On November 2, 2023, the Consumer Financial Protection Bureau issued a report on the community reinvestment laws of seven states (Connecticut, Illinois, Massachusetts, New York, Rhode Island, Washington, West Virginia), and the District of Columbia that evaluate the record of state-chartered financial institutions and other lenders in meeting the credit needs in their communities.
The report analyzes the history of state community reinvestment laws and recent developments. For example, although most of the states have had a community reinvestment law for some time (New York, for example, passed its law in 1978 and Connecticut, Massachusetts, Washington and West Virginia adopted a community reinvestment law in the 1980s), the Illinois laws was adopted in 2021 and the laws have been amended from time to time to “to cover additional types of financial institutions, collect additional data to better understand financial markets, and address other state-specific needs.”
Among the findings enumerated within the report are the following:
- Although originally applied primarily to state-chartered banks and credit unions, many of the laws have been expanded to cover mortgage companies. The New York and Massachusetts CRAs also apply to wholesale banking and limited purpose institutions, and other state CRAs include the requirement or authority to apply CRA obligations to other types of financial institutions.
- How a state community reinvestment law is enforced differs between the states. For example, Connecticut, Massachusetts, and New York conduct periodic, written performance evaluations, and Illinois has also proposed periodic, written performance evaluations. The District of Columbia, Rhode Island, and West Virginia, by contrast, conduct reviews or performance evaluations in response to a merger, branch or other expansionary application.
- Institutions examined under state community reinvestment act are generally evaluated either under a state assessment area (as is the case in New York and Massachusetts, and as has been proposed for Illinois) or under the geographic assessment area applied to an institution under the Community Reinvestment Act (as is the for Rhode Island, Washington and West Virginia). The District of Columbia has set as the community reinvestment act assessment area under its statute as the entire district.
- All of the states with a state community reinvestment law and the District of Columbia enforce the law by considering compliance in evaluating expansionary proposals such as mergers and acquisition, but some states have adopted additional measures such as limiting the ability of an institution not in compliance with the law to act as a public depositary. Like the federal Community Reinvestment Act, none of the state laws provide for the ability to issue civil monetary penalties or structural remedies for failing to meet state reinvestment requirements.
- Most states rely on existing data, such as Home Mortgage Disclosure Act data for mortgage lending, or federal Community Reinvestment Act data for small businesses or small farms, to complete their evaluations.
The overall conclusion of the Consumer Financial Protection Bureau in the report is that “states play an active and ongoing role in promoting reinvestment by a wide range of institutions and that continued review is necessary to understand these developments.”
Like the Bureau, Ballard Spahr is monitoring developments in state community reinvestment laws. It is yet to be seen whether existing state community reinvestment laws will be amended given the final rule recently issued by the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency to update federal CRA regulations or whether other states will adopt a community reinvestment act law and apply it not only to state-chartered financial institutions, but to other lenders. On December 6, 2023, from 3:30 p.m. to 4:30 p.m. ET, we will hold a webinar on the final federal CRA rule. To register, click here.