White House CRA rule change would exempt smaller banks from community development investment rules

The White House has proposed a CRA rule change that would raise the asset thresholds determining which banks are subject to community development investment rules. The comment period on the proposal is set to close Tuesday, and last week Sen. Elizabeth Warren called for it to be withdrawn, according to The Real Deal, which cited Bloomberg.

The thresholds for classifying small and large banks would rise to $1 billion and $10 billion in assets, respectively. Smaller banks would not be subject to community development investment rules. A newly created tier of intermediate-sized banks would include a community development test but would lack the investment metrics upon which larger banks are evaluated. The Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency support the change, which was first brought up in July. The 1977 law requires banks to invest in the communities where they have a presence.

The National Association of Affordable Housing Lenders says the change could leave more than 3.1 million people in areas where banks are not incentivized to invest. Jesse Van Tol, president and chief executive officer of the National Community Reinvestment Coalition, estimated that $87 billion annually in community development could be at risk, including the building and preservation of affordable housing.

Emily Cadik, who leads the Affordable Housing Tax Credit Coalition, said the proposal "would have a disproportionate impact on rural housing investments" and would remove the strong incentive that currently exists for a number of banks to invest in affordable housing. The White House countered that banks would be more flexible and therefore able to drive more economic development.

Rural projects are often deemed too small for banks to get involved with directly, so institutions instead choose to make a grant that gets passed through to smaller operators. Altering restrictions on community development grants is also on the table and is a concern for lenders, according to the report.

The Federal Reserve has not come out in support of the proposed rule change. The Community Reinvestment Act has become a debate every administration wades into: Joe Biden proposed to update the rules around lending to recognize how online financial services have changed banking, but those changes never appeared to go into effect.