Breaking Down the Proposed CRA Overhaul

8 minute read | May.11.2022

The federal banking agencies last week announced their highly anticipated proposal to revamp and modernize regulations implementing the Community Reinvestment Act. The proposal may significantly impact the compliance obligations of large banks, which the proposal generally defines as those with assets greater than $2 billion, while granting smaller banks the option of continuing to comply under the existing framework. The proposal aims to bring to a close the CRA reform process that began more than a decade ago, and was marked most recently by the OCC’s decision to pull back its 2020 regulatory overhaul (as covered by InfoBytes here).

Highlights of the proposal

  • New assessment areas — Large banks would need to establish assessment areas outside their facility-based areas in any metropolitan statistical area where they made at least 100 home mortgage loans or 250 small business loans. These new retail lending assessment areas would not replace facility-based assessment areas, which would remain “the cornerstone” of CRA evaluations.
  • Metrics — New performance standards measure borrower and geographic loan distribution based on local and tailored benchmarks that reflect a bank’s relative lending to low- and moderate-income (LMI) census tracts and borrowers. Regulators would also assess a bank’s overall retail lending relative to its deposits using a retail lending screen in facility-based assessment areas.
  • Loans, not dollars — Metrics will focus on the number of loans rather than dollar volume in order to avoid weighting large dollar loans too heavily. The metrics would quantitatively factor in automobile loans and qualitatively consider credit cards and other unsecured consumer loans.
  • Encourage activity in “CRA deserts” — Banks would receive consideration for some retail loans and community development loans, investments, and services made outside their assessment areas. Outside Retail Lending Areas would be evaluated on an aggregate basis at the institution level as part of the Retail Lending Test, and a bank would receive consideration for any qualified community development activity, regardless of location, in its overall Community Development Financing Test rating. 
  • Data transparency — The proposal does not provide for a separate analysis of how well a bank is serving minority individuals and communities. Instead, the agencies intend to include in a large bank’s public CRA performance evaluation the bank’s HMDA data for race and ethnicity in each assessment area. Regulators said the data would “promote transparency,” but would not directly impact the bank’s CRA rating.
  • No CRA for nondepositories — The proposal does not attempt to subject nondepository lenders to CRA evaluation because the agencies do not have the authority to do so; Congress would have to act to expand the CRA to cover them.

Summary of changes

Updated asset-size thresholds

Banks’ compliance obligations would vary by size under revised asset-size thresholds that would be adjusted for inflation annually:

  • Small banks — Banks with assets less than $600 million (increased from $346 million under the current framework)
  • Intermediate banks — Banks with assets between $600 million and $2 billion (increased from $346 million to $1.384 billion under the current framework)
  • Large banks — Banks with assets greater than $2 billion (increased from $1.384 billion under the current framework); additional reporting requirements would apply to large banks with assets greater than $10 billion.

The OCC has already updated the asset-size threshold for small national banks to $600 million (as covered by InfoBytes here), but more state-chartered banks would meet the definition of a small bank. All banks could still choose to be evaluated under a strategic plan.

New assessment areas to account for internet and mobile banking

The new retail lending assessment areas are intended to address the CRA responsibilities of banks operating largely through internet and other non-branch channels (as well as branch-based banks with internet operations). These areas, defined as MSAs or nonmetropolitan counties in a single state where a bank has made at least 100 home mortgage loans or 250 small business loans, would be evaluated only under the retail lending test (see below).

New performance tests

  • Retail Lending Test — Applies to large and intermediate banks, as well as to small banks that choose it instead of the current lending test. Regulators would first apply a retail lending volume screen in each facility-based assessment area to compare a bank’s retail loan-to-deposit ratio to that of other banks.

    A bank that meets or exceeds a threshold of 30% of the market ratio would then have its major product lines assessed according to geographic and borrower distribution metrics in each assessment area. A bank that failed to meet the 30% threshold would be rated “Needs to Improve” or “Substantial Compliance” for this test unless the regulators found the bank had an acceptable basis for not meeting the threshold.

    Major product lines are those that constitute 15% or more of the dollar value of a bank’s retail lending in a particular assessment area. Automobile loans would for the first time qualify for consideration as a major product line, joining closed-end home mortgage loans, open-end home mortgage loans, multifamily loans, small business loans, and small farm loans.

    This test would also evaluate a large bank’s additional retail lending on an aggregate basis. These “Outside Retail Lending Areas” would allow large and certain intermediate banks to receive consideration for lending beyond their facility-based and retail lending assessment areas.
  • Retail Products and Services Test — Applies exclusively to large banks, using a qualitative approach for evaluating whether a bank’s credit and deposit products, and delivery of such products, meet LMI community needs in facility-based assessment areas and at the state, multistate MSA, and institution levels. Note that credit cards and other unsecured consumer loans would be qualitatively considered in determining how well a bank is meeting the needs of its communities. To evaluate a bank’s delivery systems, the agencies would analyze branch availability and services, remote service facility availability, and for a bank with assets of over $10 billion, digital and other delivery systems.
  • Community Development Financing Test — Applies to large banks and any intermediate bank that chooses it instead of the current community development test. A modified version would apply to wholesale and limited purpose banks, regardless of their size. It would measure the aggregate dollar amount of a bank’s community development loans and investments relative to its deposits, and compare the bank’s community development activities with those of its peers. This test would also qualitatively assess the impact of a bank’s community development loan and investment activities so that banks get credit for small dollar activities that benefit the community. The community development financing test would only be assessed in facility-based assessment areas.

    Though it assesses performance in each facility-based assessment area separately, this test would allow a bank to receive consideration for any qualified community development activity, regardless of location.
  • Community Development Services Test — Exclusive to large banks and would consist of a mostly qualitative assessment of a bank’s community development service activities — activities that are primarily for community development purposes and are related to the provision of financial services — and their impact on the communities. In nonmetropolitan areas, banks may receive credit for certain community development activities, such as volunteer efforts, that are not related to financial services. For large banks with assets over $10 billion, it would measure a bank’s hours spent per full-time employee on community development services in a facility-based assessment area.

Increased transparency of performance scoring and weighing

Regulators would measure performance of large banks through a weighted average of the performance scores from the four tests and assign a corresponding rating. The retail lending test would account for 45% of the composite rating, followed by the community development financing test (30%), the retail service and products test (15%), and the community development services test (10%). Tests for intermediate banks would be weighted equally between the retail lending test and either the current community development test or community development financing test, as applicable. The current small bank performance scoring system would remain in place.

Data collection and reporting

The proposal imposes on large banks new obligations to collect, maintain, and report data for the new metrics-based tests. Large banks with assets of over $10 billion would be required to report aggregate deposit amounts drawn from relevant geographic areas and collect and maintain county-level deposit data. Large banks, wholesale and limited purpose banks, and certain intermediate banks would be required to collect, maintain, and report community development financing data, while only large banks with assets of over $10 billion would be required to collect, maintain, and report community development services data.


The final rule’s effective date would be the first day of the first calendar quarter that begins at least 60 days after publication in the Federal Register, with staggered applicability dates for various provisions.

What to do now


The proposed CRA revisions are still in the rulemaking phase and the proposal solicits feedback on 180 questions through August 5, 2022. Banks should consider whether to submit comments — individually or through a trade association — to influence the final rulemaking.

Review performance in proposed retail lending assessment areas

Large banks, particularly those with limited branches, may want to review their lending data to identify MSAs and nonmetropolitan areas that would likely qualify as retail lending assessment areas under the proposal, and assess how well their major product lines serve LMI individuals and communities in them. Large banks should also review their HMDA data by assessment area, since borrower race and ethnicity data will be noted in CRA evaluation results.

New data collection and reporting

Large banks with assets of $10 billion or more would be subject to additional reporting and recordkeeping requirements, and may want to evaluate whether they have the tools to satisfy these obligations. Current intermediate small banks should consider whether they are small or intermediate under the proposal’s asset thresholds to identify which evaluation process would apply.

CFPB small business data collection rulemaking will be one to watch

Regulators currently use a gross annual revenue threshold of $1 million or less for measuring most small business-related activities for CRA purposes. The proposal would adopt the CFPB’s definition of “small business” in its proposed rulemaking to implement Section 1071 of the Dodd-Frank Act, relating to small business data reporting (as covered by InfoBytes here). The annual revenue threshold for small businesses under the CRA would increase to $5 million if and when the proposed rule becomes final. Substantially more loans would be considered small business loans, which could impact the delineation of retail lending assessment areas as well as what constitutes a major product line for large banks.

If you have any questions regarding the proposed CRA regulations, please contact Warren Traiger or an Orrick attorney with whom you have worked in the past.