The U.S. Department of the Treasury made several recommendations to amend the Community Reinvestment Act (CRA).
The CRA was enacted by Congress in 1977 to encourage banks and depository institutions to better serve low- and moderate-income (LMI) neighborhoods.
“Forty years since the passage of CRA, it is time for modernization to fit today’s banking landscape and community needs,” Treasury Secretary Steven Mnuchin said. “Our recommendations will improve the effectiveness of CRA by enhancing the assessment and examination process, enhancing the ability of banks to deliver services in the communities they serve while considering technological advances in the financial industry.”
The Treasury recommends updating the definitions of geographic assessment areas, increasing clarity and flexibility of CRA examinations, increasing the timeliness of evaluations, and incorporating performance incentives to better serve these communities.
Overall, the recommendations are designed to incentivize bankers to do more for low- and moderate-income communities.
“A bank with a less than Satisfactory CRA rating should continue to receive enhanced scrutiny, but more consideration should be given to the bank’s remediation efforts to date and whether approving the application would benefit the communities served by the bank,” the report said. “It is inconsistent with the goals of CRA to limit a bank’s ability to serve its entire community as a result of its less than Satisfactory rating. Treasury recommends that regulators use the application process as an incentive to encourage less than Satisfactory banks to commit to engaging in additional CRA-eligible activities in LMI communities.”
The American Bankers Association welcomes the effort to modernize the CRA to reflect the current lending environment.
“Adjustments that enhance the transparency, consistency and predictability of the supervisory process — and that recognize the many ways banks meet the credit needs of the communities they support — will help institutions better serve their customers and promote economic growth,” Rob Nichols, president and CEO of the American Bankers Association, said.
Nichols said the report recognizes changes in mobile technology and other innovations banks have developed to serve their customers.
“This report is an important step and incorporates a number of the recommendations made in the white paper ABA submitted to Treasury Secretary Mnuchin in December,” Nichols said. “We look forward to learning more about Treasury’s recommendations and working with banking regulators to implement changes that will enhance CRA’s role in promoting economic growth.”