On July 31, the OCC and FDIC jointly issued a proposed rule to significantly amend their existing Community Reinvestment Act (CRA) regulations that have been in place since 1995. While the proposal would retain key elements of the regulatory framework, it seeks to better align the regulations with CRA’s statutory mandate of encouraging banks to meet the credit needs of their communities by making “targeted” substantive, technical, and process-oriented changes and narrowing the scope of the rules. Toward that end, the proposal focuses on the lending test, ensures that community development grants reach the communities they are intended to benefit, and narrows the range of retail banking services the agencies consider for CRA credit by excluding deposit services. The proposed rule also seeks to provide greater clarity on how a bank receives CRA consideration and to reduce burden on banks (particularly community banks). Notably, the Federal Reserve Board (FRB) did not join the proposal.
Efforts to update and modernize the CRA rules have been unsuccessful under administrations for both parties, and this is the third major effort to overhaul the CRA regulations since 2018. In September 2018, the OCC issued an advance notice of proposed rulemaking (ANPR) to begin the process, which was followed by a joint proposal by the OCC and the FDIC to revamp the rules in December 2019, while the FRB issued its own ANPR in October 2020. But the initial effort fell apart when the OCC decided to issue its own final rule in May 2020, which was then rolled back under the Biden administration in December 2021. Subsequently in May 2022, all three federal banking agencies aligned to release a joint proposed rule, which was finalized in October 2023. However, in response to a banking industry challenge that the agencies exceeded their statutory authority in issuing the final rules, a federal court issued an order enjoining those rules before they went into effect.
After President Trump took office for the second time in 2025, the federal banking agencies’ initial plan was to rescind the final rules issued in 2023 and reinstate the original rules issued in 1995 (and jointly proposed doing so in July 2025). Apparently, that is still the FRB’s plan, but the OCC and the FDIC are clearly moving in a different direction – again.
Under the CRA proposed rule, the OCC and the FDIC seek to achieve the following strategies and tactics:
- More closely align CRA’s regulatory framework with the statutory mandate
- Focus primarily on lending because the agencies believe that is how a community’s credit needs are best met
- Narrow the scope of retail banking services considered when evaluating a bank’s CRA performance to credit services, thus excluding deposit services
- Clarify the concepts of “responsiveness” and “complexity,” which are considered when assessing a bank’s CRA-qualifying activities, to give more weight to activities that involve lending
- Ensure that community development grants and donations reach intended communities
- Modify how they are treated under the CRA regulatory framework to ensure that they are not “diverted to activist causes” or consumed by excessive operating costs
- Limit consideration of community development grants to grants or donations directly used for a plan, project or initiative with community development as a primary purpose
- Require large banks to document that recipients of community development grants do not maintain overhead costs in excess of 15 percent
- Provide greater clarity on how a bank receives CRA consideration
- Increase clarity, transparency, and objectivity in the regulatory framework by (i) codifying an illustrative list of community development activities that do and do not qualify for CRA credit; (ii) provide a confirmation process for activities that meet the CD definition; and (iii) clarify the components of the principles-based definition of “community development”
- Clearly explain when a bank may receive consideration for community development activities that are outside of its assessment area(s), thus providing flexibility for banks (including those with digital or novel business models) while ensuring that banks are able to serve their assessment areas
- Clarify the strategic plan framework so it is a more viable and less burdensome option for banks
- Reduce regulatory burden on banks
- Increase bank asset size thresholds for small banks from $412 million to $1 billion, and, for intermediate banks, from $1.65 billion to $10 billion. Under the current rules, intermediate banks are defined as a subset of small banks called “intermediate small banks.”
- Provide an exemption for banks newly classified as intermediate banks (with assets between $1.65 billion to $10 billion) from data collection and reporting requirements, as well as granting those banks a more flexible approach to supervision
- Focus only on a bank’s major product lines when evaluating its retail lending activities, allowing banks to better manage its CRA program
- Leverage technology to modernize the availability of a bank’s CRA public notice and public file
Comments on the proposed rule are due within 60 days following publication in the Federal Register.
Our Take
In general, the proposed rule seeks to align with the CRA statute by taking a lending-centric, deregulatory approach. While the banking industry is largely welcoming the proposed changes to make CRA compliance obligations clearer and more objective while reducing costs and burden, opponents of the rule are already expressing their concerns, including Democrats in Congress and consumer and housing advocacy groups. Opponents cite the raised asset thresholds as particularly problematic because banks with $1.65-$10 billion in assets would be exempt from data collection and reporting and would be subject to flexible supervision, relieving the vast majority of community banks from CRA compliance requirements. They also believe that the proposal would result in weakened CRA examinations with supervised banks in more control of how they are evaluated, and allow banks to receive credit for community development projects with limited connection to low- and moderate-income communities. These battle lines and the arguments made by proponents and detractors of the proposal will ultimately shape the scope and details of the final rule.
Although it is laudable that the FDIC and OCC are willing to tackle another CRA rulemaking rather than revert to the original 1995 rules as initially planned, it will be necessary for the three banking agencies to align in their regulatory approach for a durable, long-term solution to modernizing the CRA rules that will outlast administration changes. That alignment would promote certainty for both the banking industry and the communities they serve.