There’s been a major reworking of the Community Reinvestment Act (CRA), which charged banks with extending credit to low- and moderate-income neighborhoods (LMI) – areas that had been “redlined” or previously excluded from the support of the banking system.
Within a wide array of changes, financial education will become a more significant element of CRA exams.
After a long road to passage, the final new-look CRA officially takes effect on April 1, 2024. Most compliance targets come due in 2026 and 2027, but the size of the regulation, at some 1,500 pages, means that banks should be diligent in preparing from day one.
As for the financial-education piece, the rule states that large banks will be tested not just on the broad category of “services” for 40% of their exam grade, but 10% of that grade will be determined by a test devoted exclusively to “community development services.” Read more on qualifying bank sizes, loan models and other factors that impact enforcement.
In effect, the amended CRA also adds new categories that may earn credit in terms of community development, including “financial literacy.”
Few community banks leap at the opportunity to shoulder fresh compliance burdens, but the updated CRA has the potential to spur the growth that banks are hungry for already.
The new CRA is clearer on activities that matter
The updated CRA also amends the type of activities that qualify as community development, revising what constitutes affordable housing and economic development, as well as adding new categories. Banks will now be credited for activities in:
- Affordable housing (with necessary clarifications for unsubsidized and mixed-income housing);
- Economic development that supports small businesses and small farms (mostly evaluated under the retail lending test);
- Community supportive services;
- Revitalization activities (with significant changes from current regulations);
- Essential community facilities;
- Essential community…
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