On Monday, September 9, 2019, a group of 28 housing, consumer protection and community development organizations issued a letter to the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and Federal Reserve Board in advance of an anticipated Notice of Proposed Rulemaking regarding the Community Reinvestment Act (“CRA”) and in response to an Advance Notice of Proposed Rulemaking published in August 2018 (the “ANPR”). The letter encourages the agencies to issue uniform CRA regulations and advises that metric-based standards should not be focused solely on the bank’s CRA balance sheet.
The letter first addresses the importance of identical regulations across the regulators to establish consistency and to prevent the need to revise the regulations in the near future. Noting that CRA regulations have historically been uniform across the three prudential regulators, the agencies request that the same be true for the forthcoming regulations.
The letter continues by recognizing the need for clear, consistent, and transparent regulations and acknowledging that these goals can be achieved by improved performance metrics. The agencies then raise concerns that a metrics-based framework that relies primarily on the dollar volume of a Bank’s CRA balance sheet against its deposit or asset base would not necessarily best serve the goals of the CRA. The letter highlights six potential pitfalls of a metrics-based framework to support the agencies’ position. Foremost among them: (i) the possibility that the framework may incentivize banks to hit their targets in the fastest way possible rather than to focus on the goal of meeting community needs, and (ii) that the metrics could encourage certain types of CRA activities and discourage activities that may not produce the same metrics, but still serve the low- and moderate-income community needs.
Although it remains to be seen how regulators will respond to comments received in response to the ANPR, the letter issued by the community organizations demonstrates the challenges regulators will face delivering clear, consistent, and transparent regulations that can best address the goals of the CRA.