If COVID-19 and an economic recession are not enough for you to deal with, here’s another regulatory issue that continues to loom over all banks—the Community Reinvestment Act.

CRA Exams. First, CRA examinations and release of exam results continue. Lists of banks up for their exam are posted. These should be “virtual” exams in keeping with the recent interagency examiner guidance. Still, this regulatory regime is not slowing down. In fact, the Office of the Comptroller of the Currency’s (OCC) latest listing of exam results noted that one large Texas bank received a “needs to improve” on its March 2019 exam.

Reform. Meanwhile, the three federal regulators appear to all be going in slightly different directions on CRA “reform.” Call me a cynic, but it appears to me that the OCC changes help megabanks by moving to a single test result, blurring the distinctions between lending, services and investments. Sadly, at the same time, the amended national bank CRA significantly complicates data collection and significantly expands assessment areas. On the plus side, the rule provides for clear lists of qualifying activities—but that could be provided without completely changing the CRA metrics.

OCC Effective Dates. The changed rule was rolled out on June 5, 2020, in the midst of the pandemic. It is effective October 1, 2020. However, January 1, 2024, is the compliance date for small banks ($600 million in assets in four of the previous five calendar quarters) for compliance with the rule’s assessment area, data collection and record-keeping requirements.

FDIC and the Fed. The Federal Deposit Insurance Corp. (FDIC) proposed a similar revision to CRA at the same as the OCC. However, it pulled back on the rule in order to focus more on pandemic issues. Recently, the Federal Reserve System has published an advance notice of proposed rulemaking for its own take on CRA reform. This process asks questions about directions to take and is a very preliminary phase in rulemaking. The Fed’s approach at this time would also adjust the assessment areas calculation, but would not (hallelujah) take the expansive approach of the OCC to require more complex data collection. It would also provide for a clear list of qualifying activities. Again, this is very preliminary.

Soothsaying. So, where is all this going? My crystal ball is a bit murky, but here is my take.

First, as we have heard over and over again, elections have consequences. If Biden is elected president and the Democrats take over the Senate, there will be the potential for sweeping changes in some regulatory regimes. The Fed leadership is fairly independent. However, the comptroller of the currency could be replaced. Also, Congress could respond to the clamor from consumer activists to review the OCC changes to CRA and roll them back legislatively or, at a minimum, put the top bank regulators in the hot seat.

Nonetheless, even with regime change, there would likely be a continued push to update assessment area (AA) determinations. With increased online financial services from banks and fintechs, and decreased reliance on brick and mortar, the traditional way of identifying a bank’s service area based on its branch network makes less sense. This has only been exacerbated by the pandemic and the changes it’s wrought on banking patterns. In short, get ready for revisions to AAs regardless of who is in charge.

Next, there is absolutely no reason that the regulators can’t clearly identify activities that qualify for CRA credit! This is one reform that really should stay in place, along with clarity on qualifying investments. Too often, credit depends on the exam team rather than the activity or investment.

Pandemic Response. Right now, we do have clarity from the regulators that certain activities and services undertaken in response to COVID-19 should receive CRA consideration. Retail banking services and retail lending activities that are responsive to the needs of low- and moderate-income (LMI) individuals, small businesses and small farms affected by COVID-19 and that are in a bank’s AA should get favorable consideration. Please note the emphasis on LMI and location! Similarly, CRA consideration should be given to prudent efforts to modify or ease the terms on new or existing loans for affected LMI customers.

Possible activities include:

• Waiving fees like OD fees, ATM fees, early withdrawal penalties on time deposits;
• Easing restrictions on check cashing;
• Expanding the availability of short-term, unsecured credit for credit-worthy borrowers;
• Providing alternative service options (e.g., drive-through) to closed lobbies; and
• Offering payment accommodations, like skip-a-payment.

Next a bank should receive CRA consideration for community development activities that are located in a broader statewide or regional area that includes a bank’s AA and helps to stabilize communities affected by COVID-19, provided that the bank is responsive to the community development needs and opportunities in its own AA. Again, notice the emphasis on the bank’s AA and LMI customers.

These could include:

• Loans, investments or services that support digital access for LMI individuals or communities;
• Loans, investments or services that support access to health care, particularly for LMI individuals or communities;
• Economic development activities that sustain small-business operations, particularly in LMI communities; and
• Investment or service activities that support the provision of food supplies and services for LMI individuals or communities.

Bottom Line. Change is coming—one way or another. Be prepared to revise your bank’s AAs. And be prepared to beef up your CRA department. Remember that a poor exam result puts the bank in the penalty box for branching, mergers and new activities!