December 21, 2023

Community Reinvestment Act: Navigating New Rules for Affordable Housing and Community Development


The recent updates to the Community Reinvestment Act (CRA) have stirred both disappointment and optimism among affordable housing advocates. While the revisions fall short of explicitly addressing racial disparities, they bring about essential changes that promise to impact funding for affordable housing and community development.

In an attempt to undo the harms caused by banks’ historical discriminatory lending practices, the CRA was enacted in 1977, compelling banks to meet the credit needs of their communities, particularly those in low- and moderate-income (LMI) neighborhoods. However, the CRA has not seen revisions since 1995. In 2022, the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) jointly proposed new rules to modernize the CRA. This initiative aimed to adapt the framework to contemporary banking, emphasizing online and mobile platforms and broadening the scope of community development activities.

In October 2023, the OCC, Federal Reserve, and FDIC released comprehensive final rules after considering stakeholder feedback. The changes focus on clarity and consistency, introducing new metrics and benchmarks to assess retail lending performance and evaluate banks’ contributions to their communities.

Acknowledging the rise of online and mobile platforms, the revised rule shifts the approach to assessment areas. It maintains a focus on areas with deposit-taking facilities but evaluates retail lending activities in “Retail Lending Assessment Areas” outside these locations. The rule also allows credit for Community Development Financing (CDF) activities nationwide, beyond traditional bank assessment areas. This significantly broadens the access to funding available under the CRA.

The updated CRA consolidates the Lending Test and Investment Test into a new Community Development Financing (CDF) test, incorporating all lending and investment on a bank’s balance sheet. This change aims to enhance standardization and objectivity in assessing a bank’s performance, introducing metrics and an impact factor for evaluating community development investments under the CDF Test.

Additionally, the final rule defines eleven community development categories to guide banks’ activities, including the Affordable Housing category, which consists of rental housing, affordable owner-occupied housing, and mortgage-backed securities. The other categories- namely economic development, community supportive services, place-based activities, and financial literacy- were introduced, and each was designed to clarify qualifying community development activities.

A significant focus of the final rule addresses concerns within the affordable housing sector, where over 80% of housing tax credit investments are driven by CRA. Notable adjustments mean that for large banks, equal weight is now assigned to retail banking and community development activities, diverging from the proposed 60% retail 40% community development split. This recalibration encourages banks to prioritize their contributions to community development.

The final rule, effective from April 1, 2024[1], introduces a revised regulatory framework for evaluating banks’ performance in meeting the credit needs of their communities. While welcomed by affordable housing leaders for addressing some longstanding concerns, critiques arose, particularly from the National Fair Housing Alliance, expressing disappointment over the rule’s failure to explicitly address Black, Latino, and other communities of color’s access to fair and responsible financial services.

The rule’s impact will unfold over time, especially on affordable housing and community development. With a significant portion of housing credit investments driven by the CRA, stakeholders in the affordable housing sector will continue to closely watch how banks’ response affects investment in affordable housing and community development.

[1] Banks have until January 1, 2026, to comply with most provisions; reporting requirements will become applicable from January 1, 2027, with data to be reported by April 1.

Additional Resources:

Interagency Overview of the Community Reinvestment Act Final Rule

KPMG Regulatory Insights on CRA: Interagency Final Rule