Last fall, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued long-awaited changes to the Community Reinvestment Act (CRA). Enacted in 1977, the CRA affirms the obligation of financial institutions to help meet the credit needs of all communities in which they are located, particularly in low- and moderate-income (LMI) areas. The CRA was designed to combat widespread redlining, or limiting or refusing to make loans in certain communities, traditionally communities of color.
The recent changes are aimed at strengthening and modernizing the regulations for today’s financial environment. Consumers and businesses are quickly adopting internet technology for the delivery of financial services, raising questions about the long-term role of brick-and-mortar bank branches. With two decades since the last major overhaul of the CRA, the new 1,400-page rule includes sweeping revisions with major implications for large banks, which are defined as banks with $2 billion or more in assets.
Following the issuance of the rule, several trade groups initiated litigation challenging it, which has left many banks uncertain about how to proceed. In late March, a Texas federal court issued a preliminary injunction that halts enforcement of the rule until the litigation has been resolved. While this uncertainty presents a challenge, banks that are impacted would be wise to take the additional time created during the injunction period to prepare for the changes and avoid scrambling if the rule is enforced substantially as proposed by the agencies.
The Challenge of New Assessment Areas
The final rule introduces a new assessment area, called the retail lending assessment area (RLAA), in which banks will be evaluated. The RLAA requires banks to account for Metropolitan Statistical Areas (MSA) in which they do not have a physical branch but originate a number of loans above a certain threshold – at least 150 closed-end home mortgage loans or 400 small business loans – for two consecutive calendar years. Banks that conduct more than 80 percent of their retail lending within the original assessment area, called the facility-based assessment area with the main criteria being a physical branch in an MSA, are exempt from the RLAA requirements.
The rule will require banks to include upwards of 200 additional RLAAs – that’s 200 new potential assessment areas where a financial institution does not maintain a branch or personnel, but will need to collect robust regulatory reporting data to assess its CRA performance. Many banks will need assistance to make strategic determinations about how to move forward in these markets.
How Ichor Can Help
Ichor provides companies with information needed to make decisions and deliver tangible results. With a presence in more than 70 cities across the U.S., we are uniquely equipped to help banks take a proactive approach to CRA preparedness using data analytics and Geographic Information Systems (GIS) capabilities informed by local intelligence.
Our team can help collect accurate and comprehensive data at speed about the markets banks serve but may not have a physical presence in. This includes critical demographic information—income levels, employment rates, homeownership rates versus renting, and population density—that banks need to comply with the new requirements.
Client Case Study: Ichor’s Approach to Capital Deployment
Ichor has a proven track record of helping clients gather essential market intelligence to support capital deployment and equitable service.
Most recently, we supported a Fortune-50 company with its expansion in more than 65 markets across the country. We provided hyperlocal research and analysis of the socio-economic landscape to shape decision-making about operations in each market, and facilitated vital connections with stakeholders that accelerated capital deployment while mitigating risk.
We can apply a similar framework to help banks better assess how well they are servicing LMI communities in their new RLAAs and make informed decisions about the path forward.
Contact Ichor Today
It is critical that banks impacted by the CRA requirements prepare for all scenarios, including one in which the final rule is enforced. Contact Ichor today to learn more about how our team can help.
