The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have recently proposed changes to the Community Reinvestment Act (CRA) that could significantly weaken bank obligations to invest, lend, and provide services to low and moderate-income communities. These proposed rollbacks are seen as potential roadblocks to impactful community development efforts nationwide, affecting everything from affordable housing to local businesses and essential services.
The CRA, established in 1977, was designed to combat discriminatory redlining by ensuring banks meet the credit needs of the communities they serve. Since 2010, the act has facilitated nearly $5 trillion in mortgages and small business loans, bolstering neighborhoods and entrepreneurs across the country. However, the new proposed rules could alter this landscape substantially.
Kevin Hill, a senior policy advisor at the National Community Reinvestment Coalition (NCRC), a network of nearly 800 organizations advocating for a Just Economy, explained their concerns. The NCRC works with community leaders and policymakers to strengthen low-wealth communities and hold financial institutions accountable. Hill stated the CRA ensures banks not only avoid discrimination but also "proactively trying to serve all communities where they operate."
The NCRC has detailed several key takeaways from the proposed rollbacks, which suggest a broad weakening of the CRA's reach. The proposal includes using courts to narrow the CRA and restrict future modernization, alongside eliminating or weakening requirements for hundreds of banks by raising asset thresholds. This could put thousands of bank branches in underserved communities at greater risk and jeopardize affordable housing and community development investment, particularly in smaller markets.
Further changes could undermine the financial health of unbanked and underbanked communities and modify the definition of economic development, removing its focus on working-class people and communities. The proposed rules would also expand CRA credit for infrastructure projects without mandating substantial benefits for working-class populations. According to the NCRC, banks could be allowed to use strategic plans to do significantly less for communities, making the CRA easier to circumvent by narrowing what gets examined and broadening what qualifies for credit. This could also obscure lending gaps and make banks harder to hold accountable, while restricting CRA credit for grants that cover basic nonprofit operating costs.
Hill emphasized that currently, banks with assets above $412 million undergo a community development evaluation, assessing their financing of affordable housing, economic development, workforce development, health services, and education. He warns that the proposed changes aim to raise asset thresholds, potentially excusing over 800 banks nationwide from any form of community development obligation and reclassifying another 400 large banks into an intermediate category, which would significantly reduce their responsibilities. The NCRC’s analysis indicates that a new benchmark in the CRA could place 85% of current community development investments at risk. Hill noted that the agencies are signaling to banks that they can "do much less for communities" and still meet compliance. He views this as contrary to congressional intent for the CRA.
The potential impact extends to Michigan, a state already grappling with a housing crisis. Emily Reyst, the director of external affairs at CEDAM, a nonprofit membership trade organization with over 300 members across the state, highlighted these concerns. CEDAM was among many organizations that submitted comments to the FDIC, advocating for a modernization of the CRA that strengthens, rather than weakens, bank accountability to low- and moderate-income communities.
Reyst acknowledged that CRA changes have been proposed before, but described the current proposal as "a bit scarier in terms of what might be the outcome here," anticipating intense litigation if adopted. Organizations like CEDAM rely heavily on investments incentivized by the CRA. Research suggests that if the proposal were implemented in Michigan, 15 out of 64 banks could lose all community development obligations. This would put critical funding at risk for economic development initiatives, support for community services in underserved areas, and grantmaking to entities supporting their communities.
The changes would have a profound effect on housing. Hill explained that if banks are no longer required to engage in community development through affordable housing, such as loans to construct or rehab apartment buildings, there will be less supply of affordable rental housing. Instead of directing funds toward hospitals, schools, and housing, banks could instead use those resources to serve other banks or large corporations.
The regulations governing how banks are evaluated under the CRA are proposed for their first significant update since 1995. While the past three Administrations have sought to modernize CRA regulations, the current Administration's attempt is seen by critics as a move to roll back requirements. The Block by Block solutions journalism series, supported by CEDAM, Invest Detroit, and MI CDFI, has focused on community development leaders and initiatives in Michigan, Ohio, and Indiana. This collaboration underscores the ongoing work by banks, CDFIs, philanthropic, and financial institutions to invest in their communities, building homes, healthcare centers, businesses, daycares, and schools to create healthy, sustainable neighborhoods, much of which has been spurred by the CRA.
