Community Reinvestment Act: Interagency final rule requirements combine art with science


Big changes are here, and banks need to start preparing now


The Community Reinvestment Act (CRA) is experiencing its biggest set of changes in 25 years. As announced by regulators on March 21, 2024, the 2023 CRA Interagency Final Rule (“2023 CRA Final Rule”) will come into effect on Jan. 1, 2026. The new final rule has many complexities and changes that will impact banks of all sizes. Specifically, the 2023 CRA Final Rule requires that “Large Banks,” those with more than $2 billion in assets, to be evaluated against new standards for CRA ratings and requires new data collection practices for deposit accounts for banks above $10 billion.


The 2023 CRA Final Rule specifically requires an increased focus on community reinvestment and full implementation of the rule by Jan. 1, 2027. The rule elaborates that the 2023 CRA Final Rule implementation will be staggered, requiring banks to comply with all other provisions of the final rule, except for certain reporting requirements by Jan. 1, 2026, and all reporting requirements to be applicable on Jan. 1, 2027.


CRA’s intent has always been to encourage banks to help meet the needs of the communities that they serve; that intent is still present in the final rule set by the bank regulators: the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC). “However, there are big changes in the criteria and new tasks for all banks. In many ways, this feels like a complete overhaul of an existing rule,” said Grant Thornton LLP Managing Director and Regulatory Compliance Capability Leader Leslie Watson-Stracener.


CRA exam cycles can range from one to three years, depending on previous CRA and compliance ratings, as well as bank asset size. CRA ratings are public, meaning that they can directly affect the bank’s reputation and their ability to execute strategic initiatives such as mergers and acquisitions. Additionally, the OCC has proposed additional guidance limiting an acquiring bank from executing a merger or acquisition for banks with a CRA rating of “Needs to Improve” or “Substantial Noncompliance.”

Oliver Dennison

“By confirming the Final Rule now, the regulators have provided ample time for banks to address the CRA change requirements in ways that provide benefits to their customers, their communities and themselves."

Oliver Dennison

Grant Thornton Regulatory Compliance Solutions Managing Director


“There is definitely a reputational risk associated with negative CRA ratings,” Watson-Stracener said. “When banks receive lower ratings, it affects their ability to grow. But a rating of Outstanding can positively affect a bank’s strategic options as they look to expand their products, services and customer reach.”


“By confirming the Final Rule now, the regulators have provided ample time for banks to address the CRA change requirements in ways that provide benefits to their customers, their communities and themselves,” added Grant Thornton Regulatory Compliance Solutions Managing Director Oliver Dennison.


The following sections below present the final rule’s primary changes and highlight specific areas for impacted banks to focus on.




New performance tests emphasize community development activities


A key aspect of the existing rule that has been enhanced is the definition of assessment area criteria. Banks with over $2 billion in assets will now be required to delineate facility-based and retail lending assessment areas (FBAAs and RLAAs) with consideration of whole counties, metropolitan statistical areas and non-metropolitan areas where the bank has originated more than 150 home mortgages or 400 small business loans in each of the preceding two years.


“One of the changes is that large banks now have to consider the entire county they’re operating in and how they’re serving that entire community,” Watson-Stracener said. “As they begin thinking about the requirements, they should be asking themselves if they can adequately serve those communities through existing branches or through another mechanism. Bank management will need to consider this from a strategic perspective.”


Additionally, four new tests to evaluate CRA performance have been established:


The Retail Lending Test evaluates a bank’s efforts to serve the legitimate credit needs of low-to-moderate income (LMI) individuals, small businesses, small farms and LMI census tracts in FBAAs, RLAAs and outside the RLAAs.


The Retail Services and Products Test assesses the availability of a bank’s retail banking services and retail banking products and their responsiveness to credit needs.


The Community Development Financing Test evaluates how well a bank meets the community development financing needs in each FBAA, each state or multistate metropolitan statistical area.


The Community Development Services Test considers the importance of community development services in fostering partnerships among different stakeholders, building capacity and creating conditions for effective community development, including in rural areas.


In consideration of this expansion of the assessment areas, Dennison said, “This underscores the importance of active debt facilitation and community development within the final rule.”


For large banks, specific weights will be applied to each performance test conclusion:




Criteria changes affect required data collection


The 2023 CRA Final Rule introduces new data collection and reporting requirements. Regardless of size, all banks will need to provide data on operations, operating subsidiaries, other affiliates that provide development loans and community development investments either directly or via a consortium or a third party.


Banks face new or revised data reporting, collection and maintenance requirements as well. For those with over $10 billion in assets, there are specific new deposits data reporting, data collection and maintenance requirements.


Large Banks will need to update and enhance their data management and governance processes to comply with the new changes.

Leslie Watson-Stracener

"Banks will need to realign and enhance their existing data governance and reporting, particularly to make room for new technology and staffing, to ensure accurate implementation."

Leslie Watson-Stracener

Grant Thornton Managing Director and Regulatory Compliance Capability Leader


“Banks will need to realign and enhance their existing data governance and reporting, particularly to make room for new technology and staffing, to ensure accurate implementation,” Watson-Stracener said. “If institutions don’t already have systems that are capturing the data indexed under their specific communities, they’ll need to plan for foundational enhancements to their data management strategies and processes. In addition, they will need to evaluate the technology systems that enable these procedures across the enterprise.”


Banks will also need to engage in robust file and data organization to provide complete and accurate data to regulators as part of their performance context. Additionally, providing detailed and complete contextual information to bank examiners can increase the likelihood that a CRA examination accurately reflects the institution’s CRA efforts.




A performance context helps turn data into stories


Although the CRA does not require self-evaluation, many banks choose to create a performance context to provide their regulators with a summary of their CRA initiatives and the impact on the communities they serve. Regularly updating this narrative and contextualizing results can assist banks in monitoring their efforts to meet the needs of the communities they serve. Banks that provide a narrative demonstrating a strong connection with the communities they serve can improve their CRA ratings and further enhance their reputation.


“The 2023 CRA Final Rule is broad and has areas deliberately presented for banks to interpret in their own way,” Watson-Stracener said. “Not all aspects of its implementation can be directly and consistently measured. This is why the performance context carries such importance.”  



Key steps in preparing for CRA changes


  1. Complete an impact assessment. Assess the current CRA program and determine what will need to shift to meet the new requirements and the institutional goals.
  2. Design and prioritize solutions. Identify enhancements needed to implement new requirements and better serve the community. Prioritize based on implementation timelines and strategic goals.
  3. Develop budgets and strategies. Initiate discussion with the board and other key leaders about compliance budgets and strategies.
  4. Conduct a staffing analysis. Evaluate enhancements to data processes, technologies and systems needed to meet the new requirements. A staffing analysis can help determine the staffing changes and/or engagement of a third-party reviewer.
  5. Prepare performance tracking and governance. Establish regular reporting to meet the final rule changes. Begin updating or creating robust policies and procedures, providing training and performing monitoring and testing activities.
  6. Organize data and file collection. Establish a method of collecting and maintaining organized data and files. Implement strong controls to assure regulators of data reliability.
  7. Contextualize results. Develop a performance context narrative that elaborates on the bank’s data and results to tell the story of how the bank is meets the needs of the communities it serves. 



Prepare for more changes


Getting ahead of data collection and monitoring progress toward the final requirements will be important not only for preparing for the existing requirements but also because more data collection may be required in the future.


A pending change that would affect additional data collection is the Consumer Financial Protection Bureau’s publication of their Small Business Lending Rule, Dodd Frank Rule 1071, which aims to capture the small business lending data for use in the new CRA data analysis. However, the rule is currently being challenged and may affect some final rule requirements.


“Section 1071 is being actively challenged, and banks should consider the impact of the transition in the future,” Watson-Stracener said. “1071 is intended to work in concert with CRA modernization, but it will probably be the biggest data collection requirement for banks down the line.”


Currently, the implementation status of the CRA Final Rule remains challenged. Trade associations, led by the Texas Bankers Association (TBA) and joined by the American Bankers Association (ABA), have filed a lawsuit to stop the CRA modernization from taking effect, claiming that the amendments to the CRA exceed the legal authority of the regulators. On March 29, 2024, a federal judge in Texas granted a preliminary injunction against enforcing new rules implementing the Community Reinvestment Act until a final judgement is made.


With this pending lawsuit, the new changes come into question, but it shows an intent by regulators to move to a more data driven regulatory regime. Banks should consider the time required to adjust operations to comply with the 2023 CRA Final Rule and start preparing now. Regulators and the community will be paying close attention to CRA performance, and it will be important to maintain a strong reputation to take advantage of strategic opportunities.




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