In December 2019, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) issued a joint Notice of Proposed Rulemaking (NPRM) to modernize Community Reinvestment Act performance evaluations.

The objectives of the NPRM are to:

  • Clarify which activities qualify for consideration during Community Reinvestment Act (CRA) performance evaluations;
  • Revise the geographic locations where qualifying activities may be considered;
  • Increase the objectivity of CRA performance evaluations; and
  • Provide more transparent, consistent, and timely CRA-related data collection, recordkeeping, and reporting.

Many in the industry would welcome more transparency and consistency in CRA performance evaluations, and they believe that updating CRA evaluations to reflect modern banking practices is long overdue. The current approach to evaluating CRA performance has been routinely criticized for being excessively subjective and for failing to adequately differentiate among banks with varying levels of CRA performance. However, both bankers and community advocates have criticized some aspects of the NPRM. Indeed, in January 2020, Federal Reserve Governor Lael Brainard gave a speech, “Strengthening the Community Reinvestment Act by Staying True to Its Core Purpose,” which was widely interpreted as critical of key components of the NPRM.

Clarifying Which Activities Qualify

One complaint about the current CRA evaluation process has been that it lacks clarity regarding whether a particular activity (loan, investment, or service) will be classified as qualifying for CRA credit. The NPRM addresses that by requiring the OCC and FDIC to publish periodic lists of qualifying activities and to establish a process for advance determination of whether a particular activity qualifies.

In addition, the NPRM proposes significant changes in which activities would receive credit during CRA performance evaluations. These include the following:

  • Qualified opportunity funds making investments that benefit low- or moderate-income (LMI) census tracts in Opportunity Zones would receive automatic consideration.
  • Consumer loans, such as credit cards, would qualify if issued to LMI individuals.
  • Loans, investments, and services to support another bank’s community development activities would qualify.
  • The size threshold for small loans to businesses or farms would be increased to $2 million.
  • “Affordable housing” would be redefined to include naturally occurring (unsubsidized) rental housing that is affordable to LMI households and middle-income housing in high-cost areas.
  • Essential infrastructure projects, such as mass transit, roads, bridges, or water supply, would receive at least pro rata consideration if the infrastructure benefits LMI individuals or areas of identified need.
  • More activities focusing on distressed or underserved areas, including Native American lands, would receive consideration.
  • Financial literacy education and homebuyer counseling would qualify regardless of the income of the recipients.
  • Home loans to middle- or upper-income borrowers living in LMI census tracts would not qualify, since those loans are believed to contribute to gentrification and dislocation of LMI households.

Revising Geographic Assessment Areas

Under the NPRM, there would be two types of assessment areas. All banks, except military banks, would still be required to designate one or more “facilities-based” assessment areas. Facilities-based assessment areas would be consistent with the current assessment areas, and would consist of the areas where the bank’s deposit taking facilities are located, plus the surrounding geographies where the bank has originated or purchased a substantial portion of its loans.

An institution that gathers more than 50 percent of its deposits outside of its facilities based assessment areas would also have to delineate deposit-based assessment areas in geographies where it receives at least five percent or more of its deposits, as determined by depositor addresses. This would require changes in current deposit-reporting protocols, and might result in increased regulatory burden. For both facilities-based and deposit-based assessment areas, institutions would have some flexibility in assessment area designation.

In addition, banks could receive credit for qualifying activities outside of their facilities- and deposit-based assessment area. This credit would be applied at the institution-level, and is intended to reduce CRA hotspots and deserts.

Defining Key Terms

Under the NPRM, a small bank would be a bank with $500 million or less in assets in each of the previous four calendar quarters. The $500 million threshold would be adjusted annually based on changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The current intermediate small bank classification would be eliminated.

The definition of an underserved or distressed middle-income area would also be revised. The current requirement that an underserved or distressed area be nonmetropolitan would be removed, although the poverty threshold of 20 percent for distressed areas would be retained. In addition, the definition of underserved areas would be expanded to include more areas with limited access to financing and banking services.

The NPRM would remove the requirement that community development services be related to the provision of financial services. This means that banks would receive credit for all volunteer hours, including manual labor, provided to a community development project.

CRAEM = (Qualifying Activities Value / Average Quarterly Domestic Retail Deposits) + (0.1 * (Qualifying Branches / Total Branches))

Qualifying Activities Value 
=((Qualifying Loans on balance sheet at least 90 days)
+ (Community Development Investments)
+ (Community Development Services)+(Monetary and InKind Donations)
+0.25*(Qualifying Loans on balance sheet less than 90 days)


Many of the objections to the NPRM seem focused on applying the “one ratio” concept in assessing performance. In a recent speech to the Urban Institute, Fed Governor Brainard expressed support for continuing to have separate tests for retail and community development lending and services. She also supported continuing to use lending units (the number of loans) instead of dollars. Several community advocates have also expressed concerns about the CRAEM and the use of dollars instead of units to measure performance. Because the Qualifying Activities Value is based on dollar amounts, rather than units, the NPRM might encourage banks to meet their CRA obligations by investing in large qualifying activities, which could result in less home and small business lending.

Another concern is that accurately quantifying the value of community development and retail services could be difficult. Is the value of service and leadership provided by bank branch management the same in a rural community as it is in a large city?

In addition, there is fear that the CRAEM could hasten branch closures, especially in rural areas, and dilute the focus on LMI branch access. In addition to branches in LMI neighborhoods, branches in underserved areas, distressed areas, and “Indian country” would receive consideration under the proposed rule. Under the one ratio approach, even a bank with half of its branches in LMI areas would only receive an increase of 0.5 in its CRAEM. Given the limited benefit of branch retention, would banks be more likely to close branches in LMI and rural areas?

In her speech to the Urban Institute, Governor Brainard highlighted another concern with the application of a single set of benchmarks across diverse geographies and bank sizes. Use of a single threshold for each performance evaluation rating could produce results that are inconsistent with the goals of the Community Reinvestment Act by ignoring local economic conditions, community development needs, bank strategies, and responsiveness to local needs.

Adjusting the Retail Lending Distribution Test

Under the NPRM, retail lending distribution would be assessed for major retail lending products. A major retail lending product is a retail lending product line accounting for at least 15 percent of a bank’s overall dollar volume of retail loan originations during the evaluation period. Under the retail lending distribution test, small loans to businesses and farms would be assessed using both geographic distribution and borrower distribution. Consumer and home mortgage lending would be assessed only using borrower distribution. The retail lending distribution test would be pass/fail, based on comparison to thresholds for demographic or peer comparators set by the regulators.

The thresholds proposed in the NPRM are 65 percent for the demographic comparator and 55 percent for the peer comparator. Some community advocates have expressed concern that these thresholds are too low, since many banks currently target matching or exceeding the peer comparator. In addition, publicly available data may be inadequate for banks to assess their own performance under the retail lending distribution tests. This could require banks to purchase proprietary data for use in CRA analysis, thus increasing the cost of compliance.

Setting the Community Development Minimum

For a Satisfactory or better rating, the minimum acceptable ratio of community development loans and investments to retail domestic deposits would be two percent. The imposition of a minimum community development ratio reflects the agencies’ opinion that community development lending and investment are crucial to serving local communities.

Establishing the Performance Context

Under the NPRM, performance context would remain relevant. The NPRM conceives banks using a standardized form to submit information about community demographics, economic conditions, opportunities, and needs, as well as bank capacity. Bank capacity would incorporate business strategy, size, financial condition, and other factors affecting bank performance. The agencies would also consider public comments regarding community needs, characteristics, and opportunities.

Tweaking the Ratings

At the assessment area level, Satisfactory or Outstanding ratings would require the assessment area CRAEM to meet or exceed the benchmark CRAEM. A bank also would have to pass the retail lending distribution test and meet or exceed the minimum community development ratio.

At the bank level, an institution would earn a Satisfactory or Outstanding rating if the average of the annual bank-level CRAEMs met or exceeded the benchmark CRAEM, the bank met or exceeded the minimum community development ratio, and the majority of the assessment areas had Outstanding or Satisfactory ratings. As under the current rule, a bank’s CRA performance could be downgraded if there is evidence of discriminatory or illegal credit practices. To incent strong performance, banks with Outstanding ratings would only be examined for CRA compliance every five years.

To meet the requirements of 12 U.S.C. 2906(d), bank regulators would assign banks with interstate branches ratings at the state level and/or the multi-state metropolitan statistical area (MMSA) level, based on the lowest rating assigned to a significant number of assessment areas within the state or MMSA. Similarly, regulators would meet the requirements of 12 U.S.C. 2906(b)(1)(B) by drawing conclusions on MSA- and nonmetropolitan area-level performance using the lowest rating assigned to a substantial portion of assessment areas in the MSA or nonmetropolitan area.


Although CRA modernization is long overdue, there is disagreement among bank regulators, community advocates, and banks about the right way to adapt measurements of community reinvestment performance in light of current banking systems and consumer preferences. If adopted as proposed, the NPRM would make significant and far-reaching changes in how community reinvestment performance is measured and assessed. The changes in regulations could drive changes in the number, size, and types of community development loans and investments made by banks, as well as changing the way banks evaluate branch closings. If the final rule is adopted by the FDIC and OCC, but not by the Federal Reserve, a bank’s community reinvestment strategy could become part of their charter decision.


Cathy Lemieux

Cathy Lemieux Ph.D. a Senior Advisor with Treliant, has over 30 years of experience in financial services regulation, corporate governance/enterprise risk management, international banking regulation, and the Community Reinvestment Act. Cathy has helped banks of all sizes aligning their internal controls with their regulatory obligations, assessing their compliance and enterprise…