, the U.S. Treasury Department released recommendations to the Federal Reserve Board, the FDIC, and the OCC (CRA regulators) on suggestions for modernizing the Community Reinvestment Act (CRA). As previously covered in a Buckley Sandler Special Alert, Treasury released a report last June indicating that the CRA should be modernized to better target statutory and regulatory responses to financial risks faced by U.S. consumers and ensure that the benefits of the CRA investments are aligned with the needs of the communities being served. Last month the Government Accountability Office (GAO) released a report recommending Treasury consider GAO’s findings when conducting its review. (See previous InfoBytes coverage here.)

The April memorandum of recommendations addresses findings from Treasury’s comprehensive assessment of the CRA framework and focuses on four key areas: assessment areas, examination clarity and flexibility, the examination process, and bank performance. Specifically, the recommendations include (i) updating the definitions of “geographic assessment areas to reflect the changing nature of banking arising from changing technology, customer behavior, and other factors”; (ii) improving the flexibility of the CRA examination process to increase clarity in examiner guidance and improve evaluation criteria to increase CRA rating determination transparency and effectiveness; (iii) addressing the timing and issuance of performance evaluations to increase banks’ accountability when planning CRA activity; and (iv) identifying performance incentives to encourage banks to meet the credit and deposit needs of their entire communities, including low- and moderate-income areas. The memorandum solicited input from stakeholders such as consumer advocacy groups, financial industry members, and the CRA regulators.

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