- Key insight: FDIC and OCC proposed CRA rule changes aimed at curbing grant funding for "activist causes."
- What's at stake: Exams would narrow to focus mainly on lending, dropping deposit services from the retail assessment.
- Forward look: The proposal is subject to a 60-day comment period once it hits the Federal Register.
WASHINGTON — A new Community Reinvestment Act proposal would direct funding away from
The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency released a new notice of proposed rulemaking of the CRA, a civil-rights era law meant to prevent redlining. A number of administrations have tried to revamp the law, but since 1995, none have been finalized.
The agencies said the rule would change how community development grants and donations are monitored at banks "to ensure that they are not diverted to activist causes or consumed by excessive operating costs."
"The proposed rules announced today seek to increase the focus on lending and ensure that community development grants and donations reach the communities they are intended to benefit instead of being diverted to other activities or excessive operating costs," the agencies said in a statement.
They did not specify what those "activist" causes would include, but the Trump administration has broadly targeted financial institutions that engage in environmental, social and governance lending, particularly around climate, and institutions with a mission to lend to minority communities.
The proposal would also require that large banks document that recipients of community development grants don't have overhead costs more than 15%.
The Federal Reserve did not join the FDIC and OCC in this proposal. Instead, the central bank is sticking to the Trump administration's
The latest Trump-administration attempt would mean that exams are focused primarily on lending. It would narrow the scope of retail banking services considered in an exam, which would exclude deposit services. Examiners would focus only on a bank's major product lines when looking at its retail lending activities.
The proposal would also ease rules for some banks, raising the threshold under which banks need to fully comply with the CRA's requirements. A bank would be considered "small" at $1 billion, up from $412 million, and "intermediate" to $10 billion, a new category. Banks newly in the "intermediate" category would be exempt from data collection and reporting requirements.
"This is going to result in a significant decrease in bank investment and lending in working class communities across the country, but especially in rural areas," said Jesse Van Tol, National Community Reinvestment Coalition CEO and president. "Small banks will no longer have an investment test whatsoever, and those are the very banks that serve a lot of rural communities. So they specifically will no longer have an obligation under CRA to invest in things like affordable housing or make loans for economic development to specifically the businesses that are creating jobs for working class people."
