Home/Federal/Federal Register/2022-10111

Proposed Rule2022-10111

Community Reinvestment Act

Primary source

Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.

Published

June 3, 2022

Issuing agencies

Treasury DepartmentComptroller of the CurrencyFederal Reserve SystemFederal Deposit Insurance Corporation

Abstract

The Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) propose to amend their regulations implementing the Community Reinvestment Act of 1977 (CRA) to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated.

Full Text

<html>
<head>
<title>Federal Register, Volume 87 Issue 107 (Friday, June 3, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 107 (Friday, June 3, 2022)]
[Proposed Rules]
[Pages 33884-34066]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-10111]

[[Page 33883]]

Vol. 87

Friday,

No. 107

June 3, 2022

Part II

Department of the Treasury

-----------------------------------------------------------------------

Office of the Comptroller of the Currency

Federal Reserve System

-----------------------------------------------------------------------

Federal Deposit Insurance Corporation

-----------------------------------------------------------------------

12 CFR Parts 25, 228, and 345

-----------------------------------------------------------------------

Community Reinvestment Act; Proposed Rule

Federal Register / Vol. 87 , No. 107 / Friday, June 3, 2022 /
Proposed Rules

[[Page 33884]]

-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 25

[Docket ID OCC-2022-0002]
RIN 1557-AF15

FEDERAL RESERVE SYSTEM

12 CFR Part 228

[Regulation BB; Docket No. R-1769]
RIN 7100-AG29

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 345

RIN 3064-AF81

Community Reinvestment Act

AGENCY: Board of Governors of the Federal Reserve System; Federal
Deposit Insurance Corporation; and Office of the Comptroller of the
Currency, Treasury

ACTION: Joint notice of proposed rulemaking; request for comment.

-----------------------------------------------------------------------

SUMMARY: The Board of Governors of the Federal Reserve System (Board),
the Federal Deposit Insurance Corporation (FDIC), and the Office of the
Comptroller of the Currency (OCC) propose to amend their regulations
implementing the Community Reinvestment Act of 1977 (CRA) to update how
CRA activities qualify for consideration, where CRA activities are
considered, and how CRA activities are evaluated.

DATES: Comments must be received on or before August 5, 2022.

ADDRESSES: Comments should be directed to:
OCC: Commenters are encouraged to submit comments through the
Federal eRulemaking Portal. Please use the title ``Community
Reinvestment Act'' to facilitate the organization and distribution of
the comments. You may submit comments by any of the following methods:
<bullet> Federal eRulemaking Portal--<a href="http://Regulations.gov">Regulations.gov</a>: Go to <a href="https://regulations.gov/">https://regulations.gov/</a>. Enter ``Docket ID OCC-2022-0002'' in the Search Box
and click ``Search.'' Public comments can be submitted via the
``Comment'' box below the displayed document information or by clicking
on the document title and then clicking the ``Comment'' box on the top-
left side of the screen. For help with submitting effective comments
please click on ``Commenter's Checklist.'' For assistance with the
<a href="http://Regulations.gov">Regulations.gov</a> site, please call (877) 378-5457 (toll free) or (703)
454-9859 Monday-Friday, 9 a.m.-5 p.m. EST or email
<a href="/cdn-cgi/l/email-protection#d0a2b5b7a5bcb1a4b9bfbea390b5a2a5bcb5bdb1bbb9beb7b8b5bca0b4b5a3bbfeb3bfbd">[email&#160;protected]</a>.
<bullet> Mail: Chief Counsel's Office, Attention: Comment
Processing, Office of the Comptroller of the Currency, 400 7th Street
SW, Suite 3E-218, Washington, DC 20219.
<bullet> Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218,
Washington, DC 20219.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2022-0002'' in your comment. In general, the OCC will
enter all comments received into the docket and publish the comments on
the <a href="http://Regulations.gov">Regulations.gov</a> website without change, including any business or
personal information provided such as name and address information,
email addresses, or phone numbers. Comments received, including
attachments and other supporting materials, are part of the public
record and subject to public disclosure. Do not include any information
in your comment or supporting materials that you consider confidential
or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this action by the following method:
<bullet> Viewing Comments Electronically--<a href="http://Regulations.gov">Regulations.gov</a>: Go to
<a href="https://regulations.gov/">https://regulations.gov/</a>. Enter ``Docket ID OCC-2022-0002'' in the
Search Box and click ``Search.'' Click on the ``Documents'' tab and
then the document's title. After clicking the document's title, click
the ``Browse Comments'' tab. Comments can be viewed and filtered by
clicking on the ``Sort By'' drop-down on the right side of the screen
or the ``Refine Results'' options on the left side of the screen.
Supporting materials can be viewed by clicking on the ``Documents'' tab
and filtered by clicking on the ``Sort By'' drop-down on the right side
of the screen or the ``Refine Documents Results'' options on the left
side of the screen.'' For assistance with the <a href="http://Regulations.gov">Regulations.gov</a> site,
please call (877) 378-5457 (toll free) or (703) 454-9859 Monday-Friday,
9 a.m.-5 p.m. EST or email <a href="/cdn-cgi/l/email-protection#097b6c6e7c65687d6066677a496c7b7c656c64686260676e616c65796d6c7a62276a6664">[email&#160;protected]</a>.
The docket may be viewed after the close of the comment period in
the same manner as during the comment period.
Board: You may submit comments, identified by Docket No. R-1769 and
RIN 7100-AG29, by any of the following methods:
<bullet> Agency Website: <a href="http://www.federalreserve.gov">http://www.federalreserve.gov</a>. Follow the
instructions for submitting comments at <a href="http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm">http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm</a>.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#04766163772a676b6969616a7077443865246c76616239" http: federalreserve.gov">federalreserve.gov</a>">regs.comments@<a href="http://federalreserve.gov">federalreserve.gov</a></a>. Include docket
and RIN numbers in the subject line of the message.
<bullet> Fax: (202) 452-3819 or (202) 452-3102.
<bullet> Mail: Ann E. Misback, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
Instructions: All public comments are available from the Board's
website at <a href="http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm">http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm</a> as submitted. Accordingly, comments will not be edited
to remove any identifying or contact information. Public comments may
also be viewed electronically or in paper in Room M-4365A, 2001 C
Street NW, Washington, DC 20551, between 9:00 a.m. and 5:00 p.m. during
Federal business weekdays. For security reasons, the Board requires
that visitors make an appointment to inspect comments. You may do so by
calling (202) 452-3684. Upon arrival, visitors will be required to
present valid government-issued photo identification and to submit to
security screening in order to inspect and photocopy comments. For
users of TTY-TRS, please call 711 from any telephone, anywhere in the
United States.
FDIC: You may submit comments, identified by RIN 3064-AF81, by any
of the following methods:
<bullet> Agency Website: <a href="https://www.fdic.gov/resources/regulations/federal-register-publications/">https://www.fdic.gov/resources/regulations/federal-register-publications/</a>. Follow instructions for
submitting comments on the Agency website.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#b1d2dedcdcd4dfc5c2f1d7d5d8d29fd6dec7">[email&#160;protected]</a>. Include RIN 3064-AF81 on the
subject line of the message.
<bullet> Mail: James P. Sheesley, Assistant Executive Secretary,
Attention: Comments RIN 3064-AF81, Federal Deposit Insurance
Corporation, 550 17th Street NW, Washington, DC 20429.
<bullet> Hand Delivery/Courier: Comments may be hand delivered to
the guard station at the rear of the 550 17th Street NW building
(located on F Street NW) on business days between 7:00 a.m. and 5:00
p.m.
Public Inspection: Comments received, including any personal
information provided, may be posted without change to <a href="https://www.fdic.gov/resources/regulations/federal-register-publications/">https://www.fdic.gov/resources/regulations/federal-register-publications/</a>.
Commenters should submit only information that the commenter wishes to
make available publicly. The FDIC may review, redact, or refrain from
posting all or any portion

[[Page 33885]]

of any comment that it may deem to be inappropriate for publication,
such as irrelevant or obscene material. The FDIC may post only a single
representative example of identical or substantially identical
comments, and in such cases will generally identify the number of
identical or substantially identical comments represented by the posted
example. All comments that have been redacted, as well as those that
have not been posted, that contain comments on the merits of this
notice will be retained in the public comment file and will be
considered as required under all applicable laws. All comments may be
accessible under the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT:
OCC: Heidi Thomas, Special Counsel, or Emily Boyes, Counsel, Chief
Counsel's Office, (202) 649-5490; or Vonda Eanes, Director for CRA and
Fair Lending Policy, or Karen Bellesi, Director for Community
Development, Bank Supervision Policy, (202) 649-5470, Office of the
Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219.
If you are deaf, hard of hearing, or have a speech disability, please
dial 7-1-1 to access telecommunications relay services.
Board: S. Caroline (Carrie) Johnson, Manager, Division of Consumer
and Community Affairs, (202) 452-2762; Amal S. Patel, Counsel, Division
of Consumer and Community Affairs, (202) 912-7879, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551. For users of TTY-TRS, please call 711 from any
telephone, anywhere in the United States.
FDIC: Patience R. Singleton, Senior Policy Analyst, Supervisory
Policy Branch, Division of Depositor and Consumer Protection, (202)
898-6859; Pamela Freeman, Chief Fair Lending and CRA Examination
Section, Division of Depositor and Consumer Protection, (202) 898-3656;
Richard M. Schwartz, Counsel, Legal Division, (202) 898- 7424; or
Sherry Ann Betancourt, Counsel, Legal Division, (202) 898- 6560,
Federal Deposit Insurance Corporation, 550 17th Street NW, Washington,
DC 20429.

SUPPLEMENTARY INFORMATION: In this Notice of Proposed Rulemaking (NPR
or proposal), the OCC, Board, and the FDIC, (together referred to as
``the agencies'') seek feedback on changes to update and clarify the
regulations to implement the CRA.\1\ The CRA encourages banks \2\ to
help meet the credit needs of the local communities in which they are
chartered, consistent with a bank's safe and sound operations, by
requiring the Federal banking regulatory agencies to examine banks'
records of meeting the credit needs of their entire community,
including low- and moderate-income neighborhoods.
---------------------------------------------------------------------------

\1\ 12 U.S.C. 2901 et seq.
\2\ For purposes of this SUPPLEMENTARY INFORMATION, the term
``bank'' includes insured national and state banks, Federal and
state savings associations, Federal branches as defined in 12 CFR
part 28, insured State branches as defined in 12 CFR 345.11(c), and
state member banks as defined in 12 CFR part 208, except as provided
in 12 CFR __.11(c).
---------------------------------------------------------------------------

The agencies implement the CRA through their CRA regulations.\3\
The CRA regulations establish the framework and criteria by which the
agencies assess a bank's record of helping to meet the credit needs of
its community, including low- and moderate-income neighborhoods,
consistent with safe and sound operations. Under the CRA regulations,
the agencies apply different evaluation standards for banks of
different asset sizes and types.
---------------------------------------------------------------------------

\3\ See 12 CFR part 25 (OCC), 12 CFR part 228 (Regulation BB)
(Board), and 12 CFR part 345 (FDIC). For clarity and to streamline
references, citations to the agencies' existing common CRA
regulations are provided in the following format: 12 CFR __.xx; for
example, references to 12 CFR 25.12 (OCC), 12 CFR 228.12 (Board),
and 12 CFR 345.12 (FDIC) would be streamlined as follows: ``12 CFR
__.12.'' Likewise, references to the agencies' proposed common CRA
regulations are provided in the following format: ``proposed Sec.
__.xx.''
---------------------------------------------------------------------------

This NPR seeks to update the CRA regulations in adherence with
objectives that include the following:
<bullet> Update CRA regulations to strengthen the achievement of
the core purpose of the statute;
<bullet> Adapt to changes in the banking industry, including the
expanded role of mobile and online banking;
<bullet> Provide greater clarity and consistency in the application
of the regulations;
<bullet> Tailor performance standards to account for differences in
bank size and business models and local conditions;
<bullet> Tailor data collection and reporting requirements and use
existing data whenever possible;
<bullet> Promote transparency and public engagement;
<bullet> Confirm that CRA and fair lending responsibilities are
mutually reinforcing; and
<bullet> Create a consistent regulatory approach that applies to
banks regulated by all three agencies.
A key part of the proposal is a new evaluation framework for
evaluating CRA performance for banks. The agencies propose an
evaluation framework that would establish the following four tests for
large banks: Retail Lending Test; Retail Services and Products Test;
Community Development Financing Test; and Community Development
Services Test. Intermediate banks would be evaluated under the Retail
Lending Test and the status quo community development test, unless they
choose to opt into the Community Development Financing Test. Small
banks would be evaluated under the status quo small bank lending test,
unless they choose to opt into the Retail Lending Test. Wholesale and
limited purpose banks would be evaluated under a tailored version of
the Community Development Financing Test.
The agencies request feedback on all aspects of the proposal,
including but not limited to the specific questions outlined in the
SUPPLEMENTARY INFORMATION. The agencies are setting forth in this
SUPPLEMENTARY INFORMATION the proposed rule using common regulation
text for ease of commenter review. The agencies are proposing agency-
specific amendatory text where necessary to account for differing
agency authority and terminology.

Table of Contents

I. Introduction
II. Overview of Proposed Rule
III. Community Development Definitions
IV. Qualifying Activities Confirmation and Illustrative List of
Activities
V. Impact Review of Community Development Activities
VI. Assessment Areas and Areas for Eligible Community Development
Activity
VII. Performance Tests, Standards, and Ratings in General
VIII. Retail Lending Test Product Categories and Major Product Lines
IX. Retail Lending Test Evaluation Framework for Facility-Based
Assessment Areas and Retail Lending Assessment Areas
X. Retail Lending Test Evaluation Framework for Retail Lending Test
Conclusions at the State, Multistate MSAs, and Institution Level
XI. Retail Services and Products Test
XII. Community Development Financing Test
XIII. Community Development Services Test
XIV. Wholesale and Limited Purpose Banks
XV. Strategic Plans
XVI. Assigned Conclusions and Ratings
XVII. Performance Standards for Small Banks and Intermediate Banks
XVIII. Effect of CRA Performance on Applications
XIX. Data Collection, Reporting, and Disclosure
XX. Content and Availability of Public File, Public Notice by Banks,
Publication of Planned Examination Schedule, and Public Engagement
XXI. Transition
XXII. Regulatory Analysis
XXIII. Text of Common Proposed Rule (All Agencies)

[[Page 33886]]

I. Introduction

A. Background

The CRA is designed to encourage regulated banks to help meet the
credit needs of the local communities in which they are chartered.
Specifically, Congress found that ``(1) regulated financial
institutions are required by law to demonstrate that their deposit
facilities serve the convenience and needs of the communities in which
they are chartered to do business; (2) the convenience and needs of
communities include the need for credit as well as deposit services;
and (3) regulated financial institutions have continuing and
affirmative obligation to help meet the credit needs of the local
communities in which they are chartered.'' \4\
---------------------------------------------------------------------------

\4\ 12 U.S.C. 2901(a).
---------------------------------------------------------------------------

The CRA statute requires the agencies to ``assess the institution's
record of meeting the credit needs of its entire community, including
low- and moderate-income neighborhoods, consistent with the safe and
sound operation of such institution.'' \5\ Upon completing this
assessment, the statute requires the agencies to ``prepare a written
evaluation of the institution's record of meeting the credit needs of
its entire community, including low- and moderate-income
neighborhoods.'' \6\ In addition, the statute requires making portions
of these written evaluations, referred to by the agencies as
performance evaluations, available to the public.\7\ The statute
further provides that each agency must consider a bank's CRA
performance ``in its evaluation of an application for a deposit
facility by such institution.'' \8\
---------------------------------------------------------------------------

\5\ 12 U.S.C. 2903(a)(1).
\6\ 12 U.S.C. 2906(a).
\7\ 12 U.S.C. 2906(b).
\8\ 12 U.S.C. 2903(a)(2).
---------------------------------------------------------------------------

Since its enactment, Congress has amended the CRA several times,
including through: the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 \9\ (which required public disclosure of a
bank's CRA written evaluation and rating); the Federal Deposit
Insurance Corporation Improvement Act of 1991 \10\ (which required the
inclusion of a bank's CRA examination data in the determination of its
CRA rating); the Housing and Community Development Act of 1992 \11\
(which included assessment of the record of nonminority-owned and
nonwomen-owned banks in cooperating with minority-owned and women-owned
banks and low-income credit unions); the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 \12\ (which (i) required an agency
to consider an out-of-state national bank's or state bank's CRA rating
when determining whether to allow interstate branches, and (ii)
prescribed certain requirements for the contents of the written CRA
evaluation for banks with interstate branches); and the Gramm-Leach-
Bliley Act of 1999 \13\ (which, among other things, provided regulatory
relief for smaller banks by reducing the frequency of their CRA
examinations).
---------------------------------------------------------------------------

\9\ Public Law 101-73, 103 Stat. 183 (Aug. 9, 1989).
\10\ Public Law 102-242, 105 Stat. 2236 (Dec. 19, 1991).
\11\ Public Law 102-550, 106 Stat. 3874 (Oct. 28, 1992).
\12\ Public Law 103-328, 108 Stat. 2338 (Sept. 29, 1994).
\13\ Public Law 106-102, 113 Stat. 1338 (Nov. 12, 1999).
---------------------------------------------------------------------------

Congress directed the agencies to publish regulations to carry out
the CRA's purposes,\14\ and in 1978 the agencies promulgated the first
CRA regulations, which included evidence of prohibited discriminatory
or other illegal credit practices as a performance factor.\15\ Since
then, the agencies have together significantly revised and sought to
clarify their CRA regulations twice, in 1995 and 2005--with the most
substantive interagency update occurring in 1995. In addition, the
agencies have periodically jointly published the Interagency Questions
and Answers Regarding Community Reinvestment (Interagency Questions and
Answers) \16\ to provide guidance on the CRA regulations.
---------------------------------------------------------------------------

\14\ 12 U.S.C. 2905.
\15\ 43 FR 47144 (Oct. 12, 1978). Congress also charged, in
addition to the agencies, the Office of Thrift Supervision (OTS) and
its predecessor agency, the Federal Home Loan Bank Board, with
implementing the CRA. The OTS had CRA rulemaking and supervisory
authority for all savings associations. Pursuant to Title III of the
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public
Law 111-203, 124 Stat. 1376, 1522 (2010), the OTS's CRA rulemaking
authority for all savings associations transferred to the OCC and
the OTS's CRA supervisory authority for State savings associations
transferred to the FDIC. As a result, the OCC's CRA regulation
applies to both State and Federal savings associations, in addition
to national banks, and the FDIC enforces the OCC's CRA regulations
with respect to State savings associations.
\16\ See 81 FR 48506 (July 25, 2016). ``Interagency Questions
and Answers'' refers to the ``Interagency Questions and Answers
Regarding Community Reinvestment'' guidance in its entirety. ``Q&A''
refers to an individual question and answer within the Interagency
Questions and Answers.
---------------------------------------------------------------------------

B. The Current CRA Regulations and Guidance for Performance Evaluations

1. CRA Performance Evaluations
The agencies' CRA regulations provide different methods to evaluate
a bank's CRA performance depending on its asset size and business
strategy.\17\ Under the current framework:
---------------------------------------------------------------------------

\17\ See generally 12 CFR _.21 through _.27. The agencies
annually adjust the CRA asset-size thresholds based on the annual
percentage change in a measure of the Consumer Price Index.
---------------------------------------------------------------------------

<bullet> Small banks--currently, those with assets of less than
$346 million as of December 31 of either of the prior two calendar
years--are evaluated under a lending test and may receive an
``Outstanding'' rating based only on their retail lending performance.
Qualified investments, services, and delivery systems that enhance
credit availability in a bank's assessment areas may be considered for
an ``Outstanding'' rating, but only if the bank meets or exceeds the
lending test criteria in the small bank performance standards.
<bullet> Intermediate small banks--currently, those with assets of
at least $346 million as of December 31 of both of the prior two
calendar years and less than $1.384 billion as of December 31 of either
of the prior two calendar years--are evaluated under the lending test
for small banks and a community development test. The intermediate
small bank community development test evaluates all community
development activities together.
<bullet> Large banks--currently, those with assets of more than
$1.384 billion as of December 31 of both of the prior two calendar
years--are evaluated under separate lending, investment, and service
tests. The lending and service tests consider both retail and community
development activities, and the investment test focuses on qualified
community development investments. To facilitate the agencies' CRA
analysis, large banks are required to report annually certain data on
community development loans, small business loans, and small farm loans
(small banks and intermediate small banks are not required to report
these data unless they opt into being evaluated under the large bank
lending test).
<bullet> Designated wholesale banks (those engaged in only
incidental retail lending) and limited purpose banks (those offering a
narrow product line to a regional or broader market) are evaluated
under a standalone community development test.
<bullet> Banks of any size may elect to be evaluated under a
strategic plan that sets out measurable, annual goals for lending,
investment, and service activities in order to achieve a
``Satisfactory'' or an ``Outstanding'' rating. A strategic plan must be
developed with community input and approved by the appropriate Federal
banking agency.

[[Page 33887]]

The agencies also consider applicable performance context
information to inform their analysis and conclusions when conducting
CRA examinations. Performance context comprises a broad range of
economic, demographic, and bank- and community-specific information
that examiners review to calibrate a bank's CRA evaluation to its local
communities.
2. Assessment Areas
The existing CRA regulations require a bank to delineate one or
more assessment areas in which its record of meeting its CRA
obligations will be evaluated.\18\ The regulations require a bank to
delineate assessment areas consisting of geographic areas (metropolitan
statistical areas (MSAs) or metropolitan divisions) or political
subdivisions \19\ in which its main office, branches, and deposit-
taking automated teller machines (ATMs) are located, as well as the
surrounding geographies (i.e., census tracts) \20\ where a substantial
portion of its loans are originated or purchased.
---------------------------------------------------------------------------

\18\ 12 CFR _.41.
\19\ Political subdivisions include cities, counties, towns,
townships, and Indian reservations. See Q&A Sec. _.41(c)(1)-1.
\20\ 12 CFR _.12(k).
---------------------------------------------------------------------------

The assessment area requirements and emphasis on branches reflects
the prevailing business model for financial service delivery when the
CRA was enacted. The statute instructs the agencies to assess a bank's
record of meeting the credit needs of its ``entire community, including
low- and moderate-income neighborhoods, consistent with the safe and
sound operation of such institution, and to take such record into
account in its evaluation of an application for a deposit facility by
such institution.'' \21\ The statute does not prescribe the delineation
of assessment areas, but they are an important aspect of the regulation
because they define ``community'' for purposes of the evaluation of a
bank's CRA performance.
---------------------------------------------------------------------------

\21\ 12 U.S.C. 2903(a).
---------------------------------------------------------------------------

3. Qualifying Activities
The CRA regulations and the Interagency Questions and Answers
provide detailed information, including applicable definitions and
descriptions, respectively, regarding activities that are eligible for
CRA consideration in the evaluation of a bank's CRA performance. Banks
that are evaluated under a performance test that includes a review of
their retail activities are assessed in connection with retail lending
activity (as applicable, home mortgage loans, small business loans,
small farm loans, and consumer loans) \22\ and, where applicable,
retail banking service activities (e.g., the current distribution of a
bank's branches in geographies of different income levels, and the
availability and effectiveness of the bank's alternative systems for
delivering banking services to low- and moderate-income geographies and
individuals).\23\
---------------------------------------------------------------------------

\22\ 12 CFR_.12(j), (l), (v), and (w).
\23\ See generally 12 CFR _.21 through _.27 and _.24(d).
---------------------------------------------------------------------------

Banks evaluated under a performance test that includes a review of
their community development activities are assessed with respect to
community development lending, qualified investments, and community
development services, which by definition must have a primary purpose
of community development.\24\
---------------------------------------------------------------------------

\24\ See generally 12 CFR _.12(g), (h), (i), and (t) and 12 CFR
_.21 through _.27.
---------------------------------------------------------------------------

4. Guidance for Performance Evaluations
In addition to information included in their CRA regulations, the
agencies also provide information to the public regarding how CRA
performance tests are applied, where CRA activities are considered, and
what activities are eligible through publicly available CRA performance
evaluations,\25\ the Interagency Questions and Answers, interagency CRA
examination procedures,\26\ and interagency instructions for writing
performance evaluations.\27\
---------------------------------------------------------------------------

\25\ See, e.g., <a href="https://apps.occ.gov/crasearch/default.aspx">https://apps.occ.gov/crasearch/default.aspx</a>
(OCC); <a href="https://www.federalreserve.gov/apps/CRAPubWeb/CRA/BankRating">https://www.federalreserve.gov/apps/CRAPubWeb/CRA/BankRating</a>
(Board); <a href="https://crapes.fdic.gov/">https://crapes.fdic.gov/</a> (FDIC).
\26\ See, e.g., Federal Financial Institutions Examination
Council (FFIEC), ``Community Reinvestment Act: CRA Examinations,''
<a href="https://www.ffiec.gov/cra/examinations.htm">https://www.ffiec.gov/cra/examinations.htm</a>.
\27\ Id.
---------------------------------------------------------------------------

C. Stakeholder Feedback and Recent Rulemaking

The financial services industry has undergone transformative
changes since the CRA statute was enacted, including the removal of
national bank interstate branching restrictions and the expanded role
of mobile and online banking. To better understand how these
developments impact both consumer access to banking products and
services and a bank's CRA performance, the agencies have reviewed
feedback from the banking industry, community groups, academics, and
other stakeholders on several occasions.
1. Economic Growth and Regulatory Paperwork Reduction Act of 1996
(EGRPRA)
From 2013 to 2016, the agencies solicited feedback on the CRA as
part of the EGRPRA review process.\28\ Stakeholders raised issues
related to assessment area definitions; incentives for banks to serve
low- and moderate-income, unbanked, underbanked, and rural individuals
and communities; recordkeeping and reporting requirements; the need for
clarity regarding performance measures and better examiner training to
ensure consistency in examinations; and refinement of CRA ratings.\29\
---------------------------------------------------------------------------

\28\ See, e.g., 80 FR 7980 (Feb. 13, 2015).
\29\ See FFIEC, Joint Report to Congress: Economic Growth and
Regulatory Paperwork Reduction Act, 82 FR 15900 (Mar. 30, 2017),
<a href="https://www.ffiec.gov/pdf/2017_FFIEC_EGRPRA_Joint-Report_to_Congress.pdf">https://www.ffiec.gov/pdf/2017_FFIEC_EGRPRA_Joint-Report_to_Congress.pdf</a>.
---------------------------------------------------------------------------

2. OCC CRA Advance Notice of Proposed Rulemaking and Federal Reserve
Outreach Sessions
On September 5, 2018, the OCC published an Advance Notice of
Proposed Rulemaking (ANPR) to solicit ideas for a new CRA regulatory
framework.\30\ More than 1,500 comment letters were submitted in
response. To augment that input, the Federal Reserve System (the Board
and the Federal Reserve Banks) held about 30 outreach meetings with
representatives of banks, community organizations, and the other
agencies.\31\
---------------------------------------------------------------------------

\30\ 83 FR 45053 (Sept. 5, 2018).
\31\ For a summary of the Federal Reserve outreach session
feedback, see ``Perspectives from Main Street: Stakeholder Feedback
on Modernizing the Community Reinvestment Act'' (June 2019), <a href="https://www.federalreserve.gov/publications/files/stakeholder-feedback-on-modernizing-the-community-reinvestment-act-201906.pdf">https://www.federalreserve.gov/publications/files/stakeholder-feedback-on-modernizing-the-community-reinvestment-act-201906.pdf</a>.
---------------------------------------------------------------------------

3. OCC-FDIC CRA Notice of Proposed Rulemaking and OCC CRA Final Rule
On December 12, 2019, the FDIC and the OCC issued a joint NPR to
revise and update their CRA regulations.\32\ In response, the FDIC and
the OCC received over 7,500 comment letters.
---------------------------------------------------------------------------

\32\ 85 FR 1204 (Jan. 9, 2020).
---------------------------------------------------------------------------

On May 20, 2020, the OCC issued a CRA final rule (OCC 2020 CRA
final rule), retaining the most fundamental elements of the proposal
but also making adjustments to reflect stakeholder input.\33\ The OCC
deferred establishing the metrics-framework for evaluating banks' CRA
performance until it was able to assess additional data,\34\ with the
final rule having an

[[Page 33888]]

October 1, 2020 effective date and January 1, 2023 and January 1, 2024
compliance dates for certain provisions.\35\
---------------------------------------------------------------------------

\33\ 85 FR 34734 (June 5, 2020).
\34\ See OCC, News Release 2020-63, ``OCC Finalizes Rule to
Strengthen and Modernize Community Reinvestment Act Regulations''
(May 20, 2020), <a href="https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-63.html">https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-63.html</a>; see also 85 FR at 34736.
\35\ 85 FR at 34784.
---------------------------------------------------------------------------

4. Board CRA Advance Notice of Proposed Rulemaking
On September 21, 2020, the Board issued a CRA ANPR (Board CRA ANPR)
requesting public comment on an approach to modernize the CRA
regulations by strengthening, clarifying, and tailoring them to reflect
the current banking landscape and better meet the core purpose of the
CRA.\36\ The Board CRA ANPR sought feedback on ways to evaluate how
banks meet the needs of low- and moderate-income communities and
address inequities in credit access. The Board received over 600
comment letters on this ANPR.
---------------------------------------------------------------------------

\36\ 85 FR 66410 (Oct. 19, 2020).
---------------------------------------------------------------------------

5. Recent Developments
On July 20, 2021, the agencies issued an interagency statement
indicating their commitment to working collectively to, in a consistent
manner, strengthen and modernize their CRA regulations.\37\ On the same
day, the OCC stated its intention to rescind the OCC 2020 CRA final
rule.\38\ Subsequently, on September 8, 2021, the OCC issued a notice
of proposed rulemaking to rescind the OCC 2020 CRA final rule and
replace it with CRA regulations based on those that the agencies
jointly issued in 1995, as amended.\39\ On December 15, 2021, the OCC
issued a final rule completing the rescission and replacement effective
January 1, 2022. The final rule also integrated the OCC's CRA
regulation for savings associations into its national bank CRA
regulation at 12 CFR part 25.\40\
---------------------------------------------------------------------------

\37\ See Interagency Statement on Community Reinvestment Act,
Joint Agency Action (July 20, 2021), <a href="https://www.occ.gov/news-issuances/news-releases/2021/nr-ia-2021-77.html">https://www.occ.gov/news-issuances/news-releases/2021/nr-ia-2021-77.html</a> (OCC); <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210720a.htm">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210720a.htm</a>
(Board); <a href="https://www.fdic.gov/news/press-releases/2021/pr21067.html">https://www.fdic.gov/news/press-releases/2021/pr21067.html</a>
(FDIC).
\38\ See OCC, News Release 2021-76, Statement on Rescinding its
2020 Community Reinvestment Act Rule (July 20, 2021), <a href="https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-76.html">https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-76.html</a>.
\39\ 86 FR 52026 (Sept. 17, 2021).
\40\ 86 FR 71328 (Dec. 15, 2021).
---------------------------------------------------------------------------

D. CRA, Illegal Discrimination, and Fair Lending

The CRA was one of several laws enacted in the 1960s and 1970s to
address fairness and financial inclusion in access to housing and
credit. During this period, Congress passed the Fair Housing Act (FHA)
in 1968,\41\ to prohibit discrimination in renting or buying a
home,\42\ and the Equal Credit Opportunity Act (ECOA) in 1974 \43\
(amended in 1976), to prohibit creditors from discriminating against an
applicant in any aspect of a credit transaction on the basis of race,
color, religion, national origin, sex, marital status, or age. These
fair lending laws provide the legal basis for prohibiting
discriminatory lending practices based on race and ethnicity.\44\
---------------------------------------------------------------------------

\41\ 42 U.S.C. 3601 et seq.
\42\ 42 U.S.C. 3604 through 3606.
\43\ 15 U.S.C. 1691 et seq.
\44\ See Interagency Fair Lending Examination Procedures (Aug.
2009), available at <a href="https://www.ffiec.gov/pdf/fairlend.pdf">https://www.ffiec.gov/pdf/fairlend.pdf</a>.
---------------------------------------------------------------------------

Prior to passage of these laws, inequitable access to credit and
other financial services--due in large part to a practice known as
``redlining''--along with a lack of public and private investment,
greatly contributed to the economic distress experienced by lower-
income and minority communities. The former Federal Home Owners' Loan
Corporation (HOLC), established in 1933, employed color-coded maps \45\
to designate its perception of the relative risk of lending in a range
of neighborhoods, with ``hazardous'' (the highest risk) areas coded in
red often with reference to the racial makeup of the neighborhood.\46\
In addition to referring to HOLC maps, the term redlining has also been
used to more broadly describe excluding neighborhoods or areas from
provision of credit or other financial services on account of the race
or ethnicity of residents in those areas. As Senator William Proxmire,
who authored the CRA legislation, testified when discussing its
purpose:
---------------------------------------------------------------------------

\45\ See University of Richmond's Digital Scholarship Lab,
``Mapping Inequality: Redlining in New Deal America,'' <a href="https://dsl.richmond.edu/panorama/redlining/#loc=5/39.1/-">https://dsl.richmond.edu/panorama/redlining/#loc=5/39.1/-</a>94.58 (archive of
HOLC maps).
\46\ See, e.g., Daniel Aaronson, Daniel Hartley, and Bhashkar
Mazumder, Federal Reserve Bank of Chicago, ``The Effects of the
1930s HOLC `Redlining' Map'' (Revised Aug. 2020), <a href="https://www.chicagofed.org/publications/working-papers/2017/wp2017-12">https://www.chicagofed.org/publications/working-papers/2017/wp2017-12</a>, p.1
(``Neighborhoods were classified based on detailed risk-based
characteristics, including housing age, quality, occupancy, and
prices. However, non-housing attributes such as race, ethnicity, and
immigration status were influential factors as well. Since the
lowest rated neighborhoods were drawn in red and often had the vast
majority of African American residents, these maps have been
associated with the so-called practice of `redlining' in which
borrowers are denied access to credit due to the demographic
composition of their neighborhood.'').

By redlining let me make it clear what I am talking about. I am
talking about the fact that banks and savings and loans will take
their deposits from a community and instead of reinvesting them in
that community, they will actually or figuratively draw a red line
on a map around the areas of their city, sometimes in the inner
city, sometimes in the older neighborhoods, sometimes ethnic and
sometimes black, but often encompassing a great area of their
neighborhood.\47\
---------------------------------------------------------------------------

\47\ 123 Cong. Rec. 17630 (June 6, 1977).

Even with the implementation of the CRA and the other complementary
laws, the wealth gap and disparities in other financial outcomes remain
persistent. For example, ``data from the 2019 Survey of Consumer
Finances (SCF) show that long-standing and substantial wealth
disparities between families in different racial and ethnic groups were
little changed since the last survey in 2016; the typical White family
has eight times the wealth of the typical Black family and five times
the wealth of the typical Hispanic family.'' \48\
---------------------------------------------------------------------------

\48\ Neil Bhutta et al., ``Disparities in Wealth by Race and
Ethnicity in the 2019 Survey of Consumer Finances'' (Sept. 28,
2020), <a href="https://www.federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-finances-20200928.htm">https://www.federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-finances-20200928.htm</a>.
---------------------------------------------------------------------------

The Board CRA ANPR discussed this history of redlining and racial
discrimination prior to the enactment of these laws and asked for
feedback on the following question: ``In considering how the CRA's
history and purpose relate to the nation's current challenges, what
modifications and approaches would strengthen CRA regulatory
implementation in addressing ongoing systemic inequity in credit access
for minority individuals and communities?'' \49\ The Board received
comments from a number of stakeholders on this question, providing
feedback across different topics.
---------------------------------------------------------------------------

\49\ 85 FR at 66413.
---------------------------------------------------------------------------

As has been the case since the first regulations were issued by the
agencies, the agencies continue to recognize that CRA and fair lending
are mutually reinforcing. In this NPR, the agencies propose to retain
the conditions that bank assessment areas are prohibited from
reflecting illegal discrimination or arbitrarily excluding low- or
moderate-income census tracts. The agencies also propose to retain the
regulatory provision that CRA ratings can be downgraded as a result of
discriminatory practices, among other practices. The agencies are
committed to upholding their regulatory responsibilities for both fair
lending and CRA examinations, and the agencies seek to coordinate those
examinations where feasible to do so.
In furtherance of the agencies' objective to promote transparency,
the agencies propose providing additional information to the public in
CRA performance evaluations for large banks related to the distribution
by borrower

[[Page 33889]]

race and ethnicity of the bank's home mortgage loan originations and
applications in each of the bank's assessment areas. This disclosure
would leverage existing data available under the Home Mortgage
Disclosure Act (HMDA). As discussed in Section XIX of this
SUPPLEMENTARY INFORMATION, providing the data in this disclosure would
have no independent impact on the conclusions or ratings of the bank
and would not on its own reflect any fair lending finding or violation.
Instead, this proposal is intended to provide transparent information
to the public.

II. Overview of Proposed Rule

This SUPPLEMENTARY INFORMATION includes a detailed discussion of
the proposed rule, including on the following topics:
Community Development Definitions. Section III discusses the
following proposed definitions for community development activities:
Affordable housing; economic development that supports small businesses
and small farms; community supportive services; revitalization
activities; essential community facilities; essential community
infrastructure; recovery activities in designated disaster areas;
disaster preparedness and climate resiliency activities; activities
with minority depository institutions (MDIs), women's depository-
institutions (WDIs), low-income credit unions (LICUs), and Community
Development Financial Institutions (CDFIs) certified by the U.S.
Department of the Treasury (Treasury Department), referred to as
Treasury Department-certified CDFIs; financial literacy; and qualifying
activities in Native Land Areas. The agencies propose using a primary
purpose standard for determining eligibility of the above activities,
with pro rata consideration for certain affordable housing activities.
Qualifying Activities Confirmation and Illustrative List of
Activities. Section IV describes the agencies' proposal to maintain a
publicly available illustrative, non-exhaustive list of activities
eligible for CRA consideration. In addition, the agencies propose a
process, open to banks, for confirming eligibility of community
development activities in advance.
Impact Review of Community Development Activities. Section V
describes the agencies' proposal for specific impact review factors to
inform the impact and responsiveness evaluation of a bank's activities
under the Community Development Financing Test, the Community
Development Services Test, and the Community Development Financing Test
for Wholesale or Limited Purpose Banks.
Assessment Areas and Areas for Eligible Community Development
Activity. Section VI describes proposals on delineating facility-based
assessment areas for main offices, branches, and deposit-taking remote
service facilities (to include ATMs). Under the proposal, large banks
would delineate assessment areas comprised of full counties,
metropolitan divisions, or MSAs. Intermediate and small banks could
continue to delineate partial county facility-based assessment areas,
consistent with current practice.
The section also describes the proposal for large banks to
delineate retail lending assessment areas where a bank has
concentrations of home mortgage and/or small business lending outside
of its facility-based assessment areas. Under this proposal, a large
bank would delineate retail lending assessment areas where it has an
annual lending volume of at least 100 home mortgage loan originations
or at least 250 small business loan originations in an MSA or
nonmetropolitan area of a state for two consecutive years.
The section also discusses the proposal to allow banks to receive
CRA credit for any qualified community development activity, regardless
of location, although performance within facility-based assessment
areas would be emphasized.
Performance Tests, Standards, and Ratings in General. Section VII
describes the agencies' proposed evaluation framework tailored for
differences in bank size and business model. The agencies propose the
following four tests for large banks: Retail Lending Test; Retail
Services and Products Test; Community Development Financing Test; and
Community Development Services Test. Intermediate banks would be
evaluated under the Retail Lending Test and the status quo community
development test, unless they choose to opt into the Community
Development Financing Test. Small banks would be evaluated under the
status quo small bank lending test, unless they choose to opt into the
Retail Lending Test. Wholesale and limited purpose banks would be
evaluated under a tailored version of the Community Development
Financing Test.
Under this framework, large banks would be banks that had average
quarterly assets, computed annually, of at least $2 billion in both of
the prior two calendar years; intermediate banks would be banks that
had average quarterly assets, computed annually, of at least $600
million in both of the prior two calendar years and less than $2
billion in either of the prior two calendar years; and small banks
would be banks that had average quarterly assets, computed annually, of
less than $600 million in either of the prior two calendar years. The
agencies are in the process of seeking approval from the U.S. Small
Business Administration (SBA) to use the $600 million threshold, where
applicable and adjusted annually for inflation, rather than the SBA's
recently updated size standards.\50\
---------------------------------------------------------------------------

\50\ 87 FR 18627, 18830 (Mar. 31, 2022). Of particular relevance
to the Agencies' CRA regulations, the SBA revised the size standards
applicable to small commercial banks and savings institutions,
respectively, from $600 million to $750 million, based upon the
average assets reported on such a financial institution's four
quarterly financial statements for the preceding year. The final
rule has a May 2, 2022 effective date.
---------------------------------------------------------------------------

The agencies propose to further tailor aspects of the proposal
within the large bank category. The agencies propose that certain
provisions of the Retail Services and Products Test and Community
Development Services Test would apply only to large banks that had
average quarterly assets, computed annually, of over $10 billion in
both of the prior two calendar years. These banks are referred to in
this SUPPLEMENTARY INFORMATION as large banks with assets of over $10
billion. Large banks that had average quarterly assets, computed
annually, of $10 billion or less in either of the prior two calendar
years are referred to in this SUPPLEMENTARY INFORMATION as large banks
with assets of $10 billion or less.
The section also discusses a new proposed definition of
``operations subsidiary'' to the Board's CRA regulation and ``operating
subsidiary'' for the FDIC's and OCC's CRA regulations (referred to
collectively in this SUPPLEMENTARY INFORMATION as ``bank
subsidiaries'') to identify those bank affiliates whose activities
would be required to be attributed to a bank's CRA performance. The
agencies propose to maintain the current flexibilities that would allow
a bank to choose to include or exclude the activities of other bank
affiliates that are not considered ``bank subsidiaries.'' The section
also discusses performance context, and the requirement for activity in
accordance with safe and sound operations.
Retail Lending Test Product Categories and Major Product Lines.
Section VIII describes the proposed categories and standards for
determining when a bank's retail lending product lines are evaluated
under the Retail Lending Test. The agencies propose the following
retail lending product line categories: A

[[Page 33890]]

closed-end home mortgage, open-end home mortgage, multifamily, small
business, and small farm lending. The agencies also propose including
automobile lending as an eligible retail lending product line. In
addition, the agencies propose a major product line standard to
determine when a retail lending product line is evaluated.
The NPR proposes to define the terms ``small business'' and ``small
farm'' consistent with the Consumer Financial Protection Bureau's
(CFPB) proposal under section 1071 (Section 1071 Rulemaking) \51\ of
the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act \52\). The CFPB has proposed to define a ``small business''
as having gross annual revenues of $5 million or less in the preceding
fiscal year. The agencies are in the process of seeking approval from
the SBA to use the standard proposed by the CFPB in its Section 1071
Rulemaking rather than the SBA's size standards.\53\
---------------------------------------------------------------------------

\51\ See 15 U.S.C. 1691c-2. The CFPB's Section 1071 Rulemaking
would amend Regulation B to implement changes to ECOA made by
section 1071 of the Dodd-Frank Act. This rulemaking would require
covered financial institutions to collect and report to the CFPB
data on applications for credit for small businesses, including
businesses that are owned by women or minorities. See 86 FR 56356
(Oct. 8, 2021), as corrected by 86 FR 70771 (Dec. 13, 2021).
\52\ Public Law 111-203, 124 Stat. 1376 (July 21, 2010).
\53\ This assumes the CFPB's section 1071 rulemaking is
finalized as proposed with a ``small business'' defined as having
gross annual revenues of $5 million or less.
---------------------------------------------------------------------------

Retail Lending Test Evaluation Framework for Facility-Based
Assessment Areas and Retail Lending Assessment Areas. Section IX
discusses the proposed Retail Lending Test for standardizing
evaluations of retail lending performance in facility-based assessment
areas and retail lending assessment areas for large and intermediate
banks. The agencies propose using a retail lending volume screen to
evaluate a bank's retail lending volumes. The agencies also propose to
evaluate a bank's major product lines using two distribution metrics
that measure the bank's record of lending in low- and moderate-income
census tracts and to borrowers of different income or revenue levels.
Further, the agencies propose to establish a standardized methodology
for setting performance expectations for specific product lines. The
methodology defines performance ranges for each conclusion category for
each product, and this performance is then averaged together. Under the
methodology, the amount of lending needed to achieve a given conclusion
would differ across assessment areas according to local credit demand
and would calibrate across business cycles.
Retail Lending Test Evaluation Framework for Retail Lending Test
Conclusions in State, Multistate MSAs, and at the Institution Level.
Section X describes the agencies' proposal to assign conclusions on the
Retail Lending Test for large and intermediate banks at the state and
multistate MSA levels based on the conclusions reached at individual
facility-based and retail lending assessment areas, as applicable. The
agencies also propose to assign conclusions on the Retail Lending Test
at the institution level by similarly combining conclusions from all of
a bank's facility-based and retail lending assessment areas, as
applicable, as well as the bank's retail lending performance outside of
its assessment areas. The consideration of outside lending recognizes
that some bank lending may be geographically diffuse, without
concentrations in particular local markets that would be captured by
the proposed retail lending assessment areas.
Retail Services and Products Test. Section XI describes the
agencies' proposal to evaluate large banks under the Retail Services
and Products Test. This test would use a predominantly qualitative
approach, incorporating quantitative measures as guidelines, as
applicable. First, the delivery systems part of the proposed test seeks
to achieve a balanced evaluation framework that considers a bank's
branch availability and services, remote service facility availability,
and its digital and other delivery systems. The agencies propose that
the evaluation of digital and other delivery systems and deposit
products would be required for large banks with assets of over $10
billion, and not required for large banks with assets of $10 billion or
less.
Second, the credit and deposit products part of the proposed test
aims to evaluate a bank's efforts to offer products that are responsive
to the needs of low- and moderate-income communities. The agencies
propose that the evaluation of deposit products responsive to the needs
of low- or moderate-income individuals would be required for large
banks with assets of over $10 billion, and not required for large banks
with assets of $10 billion or less.
Community Development Financing Test. Section XII describes the
agencies proposals for the Community Development Financing Test, which
would apply to large banks as well as intermediate banks that choose to
opt into this test. The Community Development Financing Test would
consist of a community development financing metric, benchmarks, and an
impact review. These components would be assessed at the facility-based
assessment area, state, multistate MSA and institution levels, and
would inform conclusions at each of those levels.
Community Development Services Test. Section XIII describes the
agencies' proposal to assess a large bank's community development
services, underscoring the importance of these activities for fostering
partnerships among different stakeholders, building capacity, and
creating the conditions for effective community development. The
agencies propose that in nonmetropolitan areas, banks may receive
community development services consideration for volunteer activities
that meet an identified community development need, even if unrelated
to the provision of financial services. The proposed test would consist
of a primarily qualitative assessment of the bank's community
development service activities. For large banks with assets of over $10
billion, the agencies propose also using a metric to measure the hours
of community development services activity per full time employee of a
bank.
Wholesale and Limited Purpose Banks. Section XIV describes the
agencies' proposed Community Development Financing Test for Wholesale
and Limited Purpose Banks, which would include a qualitative review of
a bank's community development lending and investments in each
assessment area and an institution level-metric measuring a bank's
volume of activities relative to its capacity. The agencies also
propose giving wholesale and limited purpose banks the option to have
examiners consider community development service activities that would
qualify under the Community Development Services Test.
Strategic Plans. Section XV describes the agencies' proposal to
maintain a strategic plan option as an alternative method for
evaluation. Banks that elect to be evaluated under a CRA strategic plan
would continue to request approval for the plan from their appropriate
Federal banking agency. The agencies propose more specific criteria to
ensure that all banks are meeting their CRA obligation to serve low-
and moderate-income individuals and communities. Banks approved to be
evaluated under a CRA strategic plan option would have the same
assessment area requirements as other banks and would submit plans that
include the same performance tests and standards that would otherwise
apply unless the

[[Page 33891]]

bank is substantially engaged in activities outside the scope of these
tests. In seeking approval for a plan that does not adhere to
requirements and standards that are applied to other banks, the plan
would be required to include an explanation of why the bank's view is
that different standards would be more appropriate in meeting the
credit needs of its communities.
Assigned Conclusions and Ratings. Section XVI describes the
agencies' proposal to provide greater transparency and consistency on
assigning ratings for a bank's overall performance. The proposed
approach would produce performance scores for each applicable test, at
the state, multistate MSA, and institution levels based on a weighted
average of assessment area conclusions, as well as consideration of
additional test-specific factors at the state, multistate MSA, or
institution level. These performance scores are mapped to conclusion
categories to provide test-specific conclusions for the state,
multistate MSA, and at the institution level. The agencies propose to
combine these performance scores across tests to produce ratings at the
state, multistate MSA, and the institution level.
The agencies propose to determine a bank's overall state,
multistate MSA, or institution rating by taking a weighted average of
the applicable performance test scores. For large banks the agencies
propose the following weights: 45 percent for Retail Lending Test
performance score; 15 percent for Retail Services and Products Test
performance score; 30 percent for Community Development Financing Test
performance score; and 10 percent for Community Development Services
Test performance score. For intermediate banks, the agencies propose to
weight the Retail Lending test at 50 percent and the community
development test, or if the bank chooses to opt into the Community
Development Financing Test, at 50 percent.
The agencies also propose updating the criteria to determine how
discriminatory and other illegal practices would adversely affect a
rating, as well as what rating level (state, multistate MSA, and
institution) would be affected.
Performance Standards for Small and Intermediate Banks. Section
XVII describes the agencies' proposal to continue evaluating small
banks under the small bank performance standards in the current CRA
framework and to apply the proposed metrics-based Retail Lending Test
to intermediate banks. Under the proposal, small banks could opt into
the Retail Lending Test and could continue to request additional
consideration for other qualifying CRA activities. For intermediate
banks, in addition to the proposed Retail Lending Test, the agencies
propose to also evaluate an intermediate bank's community development
activity pursuant to the criteria under the current intermediate small
bank community development test. Intermediate banks could also opt to
be evaluated under the proposed Community Development Financing Test.
Effect of CRA Performance on Applications. In Section XVIII, the
agencies propose to maintain the current regulatory provisions for
considering CRA performance on bank applications, such as those for
mergers and acquisitions, deposit insurance, and branch openings and
relocations.
Data Collection, Reporting, and Disclosure. In Section XIX, the
agencies propose to revise data collection and reporting requirements
to increase the clarity, consistency, and transparency of the
evaluation process through the use of standard metrics and benchmarks.
The proposal recognizes the importance of using existing data sources
where possible, and tailoring data requirements, where appropriate.
In addition to leveraging existing data, the proposal would require
large banks to collect, maintain, and report additional data. All large
banks would have the same requirements for certain categories of data,
including community development financing data, branch location data,
and remote service facility location data. Some new data requirements
would only apply to large banks with assets of over $10 billion. Large
banks with assets of over $10 billion would have data requirements for
deposits data, automobile lending data, retail services data on digital
delivery systems, retail services data on responsive deposit products,
and community development services data. The proposal also provides
updated standards for all large banks to report the delineation of
their assessment areas. Data requirements for intermediate banks and
small banks would remain the same as the current requirements.
Content and Availability of Public File, Public Notice by Banks,
Publication of Planned Examination Schedule, and Public Engagement.
Section XX describes the agencies' proposal to provide more transparent
information to the public on CRA examinations and encourage
communication between members of the public and banks. The agencies
propose to make a bank's CRA public file more accessible to the public
by allowing any bank with a public website to include its CRA public
file on its website. The agencies also propose publishing a list of
banks scheduled for CRA examinations for the next two quarters at least
60 days in advance in order to provide additional notice to the public.
Finally, the agencies propose to establish a way for the public to
provide feedback on community needs and opportunities in specific
geographies.
Transition. Section XXI discusses the agencies' proposed timeline
for the transition from the current regulatory and supervisory
framework to the proposed rule's CRA regulatory and supervisory
framework.
Regulatory Analysis. Section XXII discusses the required regulatory
analyses for the proposed rule. This includes a description of the
Board's and the FDIC's Initial Regulatory Flexibility Analyses, which
conclude that the proposed rule will not have a significant economic
impact on a substantial number of small entities, and the OCC's
certification that the proposed rule will not have a significant
economic impact on a substantial number of small entities.
Text of Common Proposed Rule. Section XXIII sets forth the common
regulatory text for the proposed CRA regulation.

III. Community Development Definitions

Under the current and proposed CRA rule, a bank may, depending on
its size, be evaluated for its community development lending,
investments, and/or services under various tests. These activities must
have community development as their primary purpose. Community
development activities currently fall into four broad categories:
Affordable housing; community services; economic development; and
revitalization and stabilization. The agencies propose to revise the
community development definitions in order to clarify eligibility
criteria for different community development activities by including
eleven categories that establish specific eligibility standards for a
broad range of community development activities. The new definitions
incorporate some aspects of guidance that are currently provided in the
Interagency Questions and Answers. The proposed definitions reflect an
emphasis on activities that are responsive to community needs,
especially the needs of low- and moderate-income individuals and
communities and small businesses and small farms.

[[Page 33892]]

A. Primary Purpose of Community Development

In Sec. _.13, the agencies propose to define in the CRA
regulations standards for determining whether a community development
activity has a ``primary purpose'' of community development. Currently,
the approach to demonstrating that an activity has a primary purpose of
community development is explained in the Interagency Questions and
Answers.\54\ Under the proposal, a loan, investment, or service meets
the primary purpose standard when it is designed for the express
purpose of community development as set forth in proposed Sec.
_.13(a)(1). In general, activities with a primary purpose of community
development, as proposed, would receive full CRA credit for the
Community Development Financing Test and Community Development Services
Test, as described below.
---------------------------------------------------------------------------

\54\ As discussed in the Interagency Questions and Answers, a
loan, investment, or service has as its primary purpose community
development when it is designed for the express purpose of
revitalizing or stabilizing low- or moderate-income areas,
designated disaster areas, or underserved or distressed
nonmetropolitan middle-income areas, providing affordable housing
for, or community services targeted to, low- or moderate-income
persons, or promoting economic development by financing small
businesses or small farms that meet the requirements set forth in 12
CFR _.12(g). See Q&A Sec. _.12(h)-8.
---------------------------------------------------------------------------

To determine whether an activity is designed for an express
community development purpose, the agencies propose applying several
approaches. First, if a majority of the dollars, applicable
beneficiaries, or housing units of the activity are identifiable to one
or more of the community development activities defined in Sec.
_.13(a)(2), then the activity meets the requisite primary purpose and
would receive full CRA credit.
Second, and alternatively, where the measurable portion of any
benefit bestowed or dollars applied to the community development
purpose is less than a majority of the entire activity's benefits or
dollar value, then the activity may still be considered to possess the
requisite primary purpose, and the bank may receive CRA credit for the
entire activity, if: (i) The express, bona fide intent of the activity,
as stated, for example, in a prospectus, loan proposal, or community
action plan, is primarily one or more of the enumerated community
development purposes; (ii) the activity is specifically structured to
achieve the expressed community development purpose; and (iii) the
activity accomplishes, or is reasonably certain to accomplish, the
community development purpose involved.
Pro Rata Credit for Qualified Affordable Housing. The agencies
propose that affordable housing that is developed in conjunction with
Federal, state, local, or tribal government programs that have a stated
purpose or bona fide intent to promote affordable housing would be
considered even if fewer than the majority of the beneficiaries of the
housing are low- or moderate-income individuals. In such cases, the
activity would be considered to have a primary purpose of affordable
housing only for the percentage of total housing units in the
development that are affordable. For example, if a bank makes a $10
million loan to finance a mixed-income housing development in which 10
percent of the units will be set aside as affordable housing for low-
or moderate-income individuals, the bank may treat $1 million of such
loan as a community development loan. In other words, the pro-rata
dollar amount of the total activity would be based on the percentage of
units set aside for affordable housing for low- or moderate-income
individuals.
The agencies propose a different approach for an activity that
involves low-income housing tax credits (LIHTCs). Specifically, a bank
would receive consideration for the full amount of the loan or
investment for a LIHTC-financed project, regardless of the share of
units that are considered affordable. This proposal is consistent with
current guidance adopted in 2010 that clarified that projects developed
with LIHTCs had a bona fide intent of providing affordable housing.\55\
---------------------------------------------------------------------------

\55\ See 75 FR 11642 (Mar. 11, 2010).
---------------------------------------------------------------------------

Pro Rata Consideration for Other Community Development Activities.
The proposal does not specify any other application of partial credit
for activities, but the agencies seek feedback on whether such
consideration is appropriate for this rulemaking in other specific
cases. For example, an essential infrastructure project may serve a
broad area where low- and moderate-income census tracts comprise a
minority of total census tracts. In such cases, the activity could
provide benefit to some low- or moderate-income individuals, although
the overall project did not focus on low- or moderate-income census
tracts or individuals. The agencies have considered whether banks
should receive partial consideration more generally for these
activities based on the share of low- or moderate-income census tracts
or low- or moderate-income individuals that benefit from the project
compared to the number of census tracts or total population that
benefited from the project overall. However, partial consideration of
activities could result in a significant expansion of the activities
that could qualify, and thereby serve to divert limited resources from
projects specifically targeted to benefit low- or moderate-income
people or communities. In addition, the agencies believe that the
proposed primary purpose standard retains appropriate flexibility to
provide consideration for activities where less than the majority of
the entire activity benefits low- or moderate-income individuals or
communities, if those activities have the express, bona fide intent of
community development.
Request for Feedback
Question 1. Should the agencies consider partial consideration for
any other community development activities (for example, financing
broadband infrastructure, health care facilities, or other essential
infrastructure and community facilities), or should partial
consideration be limited to only affordable housing?
Question 2. If partial consideration is extended to other types of
community development activities with a primary purpose of community
development, should there be a minimum percentage of the activity that
serves low- or moderate-income individuals or geographies or small
businesses and small farms, such as 25 percent? If partial
consideration is provided for certain types of activities considered to
have a primary purpose of community development, should the agencies
require a minimum percentage standard greater than 51 percent to
receive full consideration, such as a threshold between 60 percent and
90 percent?

B. Affordable Housing

The agencies are proposing a definition for affordable housing that
includes four components: (i) Affordable rental housing developed in
conjunction with Federal, state, and local government programs; (ii)
multifamily rental housing with affordable rents; (iii) activities
supporting affordable low- or moderate-income homeownership; and (iv)
purchases of mortgage-backed securities that finance affordable
housing. The proposed definition is intended to clarify the eligibility
of affordable housing as well as to recognize the importance of
promoting affordable housing for low- or moderate-income individuals.

[[Page 33893]]

1. Background
a. Current Approach to Affordable Housing
The current CRA regulations define ``community development'' to
include ``affordable housing (including multifamily rental housing) for
low- or moderate-income individuals.'' \56\ The agencies have stated in
the Interagency Questions and Answers that low- or moderate-income
individuals must benefit or be likely to benefit from the housing in
order to qualify and meet the existing primary purpose standard.\57\
Currently, the agencies consider activities that support both single-
family (1-4 family units) and multifamily (more than 4-family units)
affordable housing. Single-family home mortgage loans are generally
considered as part of the lending test, and other activities that are
not home mortgage loans and that support single-family affordable
housing may be considered as community development.\58\ Multifamily
loans are considered separately and may qualify for both retail lending
and community development consideration if they meet the definition of
affordable housing.\59\ Purchases of mortgage-backed securities that
primarily consist of single-family mortgage loans to low- or moderate-
income individuals, or of multifamily affordable housing, are also
considered as qualifying community development activities.\60\
---------------------------------------------------------------------------

\56\ 12 CFR _.12(g)(1).
\57\ See Q&A Sec. _.12(g)(1)-1.
\58\ Single-family home mortgage loans may be included as
community development under the intermediate small bank methodology.
See Q&A Sec. _.12(h)-3.
\59\ See Q&A Sec. _.42(b)(2)-2.
\60\ See Q&A Sec. _.12(t)-2.
---------------------------------------------------------------------------

Multifamily Housing. Multifamily housing qualifies under two
different categories of affordable housing: Subsidized or unsubsidized
housing. Housing that is financed or supported by a government
affordable housing program or a government subsidy is considered
subsidized affordable housing. Subsidized affordable housing is
generally viewed as qualifying under affordable housing criteria if the
government program or subsidy has a stated purpose of providing
affordable housing to low- or moderate-income individuals, thereby
satisfying Interagency Questions and Answers guidance that low- or
moderate-income individuals benefit, or are likely to benefit, from the
housing.\61\ Examples of subsidized affordable housing include housing
financed with LIHTCs, the HOME Investment Partnerships Program, or
Project-Based Section 8 Rental Assistance.
---------------------------------------------------------------------------

\61\ See Q&A Sec. _.12(g)(1)-2.
---------------------------------------------------------------------------

Multifamily housing with affordable rents, but that is not financed
or supported by a government affordable housing program or a government
subsidy, is generally considered unsubsidized affordable housing, and
is also referred to in this SUPPLEMENTARY INFORMATION as ``naturally
occurring affordable housing.'' This housing can qualify as affordable
housing if the rents are affordable to low- or moderate-income
individuals, and if it is clear that low- or moderate-income
individuals benefit, or are likely to benefit, from this housing.
However, there are no standards currently in place for determining that
low- or moderate-income individuals will benefit, or are likely to
benefit, from the housing. Guidance indicates that it is not sufficient
to determine that low- or moderate-income individuals are likely to
benefit from the housing solely because the rents or housing prices are
set according to a particular formula.\62\ To assess whether the
housing will benefit low- or moderate-income individuals, examiners may
consider a range of demographic, economic or market factors, such as
the median rents of the assessment area and the project based on
project rent rolls; the low- or moderate-income population in the area
of the project; or the past performance record of the organization(s)
undertaking the project.\63\
---------------------------------------------------------------------------

\62\ See Q&A Sec. _.12(g)(1)-1.
\63\ See Q&A Sec. _.12(g)(1)-1.
---------------------------------------------------------------------------

Under the current framework, there is not a specified standard for
determining when a property or unit is considered affordable to low- or
moderate-income individuals. One approach used by banks and examiners
is to calculate an affordable rent based on what is affordable to a
moderate-income renter, assuming that 30 percent of the renter's income
is spent on rent. Alternatively, some use the U.S. Department of
Housing and Urban Development's (HUD) Fair Market Rents as a standard
for measuring affordability.\64\ Stakeholders note that lack of a
consistent standard for affordability, combined with unclear methods
for determining whether low- or moderate-income individuals are likely
to benefit, leads to inconsistent consideration of unsubsidized
affordable housing.
---------------------------------------------------------------------------

\64\ See HUD, Fair Market Rents, <a href="https://www.hud.gov/program_offices/public_indian_housing/programs/hcv/landlord/fmr">https://www.hud.gov/program_offices/public_indian_housing/programs/hcv/landlord/fmr</a>.
---------------------------------------------------------------------------

Single-Family Housing. Certain activities related to single-family
housing can also qualify as affordable housing provided that the
housing is affordable and low- or moderate-income individuals benefit,
or are likely to benefit, from the housing. While single-family
mortgages qualify under the lending test,\65\ activities that support
the construction of affordable housing or other activities to promote
affordable homeownership for low- or moderate-income individuals are
considered as affordable housing under the community development
definition. Similar to the issues noted above with unsubsidized rental
housing, there are no consistent standards in place to demonstrate that
single-family for-sale housing is affordable and likely to benefit low-
or moderate-income individuals. Therefore, under the current framework,
stakeholders note that it is difficult for certain single-family
projects to qualify, unless it is a project developed in partnership
with a government program or non-profit organization that has a mission
of providing affordable housing to low- or moderate-income individuals.
---------------------------------------------------------------------------

\65\ See Q&A Sec. _.12(h)-3.
---------------------------------------------------------------------------

Mortgage-Backed Securities. Mortgage-backed securities qualify as
an affordable housing activity provided they demonstrate a primary
purpose of community development. Specifically, the security must
primarily address affordable housing (including multifamily housing) of
low- or moderate-income individuals.\66\ Thus, a mortgage-backed
security that contains a majority of mortgages to low- or moderate-
income borrowers can qualify as an investment with a primary purpose of
affordable housing.
---------------------------------------------------------------------------

\66\ See Q&A Sec. _.12(t)-2.
---------------------------------------------------------------------------

b. Stakeholder Feedback on Affordable Housing
Stakeholders have expressed support for a definition of affordable
housing that includes both subsidized and unsubsidized housing, and
that is informed by more clear and specific eligibility standards.
Stakeholders generally support the current approach of qualifying
housing developed, purchased, rehabilitated, or preserved in
conjunction with a Federal, state, local, or tribal government program.
Many stakeholders also indicate support for including naturally
occurring affordable housing in the definition of affordable housing,
but note that more consistent and practically feasible qualification
standards are needed. They also raise concerns about the types of
requirements or restrictions--if any--that should be put in place to
ensure that these properties remain affordable. For example, some
stakeholders have noted that a bank financing a naturally

[[Page 33894]]

occurring affordable housing activity would often not be able to verify
and document the income of tenants at time of rental and on an ongoing
basis.
Regarding the current treatment of mortgage-backed securities, some
stakeholders have expressed concern that some banks rely on purchases
of mortgage-backed securities for CRA purposes in lieu of pursuing
other activities that would have a more direct impact on the community
or that would be more responsive to specific needs. Some stakeholders
have also noted concerns that some banks may purchase high volumes of
mortgage-backed securities shortly before their CRA examinations and
sell them shortly afterwards, reducing any potential benefits to
liquidity for lenders and credit availability for communities.
Stakeholders generally have not opposed the consideration of mortgage-
backed securities as a qualified investment, although some suggested
additional requirements, such as preventing banks from receiving CRA
credit for mortgage-backed securities that are purchased and then
quickly resold.
2. Rental Housing in Conjunction With Government Programs
First, the agencies propose that a rental housing unit would be
considered affordable housing if it is purchased, developed, financed,
rehabilitated, improved, or preserved in conjunction with a Federal,
state, local, or tribal government affordable housing plan, program,
initiative, tax credit, or subsidy with a stated purpose or the bona
fide intent of providing affordable housing for low- or moderate-income
individuals. Examples below demonstrate how this component of the
definition intends to add greater clarity around the many types of
subsidized activities that currently qualify for consideration.
The proposal covers a broad range of government-related affordable
rental housing activities for low- and moderate-income individuals,
including affordable housing plans, programs, initiatives, tax credits,
and subsidies pertaining to both multifamily and single-family
properties. This would cover government subsidy programs that provide
affordable rental housing for low- or moderate-income individuals, such
as Project-Based Section 8 Rental Assistance and the HOME Investment
Partnerships Program. The proposal also includes activities with rental
properties receiving LIHTCs. Although LIHTCs are sometimes described as
a ``program,'' the agencies propose including the term ``tax credits''
to provide clarity about the eligibility of tax credit programs focused
on affordable housing for low- or moderate-income individuals.
The proposed language encompasses affordable housing activities
tied to every level of government, not just Federal Government
programs. In addition to affordable housing programs at the Federal
level, the agencies also propose to include state and local affordable
housing plans, programs, initiatives, tax credits, or subsidies that
support affordable housing for low- or moderate-income individuals.
This would include affordable rental units for low- or moderate-income
individuals created as a result of local government inclusionary zoning
programs. Inclusionary zoning provisions in many local jurisdictions
provide requirements or incentives for developers to set aside a
portion of housing units within a property that meet an affordability
standard and are occupied by low- or moderate-income individuals. In
addition, affordable multifamily housing programs offered by state
housing finance agencies and affordable housing trust funds managed by
a local government to support the development of affordable housing for
low- or moderate-income individuals would be included in this
component. The proposal also specifies that affordable housing
activities related to tribal governments would be included under the
scope of the definition.
To qualify under the proposed definition, a government-related
affordable housing plan, program, initiative, tax credit, or subsidy
would need to have a stated purpose or bona fide intent of supporting
affordable rental housing for low- or moderate-income individuals. The
agencies propose this requirement to emphasize affordable housing
activities benefitting low- or moderate-income individuals. The
agencies are not proposing a separate affordability standard for this
prong of the definition and would rely upon the affordability standards
set in each respective government affordable housing plan, program,
initiative, tax credit, or subsidy, provided that the program has a
stated purpose or bona fide intent of providing rental housing that is
affordable to low- or moderate-income individuals.
The agencies seek feedback on whether additional requirements
should be included to ensure that activities qualifying under this
definition support housing that is both affordable to and occupied by
low- or moderate-income individuals. For example, the agencies are
considering whether to include a specific affordability standard of 30
percent of 80 percent of area median income for the cost of rents of
housing that receives consideration under this definition, or a
requirement that any programs verify that occupants of the affordable
units are low- or moderate-income individuals.
The agencies seek feedback on whether activities involving
government programs that have a stated purpose or bona fide intent to
provide affordable housing serving low-, moderate-, and middle-income
individuals should qualify under this definition in certain
circumstances. For example, the agencies seek feedback on this
alternative when the housing is located in a nonmetropolitan county, or
in High Opportunity Areas. The agencies recognize that nonmetropolitan
counties may have limited opportunities for affordable housing, and
that it may be appropriate to consider affordable housing activities in
these areas that include middle-income renters. Broadening this
category to include activities that support housing that is affordable
to middle-income individuals in nonmetropolitan counties could include
developing affordable housing in conjunction with programs such as the
U.S. Department of Agriculture Section 515 Rural Rental Housing or
Multifamily Guaranteed Rural Rental Housing programs.\67\
---------------------------------------------------------------------------

\67\ See Rural Rental Housing Loans (Section 515) (Sept. 2002),
<a href="https://www.hud.gov/sites/documents/19565_515_RURALRENTAL.pdf">https://www.hud.gov/sites/documents/19565_515_RURALRENTAL.pdf</a>, and
U.S. Department of Agriculture, Multifamily Guaranteed Rural Rental
Housing (Dec. 2021), <a href="https://www.rd.usda.gov/sites/default/files/fact-sheet/508_RD_FS_RHS_MFGuarantee.pdf">https://www.rd.usda.gov/sites/default/files/fact-sheet/508_RD_FS_RHS_MFGuarantee.pdf</a>.
---------------------------------------------------------------------------

Under a second alternative, the agencies would consider these
activities in high opportunity areas. One option would be to define
high opportunity areas to align with the definition of these areas by
the Federal Housing Finance Agency (FHFA), as discussed in Section
V.\68\ These areas include census tracts with high costs of development
and low poverty rates, and the agencies consider affordable housing
activities in these areas to be especially responsive. For example,
these activities may include financing for a multifamily rental housing
development that serves middle-income residents in a high opportunity
area that is supported by tax-exempt bonds that are issued by state or
local agencies to support affordable housing. Consideration of

[[Page 33895]]

activities supporting housing that is affordable to middle-income
families in these geographies would reflect the limited supply of
affordable housing in these markets and would provide additional
flexibility for banks to identify opportunities to address community
needs. However, the agencies have also considered that broadening the
definition could reduce the emphasis on activities that serve low-and
moderate-income individuals more directly and where the need is more
acute.
---------------------------------------------------------------------------

\68\ See, e.g., Federal Housing Financing Agency, ``Overview of
the 2020 High Opportunity Areas File'' (2020), <a href="https://www.fhfa.gov/DataTools/Downloads/Documents/Enterprise-PUDB/DTS_Residential-Economic-Diversity-Areas/DTS_High%20Opportunity_Areas_2020_README.pdf">https://www.fhfa.gov/DataTools/Downloads/Documents/Enterprise-PUDB/DTS_Residential-Economic-Diversity-Areas/DTS_High%20Opportunity_Areas_2020_README.pdf</a>, and HUD's Office of
Policy Development and Research (PD&R), Qualified Census Tracts and
Difficult Development Areas, <a href="https://www.huduser.gov/portal/datasets/qct.html">https://www.huduser.gov/portal/datasets/qct.html</a>.
---------------------------------------------------------------------------

3. Multifamily Rental Housing With Affordable Rents
For the second prong of the affordable housing definition in
proposed Sec. _.13(b), the agencies propose to provide clear and
consistent criteria in order to qualify affordable low- or moderate-
income multifamily rental housing that does not involve a government
program, initiative, tax credit, or subsidy, also referred to as
``naturally occurring affordable housing'' in this SUPPLEMENTARY
INFORMATION, for purposes of CRA affordable housing consideration.
The agencies recognize that naturally occurring affordable housing
is an important source of affordable housing for many low- and
moderate-income individuals. In addition, the agencies also recognize
that this category of housing poses unique challenges in terms of
ensuring that its benefits extend to low- or moderate-income
individuals, since there is often no consistent way to confirm renter
income for these properties, in contrast to properties receiving
government subsidies. The proposed definition seeks to address this by
clarifying that this category of affordable housing can receive CRA
credit if it meets a specified set of applicable standards.
First, in order to qualify under this prong of the proposed
definition, the agencies propose that the rent for the majority of the
units in a multifamily property could not exceed 30 percent of 60
percent of the area median income for the metropolitan area or
nonmetropolitan county. These rental amounts would need to reflect the
rents used by the bank to underwrite the property, including post-
construction or post-renovation monthly rents. Second, naturally
occurring affordable housing would also need to meet at least one of
the following criteria in order to increase the likelihood that units
benefit low- or moderate-income individuals: (i) The housing is located
in a low- or moderate-income census tract; (ii) the housing is
purchased, developed, financed, rehabilitated, improved, or preserved
by a non-profit organization with a stated mission of, or that
otherwise directly supports, providing affordable housing; (iii) there
is an explicit written pledge by the property owner to maintain rents
affordable to low- or moderate-income individuals for at least five
years or the length of the financing, whichever is shorter; or (iv) the
bank provides documentation that a majority of the residents of the
housing units are low- or moderate-income individuals or families, for
example documentation that a majority of residents have Housing Choice
Vouchers.
a. Affordability Standard for Naturally Occurring Affordable Housing
The proposed rental affordability standard for naturally occurring
affordable housing--30 percent of 60 percent of the area median
income--is intended to target the definition for units affordable to
low- or moderate-income households. This would establish a higher bar
than what is often used today to determine whether rents are affordable
for low- or moderate-income individuals, which is 30 percent of 80
percent of area median income. The agencies considered using the
standard of 30 percent of 80 percent of area median income but believe
it would be preferable to use a more targeted definition to ensure that
rents are affordable to low-income households and to increase the
likelihood that low- or moderate-income households will occupy the
units. For example, in 2019, approximately 46 percent of occupied
rental units with affordability levels between 61-80 percent of area
median income were occupied by middle- or upper-income households.\69\
This is compared to 24 percent of occupied rental units with
affordability levels under 60 percent of area median income being
occupied by middle- or upper-income households. Limiting eligibility to
those units with affordability levels under 60 percent of area median
income may therefore help to ensure that the households served by this
housing are in fact low- or moderate-income households.
---------------------------------------------------------------------------

\69\ Thyria Alvarez and Barry L. Steffen, HUD, Office of Policy
Development and Research, ``Worst Case Housing Needs 2021 Report to
Congress'' (July 2020) (agencies' calculations using Exhibit A-12 at
74), <a href="https://www.huduser.gov/portal/publications/Worst-Case-Housing-Needs-2021.html">https://www.huduser.gov/portal/publications/Worst-Case-Housing-Needs-2021.html</a>.
---------------------------------------------------------------------------

However, a potential drawback to using an affordability standard
anchored to 60 percent of area median income is that it could restrict
eligibility for properties with affordability levels at 80 percent of
area median income where many, but not all, of the units are occupied
by low- or moderate-income households. The agencies seek feedback on
the alternative approach of using 80 percent area median income as the
affordability standard under proposed Sec. _.13(b)(2).
In calculating whether rents meet the affordability standard, the
agencies propose using the monthly rental amounts as underwritten by
the bank. The definition further specifies that this rent would need to
reflect any post-construction or post-renovation rents considered as
part of the bank's financing. Consider, for example, a multifamily
property that meets the proposed affordability standard before bank
financing, but where the property owner plans to renovate the building
after receiving the loan and subsequently increases the rents above the
affordability standard. In this example, if the bank relied on the
post-renovation rents as part of its underwriting, then the loan would
not count for CRA purposes under the proposed affordable housing
definition. The agencies' objective in including this provision is to
target CRA credit to properties that are likely to remain affordable
and to avoid providing credit for activities that may result in
displacement of low- or moderate-income individuals.
The agencies seek feedback on whether there are alternative ways to
ensure that CRA credit for naturally occurring affordable housing is
targeted to properties where rents remain affordable for low- or
moderate-income individuals.
The proposed definition would require the majority of units in a
naturally occurring affordable housing property to meet the
affordability standard. Properties in which fewer than 50 percent of
units are affordable would not qualify under the proposed definition.
This requirement is intended to ensure that activities qualifying as
naturally occurring affordable housing support housing that remains
affordable to and occupied by low- or moderate-income individuals.
The agencies seek feedback on whether single-family rental housing
should also be considered under the naturally occurring affordable
housing category, provided it meets the same combination of criteria
proposed for multifamily rental housing. The agencies also seek
feedback on whether such an alternative should be limited to rural
areas. The agencies recognize that the composition of the housing stock
varies across geographies, and that some areas, such as rural
communities, may lack affordable multifamily rental housing that is
either in conjunction

[[Page 33896]]

with a government program or naturally occurring affordable housing. In
these communities, single-family rental housing may be an important
source of affordable housing for low- and moderate-income individuals.
In considering how and whether to incorporate affordable single-family
rental housing into the naturally occurring affordable housing
definition, the agencies are mindful of the fact that home mortgage
loans for single-family rental housing would count in the geographic
distribution metrics of the proposed Retail Lending Test.
b. Additional Eligibility Standards for Naturally Occurring Affordable
Housing
The agencies are proposing four additional criteria under proposed
Sec. _.13(b) for qualifying multifamily housing with affordable rents
as naturally occurring affordable housing. These criteria are intended
to focus the definition on housing that is more likely to benefit low-
or moderate-income individuals or increase the likelihood that rents
will remain affordable for low- or moderate-income individuals. In
addition to the underwriting requirement (rents not exceeding 30
percent of 60 percent of area median income), the proposal requires a
property to meet at least one of the following criteria: (i) The
location of the housing is in a low- or moderate-income census tract;
(ii) the housing is developed in association with a non-profit
organization with a mission of, or that otherwise directly supports,
affordable housing; (iii) the financing is provided in conjunction with
a written affordability pledge by the developer of at least 5 years, or
the length of the financing, whichever is shorter; or (iv) the bank
provides documentation that the majority of the housing units are
occupied by low- or moderate-income households.
Low- or Moderate-Income Census Tract. The first proposed criterion
is the location of eligible properties in a low- or moderate-income
census tract, because the majority low- or moderate-income status of a
census tract indicates that affordable rental housing in that census
tract is likely to benefit low- or moderate-income individuals. Using
geography as a proxy for tenant income is generally consistent with
current guidance.\70\ In addition, census tract income data is readily
available and verifiable information, in contrast to verifying tenant
income, which may prove infeasible for many property owners or
developers.
---------------------------------------------------------------------------

\70\ See Q&A Sec. _.12(g)(1)-1.
---------------------------------------------------------------------------

An additional approach that the agencies seek feedback on is
whether to expand this criterion to also encompass middle- and upper-
income census tracts in which at least 50 percent of renters are low-
or moderate-income. Following the same logic as the proposed low- and
moderate-income census tract criteria, the agencies have considered
that affordable rental housing in a neighborhood in which the majority
of renters are low- or moderate-income would also be likely to benefit
low- or moderate-income individuals. In addition, applying this
standard would qualify affordable housing in more middle-and upper-
income census tracts, thereby expanding this criterion beyond only low-
and moderate-income census tracts. While 33 percent of census tracts
are designated as low- or moderate-income, a total of 72 percent of
census tracts meet either the low- and moderate-income census tract
standard or the low- and moderate-income median renter census tract
standard.\71\ The agencies seek feedback on whether these additional
census tracts should be added to the proposed definition.
---------------------------------------------------------------------------

\71\ The sample used for this analysis includes all census
tracts for which there was non-missing renter median income data
(2019 5-year American Community Survey) plus census tracts that were
known to be low- or moderate-income but had missing data. The
agencies' analysis found that there are 69,161 census tracts with
non-missing renter median income data. Of those census tracts,
22,521 (33 percent) are designated low- or moderate-income; 27,070
(39 percent) are designated as renter low- or moderate-income; and
the remaining 19,570 (28 percent) are neither low- or moderate-
income nor renter low- or moderate-income. Seventy-three percent of
all census tracts could be a geography where affordable housing is
located under that alternative proposal.
---------------------------------------------------------------------------

Additionally, the agencies seek feedback on an alternative in which
no geographic criteria are included. Under this option, activities
qualifying as supporting naturally occurring affordable housing would
instead be required to meet one of the other criteria described below
(mission-driven non-profit organization, written affordability pledge,
or tenant income documentation), in addition to the standard of rents
not exceeding 30 percent of 60 percent of area median income. By
removing the geographic criteria, this alternative approach would be
intended to equally apply the other criteria across census tracts of
all income levels. However, the agencies are mindful that this
alternative would require banks to provide documentation required under
the other proposed criterion in order to receive consideration for
naturally occurring affordable housing.
Mission-Driven Non-Profit Organization. A second proposed criterion
for determining whether multifamily housing with affordable rents is
eligible is if the housing is purchased, developed, financed,
rehabilitated, improved, or preserved by any non-profit organization
with a stated mission of, or that otherwise directly supports,
providing affordable housing. The agencies intend this provision to
encompass organizations that target services to low- or moderate-income
individuals and communities, and may also have a mission to serve
individuals and communities that are especially vulnerable to housing
instability. In addition, affordable properties in any census tract,
including middle- and upper-income census tracts, could qualify under
this option. This criterion does not include government programs or
entities, as such activities would be considered under the affordable
housing category in proposed Sec. _.13(b)(1).
Written Affordability Pledge. A third proposed criterion for
determining if multifamily housing with affordable rents is eligible
under the definition is the presence of an explicit written pledge on
the part of the property owner to maintain rents that are affordable
for at least five years or for the length of the financing, whichever
is shorter.\72\ This prong would address concerns about the likelihood
of rents in an eligible property increasing in the future and
potentially displacing low- or moderate-income households. In addition,
affordable properties in any census tract, including middle- and upper-
income census tracts, could qualify under this option. Some
stakeholders have urged the requirement of a written pledge in order
for any naturally occurring affordable housing to qualify for CRA
purposes. However, the agencies are mindful that such a requirement
would necessitate additional documentation to receive consideration for
naturally occurring affordable housing. For this reason, the agencies
believe that it is preferable to include this criterion as one of
several options for meeting the eligibility standard.
---------------------------------------------------------------------------

\72\ The agencies expect that the length of financing would
often go beyond the five-year written affordability pledge. The
agencies would scrutinize short-term financing (less than five
years) to ensure such financing is not a way to avoid the
affordability commitment.
---------------------------------------------------------------------------

Tenant Income Documentation. A fourth proposed criterion for
determining if multifamily housing with affordable rents is eligible
under the definition is documentation provided by the bank
demonstrating that the majority of the housing units are occupied by
low- or moderate-income

[[Page 33897]]

individuals or households. Such documentation would be direct evidence
that the activity benefits low- or moderate-income individuals. In
addition, this criterion could apply to affordable properties in any
census tract, including middle- or upper-income census tracts. For
example, a multifamily rental property with a majority of rents set at
30 percent of 60 percent of area median income that is located in a
middle-income census tract, and where the bank can document that the
majority of occupants receive Housing Choice Vouchers,\73\ would
receive consideration under this criterion. The agencies recognize that
it may be challenging for banks to obtain this documentation.
Accordingly, the agencies are proposing to include this factor as one
of several options for meeting the eligibility standard.
---------------------------------------------------------------------------

\73\ The housing choice voucher program is the Federal
government's major program for assisting very low-income families,
the elderly, and the disabled to afford decent, safe, and sanitary
housing in the private market. See 24 CFR part 982 (program
requirements for the tenant-based housing assistance program under
Section 8 of the United States Housing Act of 1937 (42 U.S.C.
1437f); the tenant-based program is the housing choice voucher
program). See also ``U.S. Department of Housing and Urban
Development, Housing. Choice Vouchers Fact Sheet,'' <a href="https://www.hud.gov/topics/housing_choice_voucher_program_section_8">https://www.hud.gov/topics/housing_choice_voucher_program_section_8</a>.
---------------------------------------------------------------------------

4. Activities That Support Affordable Homeownership for Low- or
Moderate-Income Individuals
The agencies propose a third prong for the affordable housing
definition to include: (i) Activities that directly assist low- or
moderate-income individuals to obtain, maintain, rehabilitate, or
improve affordable owner-occupied housing; or (ii) activities that
support programs, projects, or initiatives that assist low- or
moderate-income individuals to obtain, maintain, rehabilitate, or
improve affordable owner-occupied housing. This category could include
owner-occupied housing in single-family or multifamily properties.
While these activities could be conducted in conjunction with a
variety of financing types, such as conventional mortgages, shared
equity models, or community land trusts, any reported mortgage loan
that is evaluated under the Retail Lending Test would not count under
this definition. Instead, this category would include activities such
as construction loan financing for a non-profit housing developer
building single-family owner-occupied homes affordable to low- or
moderate-income individuals; financing or a grant to a non-profit
community land trust focused on providing affordable housing to low- or
moderate-income individuals; a loan to a resident-owned manufactured
housing community with homes that are affordable to low- or moderate-
income individuals; a shared-equity program operated by a non-profit
organization to provide long-term affordable homeownership; and
financing or grants for organizations that provide down payment
assistance to low- or moderate-income homebuyers.
Activities eligible under this criterion may include activities
with a governmental or non-profit organization with a stated purpose
of, or that otherwise directly supports, providing affordable housing.
Additionally, this category may include activities conducted by the
bank itself, or with other for-profit partners, provided that the
activity supports affordable homeownership for low- or moderate-income
individuals. For example, a bank providing direct down payment
assistance or supporting free home repairs or maintenance for low- or
moderate-income homeowners could be considered under this prong of the
definition.
The agencies seek feedback on what conditions or terms, if any,
should be added to this criterion to ensure that activities that
support affordable low- and moderate-income homeownership are
sustainable and beneficial to low- or moderate-income individuals and
communities.
5. Mortgage-Backed Securities
The agencies propose to define standards for investments in
mortgage-backed securities related to affordable housing that qualify
for community development consideration. Consistent with current
practice, the agencies are proposing that mortgage-backed securities
would qualify as affordable housing when the security contains a
majority of either single-family home mortgage loans for low- and
moderate-income individuals or loans financing multifamily affordable
housing that otherwise qualifies under the proposed affordable housing
definition in proposed Sec. _.13(b).
This definition recognizes that purchases of qualifying mortgage-
backed securities that contain home mortgage loans to low- or moderate-
income borrowers or that contain qualifying affordable housing loans
are investments in affordable housing. The issuance and purchase of
these securities may improve liquidity for affordable housing
development and for lenders that make home mortgage loans to low- or
moderate-income borrowers, which in turn allows them to make more loans
to low- or moderate-income borrowers than would otherwise be possible.
However, some stakeholders have noted that qualifying purchases of
mortgage-backed securities are lower in impact and responsiveness to
community credit needs than other qualifying affordable housing
activities that more directly support housing for low- or moderate-
income individuals.
The agencies seek feedback on alternative approaches that would
create a more targeted definition of qualifying mortgage-backed
securities. One alternative the agencies are considering is to consider
mortgage-backed securities for only the portion of loans in the
security that are affordable. For example, if 60 percent of a
qualifying mortgage-backed security consists of single-family home
mortgage loans to low- or moderate-income borrowers, and 40 percent of
the security consists of loans to middle- or upper-income borrowers,
the mortgage-backed security would receive consideration only for the
dollar value of the loans to low- or moderate-income borrowers. This
treatment would reflect that a qualifying mortgage-backed security
represents a purchase of multiple home mortgage loans, some of which
may not meet the definition of affordable housing or have a primary
purpose of community development. However, the agencies are mindful of
the added complexity that this approach could create.
The agencies are also considering whether to limit consideration of
mortgage-backed securities to the initial purchase of a mortgage-backed
security from the issuer, and not considering subsequent purchases of
the security. This change would be intended to emphasize activities
that more directly serve low- or moderate-income individuals and
communities and to reduce the possibility of multiple banks receiving
CRA credit for purchasing the same security.
The agencies seek feedback on these alternatives and on other ways
of appropriately considering qualifying mortgage-backed security
investments so as to emphasize community development financing
activities that are most responsive to low- or moderate-income
community needs.
Request for Feedback
Question 3. Is the proposed standard of government programs having
a ``stated purpose or bona fide intent'' of providing affordable
housing for low- or moderate-income (or, under the alternative
discussed above, for low-, moderate- or middle-income) individuals
appropriate, or is a different standard more appropriate for
considering government programs that

[[Page 33898]]

provide affordable housing? Should these activities be required to meet
a specific affordability standard, such as rents not exceeding 30
percent of 80 percent of median income? Should these activities be
required to include verification that at least a majority of occupants
of affordable units are low- or moderate-income individuals?
Question 4. In qualifying affordable rental housing activities in
conjunction with a government program, should the agencies consider
activities that provide affordable housing to middle-income individuals
in high opportunity areas, in nonmetropolitan counties, or in other
geographies?
Question 5. Are there alternative ways to ensure that naturally
occurring affordable housing activities are targeted to properties
where rents remain affordable for low- and moderate-income individuals,
including properties where a renovation is occurring?
Question 6. What approach would appropriately consider activities
that support naturally occurring affordable housing that is most
beneficial for low- or moderate-income individuals and communities?
Should the proposed geographic criterion be expanded to include census
tracts in which the median renter is low- or moderate-income, or in
distressed and underserved census tracts, in order to encourage
affordable housing in a wider range of communities, or would this
expanded option risk crediting activities that do not benefit low- or
moderate-income renters?
Question 7. Should the proposed approach to considering naturally
occurring affordable housing be broadened to include single-family
rental housing that meets the eligibility criteria proposed for
multifamily rental housing? If so, should consideration of single-
family rental housing be limited to rural geographies, or eligible in
all geographies, provided the eligibility criteria to ensure
affordability are met?
Question 8. How should the agencies consider activities that
support affordable low- or moderate-income homeownership in order to
ensure that qualifying activities are affordable, sustainable, and
beneficial for low- or moderate-income individuals and communities?
Question 9. Should the proposed approach to considering mortgage-
backed securities that finance affordable housing be modified to ensure
that the activity is aligned with CRA's purpose of strengthening credit
access for low- or moderate-income individuals? For example, should the
agencies consider only the value of affordable loans in a qualifying
mortgage-backed security, rather than the full value of the security?
Should only the initial purchase of a mortgage-backed security be
considered for affordable housing?
Question 10. What changes, if any, should the agencies consider to
ensure that the proposed affordable housing definition is clearly and
appropriately inclusive of activities that support affordable housing
for low- or moderate-income individuals, including activities that
involve complex or novel solutions such as community land trusts,
shared equity models, and manufactured housing?

C. Economic Development

The agencies propose several revisions to what constitutes economic
development activities that are intended to encourage activities
supportive of small businesses and small farms. The proposal in Sec.
_.13(c) is also intended to improve the overall transparency of the
definition by including certain activities that are currently addressed
in guidance. In addition, the agencies seek to simplify the way that
small business and small farm lending is considered under CRA
evaluations.
A significant change compared to the current CRA regulations'
criteria for economic development is that all reported lending to small
businesses and small farms would be considered under the proposed
Retail Lending Test, described in Section IX, and not under the
proposed economic development definition. This change is related to the
agencies' proposal to leverage the CFPB's proposed small business
standard under section 1071 to define ``small business'' and ``small
farm'' as those with $5 million in gross annual revenues and below, as
discussed above.
In some ways, the proposed Retail Lending Test approach would
afford broader consideration of loans to small businesses and small
farms than the current CRA approach taken as a whole across the status
quo lending and community development tests. There are also some
differences that would narrow consideration of some loans that
currently are considered under the economic development criteria.
1. Background
a. Current Approach to Economic Development
Under the current regulation, community development is defined to
include ``activities that promote economic development by financing
businesses or farms that meet the size eligibility standards of the
SBA's Development Company (SBDC) or Small Business Investment Company
(SBIC) programs (13 CFR 121.301) or have gross annual revenues of $1
million or less'' \74\ (the ``current economic development
definition''). Under current guidance, activities qualify as economic
development if they meet both a ``size test'' and a ``purpose test.''
\75\ An institution's loan, investment, or service meets the size test
if it finances, either directly, or through an intermediary, businesses
or farms that either meet the size eligibility standards of the SBDC or
SBIC programs, or have gross annual revenues of $1 million or less. For
consideration under the size test, the term ``financing'' is considered
broadly and includes technical assistance that readies a business that
meets the size eligibility standards to obtain financing. To meet the
purpose test, current guidance states that a bank's loan, investment,
or service must promote economic development by creating, retaining,
and/or improving jobs for low- or moderate-income persons, low- or
moderate-income geographies, areas targeted for redevelopment, or by
financing certain intermediaries. Activities that support job training
or workforce development are also considered to meet the purpose
test.\76\
---------------------------------------------------------------------------

\74\ 12 CFR _.12(g)(3).
\75\ See Q&A Sec. _.12(g)(3)-1.
\76\ Id.
---------------------------------------------------------------------------

b. Stakeholder Feedback on Economic Development
Stakeholders note various challenges with the current economic
development definition. Some observe that while guidance includes a
variety of economic development activities, the smallest businesses and
farms may still face specific unmet financing needs. Industry
stakeholders indicate that it can be difficult to demonstrate that an
activity meets both the size test and purpose test. Specifically, these
stakeholders point to difficulty in demonstrating that the primary
purpose of a loan or investment with a small business or small farm was
to create, retain, and/or improve low- or moderate-income employment
and note that this requirement eliminates consideration of some other
loans to small businesses that are also high impact, such as loans that
help small businesses purchase new equipment in order to improve
efficiency of operations.
Stakeholders generally indicate that more clarity is needed in the
types of activities that will be considered to strengthen small
business and small farms, though some stakeholders note

[[Page 33899]]

that the agencies should take a more flexible approach to defining the
types of activities that qualify. Stakeholders also support qualifying
workforce development for low- or moderate-income individuals
regardless of the size of the business, as larger industries are a
source of jobs for low- or moderate-income individuals.
2. Covering Small Business and Small Farm Loans Under the Evaluation of
a Bank's Retail Lending Performance
Under the proposal, a bank's loans to small businesses and small
farms would be evaluated in the Retail Lending Test portion of the CRA
examination. As discussed further in Section VIII regarding proposed
Sec. _.22 for the Retail Lending Test, the agencies are considering
alternative size standards for defining small businesses and small
farms that would differ from the SBA's size standards.\77\
Specifically, once CFPB section 1071 data is available, the agencies
would transition from the current CRA definitions of small business and
small farm loans to loans to small businesses and small farms with
gross annual revenues of $5 million or less.\78\ In the interim, for
purposes of evaluation under the Retail Lending Test, the agencies
propose to use the current approach that evaluates small business and
small farm loans using the Reports of Condition and Income (Call
Report) definitions. This current approach captures loans of $1 million
or less to businesses, and loans of $500,000 or less to farms, as
reported in the Call Report.\79\
---------------------------------------------------------------------------

\77\ SBA regulations define ``small entities'' for banking
purposes as entities with total assets of $600 million or less. See
13 CFR 121.201 (Sector 52, Subsector 522). The agencies have
requested permission from the SBA to use size standards for defining
small businesses and small farms that differ from the SBA's size
standards, as provided in 15 U.S.C. 632(a)(2)(C).
\78\ This assumes the CFPB's section 1071 rulemaking is
finalized as proposed with a ``small business'' defined as having
gross annual revenues of $5 million or less.
\79\ See 12 CFR _.12(v) (defining a small business loan as a
loan included in ``loans to small businesses'' as defined in the
instructions for preparation of the Call Report). See also 12 CFR
_.12(w) (defining a small farm loan as a loan included in ``loans to
small farms'' as defined in the instructions for preparation of the
Call Report).
---------------------------------------------------------------------------

Accordingly, the proposed economic development definition would not
include a component to qualify a bank's loans to small businesses or
small farms--apart from activities undertaken consistent with Federal,
state, local, or tribal government plans, programs, or initiatives that
support small businesses or small farms as those entities are defined
in the plans, programs, or initiatives. With regard to economic
development, the agencies currently evaluate businesses or farms that
meet the size eligibility standards of the SBDC or SBIC programs (13
CFR 121.301) or have gross annual revenues of $1 million or less, only
if not reported as a small business loan or a small farm loan under the
CRA.\80\ This would no longer be the case under the agencies' proposed
economic development definition, since all reported lending for small
businesses and small farms would be considered under the proposed
Retail Lending Test.
---------------------------------------------------------------------------

\80\ 12 CFR _.12(g)(3). Activities that promote economic
development finance businesses and farms that meet the size
eligibility standards of the SBDC or SBIC programs (13 CFR 121.301)
or have gross annual revenues of $1 million or less.
---------------------------------------------------------------------------

The proposal to include small business loans and small farm loans
in the Retail Lending Test, instead of under the economic development
definition, is intended to recognize that loans to small businesses and
small farms are primarily retail loan products, and more appropriately
considered under the Retail Lending Test, while emphasizing other
activities to promote access to financing for small businesses and
small farms under the economic development definition. As discussed in
Section XVII, the agencies are proposing that intermediate banks retain
flexibility to have certain retail loans--small business, small farm,
and home mortgage loans--be considered as community development loans.
This option would be available to an intermediate bank if those loans
have a primary purpose of community development and are not required to
be reported by the bank.
Small business and small farm lending evaluated under the proposed
Retail Lending Test would not have the accompanying requirement that
these loans demonstrate job creation, retention, or improvement for
low- or moderate-income areas or individuals, as is currently required
for loans considered under the current criterion for economic
development. As noted above, some stakeholders have reported having
challenges demonstrating that activities satisfied this criterion,
including demonstrating that jobs created or retained meaningfully
benefit low- or moderate-income individuals and families. The agencies
believe that this would appropriately broaden consideration of small
business and small farm lending relative to the status quo, although it
would involve a change of the test under which these loans would be
considered.
The agencies recognize that these changes would have a number of
intersecting impacts on the activities considered under the economic
development definition and evaluated in the Retail Lending Test. For
example, loans to certain businesses that meet SBIC and SBDC size
standards and are now covered community development loans might not
qualify for CRA consideration under the proposal. For some types of
businesses, the SBIC and SBDC size standards exceed gross annual
revenues of $5 million; accordingly, loans to businesses that meet SBIC
and SBDC size standards and have gross annual revenues exceeding $5
million would no longer be covered community development loans. Under
this scenario, these loans would also not be considered under the
proposed Retail Lending Test.
Another example of the impact from this change involves the
existing job creation, retention, or improvement for low- or moderate-
income individuals standard. Compared to the volume of loans considered
under the current economic development criteria, a greater volume of
loans may be considered under the proposed Retail Lending Test as there
would no longer be a requirement that loans to small businesses and
small farms demonstrate job creation, retention, or improvement for
low- or moderate-income individuals. The agencies recognize the
critical importance of job creation as part of supporting local
economies, and therefore seek feedback on the related proposals in both
the Retail Lending Test and economic development definition sections.
The agencies also seek feedback on whether to continue considering
bank loans to small businesses and small farms that currently qualify
under the economic development criteria as community development
activities during the transition period before solely considering these
loans under the Retail Lending Test.
3. Activities Aligned With Federal, State, Local, or Tribal Efforts
The first prong of the proposed economic development definition
includes activities undertaken consistent with Federal, state, local,
or tribal government plans, programs, or initiatives that support small
businesses or small farms as defined by these plans, programs, or
initiatives. The current community development definitions do not
include stand-alone criteria for economic development activities
aligned with Federal, state, local, or tribal efforts. These activities
are, however, referenced in the Interagency

[[Page 33900]]

Questions and Answers.\81\ Aligning economic development activities
with government programs that address identified needs for small
businesses and small farms can encourage coordination between banks,
government agencies, and other program participants for activities that
can be highly responsive to the unmet needs of communities.
---------------------------------------------------------------------------

\81\ See, e.g., Q&A Sec. _.12(g)(4)(i)-1 and Q&A Sec.
_.12(g)(3)-1.
---------------------------------------------------------------------------

In addition, this prong of the proposed definition specifies that
lending to, investing in, or providing services to SBDCs, SBICs, New
Markets Venture Capital Companies, qualified Community Development
Entities, or U.S. Department of Agriculture Rural Business Investment
Companies would qualify as economic development. The current regulation
does not specifically address activities with these entities, but the
Interagency Questions and Answers state that the agencies will presume
that activities with these entities promote economic development.\82\
As a result, the proposal is intended to provide greater clarity and
encourage the continued participation in, and support of, programs
offered through these providers of small business and small farm
financing.
---------------------------------------------------------------------------

\82\ See Q&A Sec. _.12(g)(3)-1.
---------------------------------------------------------------------------

This prong of the proposed definition would not specify a gross
annual revenue threshold of $5 million or under for the businesses or
farms supported through these government plans, programs, or
initiatives, or through the specified entities. Instead, this prong of
the definition would leverage the size standards used by the respective
government plans, programs, or initiatives. This would include using
the standards established by SBDCs and SBICs for loans, investments, or
services to these entities.
4. Support for Financing Intermediaries
The second prong of the proposed economic development definition
includes activities with financial intermediaries that increase access
to capital for businesses or farms with gross annual revenues of $5
million or less. The agencies propose using this same gross annual
revenue standard to simplify the approach and to be consistent
throughout the definition. The current regulation does not specifically
address financing intermediaries that increase access to capital for
small businesses and small farms, although both industry and community
group stakeholders have stressed the importance of financial
intermediaries, such as non-profit revolving loans funds, in providing
access to financing for small businesses and small farms that are not
ready for traditional bank financing. Examples of financial
intermediaries include a Community Development Corporation that
provides technical assistance to recently formed small businesses, or a
CDFI that provides lending to support sustainability of small farms.
The agencies propose to recognize the role of these financial
intermediaries--which could include organizations, programs, and
services--by including in the definition of economic development a
component for activities that support financial intermediaries that
lend to, invest in, or provide technical assistance to businesses or
farms with gross annual revenues of $5 million or less.
5. Technical Assistance and Support Services for Small Businesses
The third prong of the proposed economic development definition
includes technical assistance activities to support businesses or farms
with gross annual revenues of $5 million or less. This prong would also
include providing services such as shared space, technology, or
administrative assistance to businesses or farms with gross annual
revenues of $5 million or less, or to organizations that have a primary
purpose of supporting such businesses or farms. While these activities
are not included in the current regulation, they are addressed in the
Interagency Questions and Answers.\83\ In addition to reflecting
current guidance, the agencies recognize that some small businesses and
small farms may not be prepared to obtain traditional bank financing
and may need technical assistance and other services in order to obtain
credit in the future. Supporting these activities fills a gap in needed
services for small businesses and small farms and plays a critical role
in helping a small business and small farms grow and thrive.
---------------------------------------------------------------------------

\83\ See Q&A Sec. _.12(g)(3)-1.
---------------------------------------------------------------------------

6. Considering Workforce Development and Job Training Under Community
Supportive Services
The agencies are proposing that workforce development and job
training programs, which are currently qualified as a component of
economic development, would instead be considered under the proposed
definition of community supportive services. The current regulations do
not address workforce development and training programs, but the
Interagency Questions and Answers provide that these activities should
be considered under the economic development definition. Stakeholders
have affirmed the critical importance of workforce development and job
training programs for low- and moderate-income individuals or
unemployed persons. However, stakeholders have also noted the
limitations of current guidance, which requires economic development
activities to be tied to a financing activity for a small business. To
address this concern, the agencies propose to recognize workforce
development activities under the new community supportive services
definition. The agencies believe that while the economic development
definition could include workforce development and job training
activities, such activities are better aligned with the focus of the
proposed community supportive services definition, which does not
restrict the size of the business involved. The proposal for community
supportive services is discussed in greater detail in Section III.D.
Request for Feedback
Question 11. Would lending to small businesses and small farms that
may also support job creation, retention, and improvement for low- or
moderate-income individuals and communities be sufficiently recognized
through the analysis of small business and small farm loans and the
qualitative review in the Retail Lending Test?
Question 12. During a transition period, should the agencies
continue to evaluate bank loans to small businesses and small farms as
community development activities until these loans are assessed as
reported loans under the proposed Retail Lending Test?
Question 13. Should the agencies retain a separate component for
job creation, retention, and improvement for low- and moderate-income
individuals under the economic development definition? If so, should
activities conducted with businesses or farms of any size and that
create or retain jobs for low- or moderate-income individuals be
considered? Are there criteria that can be included to demonstrate that
the primary purpose of an activity is job creation, retention, or
improvement for low- or moderate-income individuals and that ensure
activities are not qualified simply because they offer low wage jobs?

D. Community Supportive Services

The agencies propose to replace ``community services,'' which is a
type of activity that has a community development purpose under the
current regulation, with a new definition of

[[Page 33901]]

``community supportive services.'' Proposed Sec. __.13(d) defines
community supportive services as general welfare activities that serve
or assist low- or moderate-income individuals, such as childcare,
education, workforce development and job training programs, health
services, and housing services programs. In specifying these
categories, the agencies' goal is to provide clearer standards in the
regulation for identifying the kind of activities that qualify under
the definition. The change in terminology from ``community services''
to ``community supportive services'' is intended to more clearly
distinguish these activities from ``community development services,''
which the proposal generally defines in Sec. __.25(d) as volunteer
service hours that meet any one of the community development purposes.
1. Background
a. Current Approach to Community Services
The CRA regulations currently define community development to
include ``community services targeted to low- or moderate-income
individuals,'' but the regulations do not further define community
services.\84\ The Interagency Questions and Answers include examples of
activities that qualify for consideration as community services, such
as programs for low- or moderate-income youth, homeless centers, soup
kitchens, healthcare facilities, domestic violence shelters, and
alcohol and drug recovery programs serving low- or moderate-income
individuals.\85\
---------------------------------------------------------------------------

\84\ See 12 CFR _.12(g)(2).
\85\ See Q&A Sec. _&.12(t)-4; and Q&A Sec. _.12(g)(2)-1.
---------------------------------------------------------------------------

b. Stakeholder Feedback on Community Services
Stakeholders generally support continuing to target services to
low- or moderate-income individuals, and various stakeholders have
expressed support for including clear criteria in the regulation for
determining whether a community service is targeted to low- or
moderate-income individuals. In addition, some stakeholders have
indicated that using a geographic proxy, such as an activity taking
place in a low- or moderate-income census tract, should be sufficient
to determine whether an activity is qualifying.
2. Defining Community Supportive Services
As discussed above, and in order to increase clarity and
consistency, the agencies propose to define community supportive
services as general welfare activities that serve or assist low- or
moderate-income individuals such as, but not limited to, childcare,
education, workforce development and job training programs, health
services and housing services programs. The agencies also propose to
incorporate standards in the regulation to demonstrate that a community
supportive services activity has a primary purpose of serving low- or
moderate-income individuals.
Specifically, the agencies propose building on current guidance by
both clarifying and expanding upon a non-exclusive list of standards
that banks can use to demonstrate that a program or organization
primarily serves low- or moderate-income individuals. Examples in the
proposal include services provided to students or their families at a
school where the majority of students qualify for free or reduced-price
meals under the U.S. Department of Agriculture's National School Lunch
Program,\86\ and services that are targeted to individuals who receive
or are eligible to receive Medicaid.\87\
---------------------------------------------------------------------------

\86\ See USDA Food and Nutrition Service, National School Lunch
Program, <a href="https://www.fns.usda.gov/nslp">https://www.fns.usda.gov/nslp</a>.
\87\ See <a href="http://Medicaid.gov">Medicaid.gov</a>, Medicaid program, <a href="https://www.medicaid.gov/medicaid/index.html">https://www.medicaid.gov/medicaid/index.html</a>.
---------------------------------------------------------------------------

Additionally, the agencies propose that an activity performed in
conjunction with a qualified community development organization located
in a low- or moderate-income census tract is a community supportive
service given that these community-based organizations often serve the
community where they are located. This change builds on an example
currently included in the Interagency Questions and Answers to clarify
within the definition the use of a geographic proxy to determine
eligibility for activities.\88\
---------------------------------------------------------------------------

\88\ See Q&A Sec. _.12(g)(2)-1.
---------------------------------------------------------------------------

In addition, as noted previously, the agencies propose to consider
workforce development and job training program activities under the
definition of community supportive services and not as a component of
economic development. The inclusion of workforce development activities
within the community supportive services definition helps clarify that
activities that support workforce development programs would receive
consideration if the program's participants are low- or moderate-income
individuals, and would not consider the size of the business.

E. Redefining Revitalization and Stabilization Activities

The agencies propose to replace the current revitalization and
stabilization activities component of the community development
definitions with six new categories of activities. The agencies intend
for this new category of definitions to provide more clarity on the
types of activities that qualify, and to better tailor the types of
activities that qualify in different targeted geographies. Each of the
categories focuses on place-based activities that benefit residents of
targeted geographic areas: (i) Revitalization; (ii) essential community
facilities; (iii) essential community infrastructure; (iv) recovery
activities in designated disaster areas; (v) disaster preparedness and
climate resiliency activities; and (vi) qualifying activities in Native
Land Areas. These definitions are referred to collectively in this
SUPPLEMENTARY INFORMATION as the place-based definitions.
The proposed definitions for the first four of these categories--
revitalization activities undertaken with government plans, programs or
initiatives; essential community facilities; essential community
infrastructure; and recovery activities in designated disaster areas--
build upon the current regulation's revitalization and stabilization
component of the community development definitions and related
guidance. Each of the new categories would provide additional clarity
by capturing a specific set of activities, rather than falling under
one broad category, as is currently the case under the current
regulation. In addition, the agencies propose adding two new categories
to the place-based definitions that may qualify for CRA consideration:
(i) Disaster preparedness and climate resiliency activities and (ii)
activities in Native Land Areas. While disaster preparedness and
climate resiliency activities, and activities in Native Land Areas are
not specified under the current approach, some activities that would
qualify under these new categories would also qualify under the current
approach, either as revitalization and stabilization, or under other
prongs.
The six proposed place-based definitions share four common
elements. First, each definition has a geographic focus (e.g., low- or
moderate-income census tracts) where the activities must occur. Second,
each definition has standardized eligibility criteria that require the
activity to benefit local residents, including low- or moderate-income
residents, of the targeted geographies. Third, each definition has the
eligibility requirement that the activity must not displace or exclude
low- or moderate-income residents in the targeted geography. Finally,
each definition provides that the activity must be

[[Page 33902]]

conducted in conjunction with a government plan, program, or initiative
that includes an explicit focus on benefitting the targeted geography.
Together, these four common elements are intended to provide necessary
clarity regarding the activities that may qualify for CRA credit, while
maintaining sufficient flexibility. In addition, these four common
elements are intended to ensure a strong connection between the
activities and community needs.
1. Background
a. Current Approach to Revitalization and Stabilization
Under the current regulation, the revitalization and stabilization
activities component of the community development definitions is
intended to encourage banks to direct additional resources toward
comprehensive efforts to rebuild entire communities, rather than solely
focusing on the needs of low- and moderate-income individuals in these
communities. The current regulations define four types of eligible
geographies where activities that revitalize or stabilize qualify: Low-
or moderate-income geographies; distressed nonmetropolitan middle-
income geographies; underserved nonmetropolitan middle-income
geographies; and designated disaster areas.\89\
---------------------------------------------------------------------------

\89\ See 12 CFR __.12(g)(4).
---------------------------------------------------------------------------

Current guidance states that revitalization and stabilization
activities are those that help to ``attract new, or retain existing,
businesses or residents'' in an eligible geography and qualifying
activities are generally similar in eligible low- and moderate-income
geographies, distressed nonmetropolitan middle-income geographies and
designated disaster areas.\90\ In all targeted geographies, community
facilities and infrastructure can be considered to the extent that
these activities help to attract or retain residents or businesses.
However, these activities are only explicitly noted in the guidance for
underserved nonmetropolitan middle-income areas.\91\
---------------------------------------------------------------------------

\90\ See Q&A Sec. __.12(g)(4)(i)-1; Q&A Sec. __.12(g)(4)(ii)-
2; and Q&A Sec. __.12(g)(4)(iii) -3.
\91\ See Q&A Sec. __.12(g)(4)(iii)-4.
---------------------------------------------------------------------------

Current guidance also states that an activity will be presumed to
revitalize or stabilize a geography if the activity is consistent with
a government plan for the revitalization or stabilization of the
area.\92\ However, the standards in the guidance for the types of plans
that can be used to determine eligibility are inconsistent.
---------------------------------------------------------------------------

\92\ See Q&A Sec. __.12(g)(4)(i)-1; Q&A Sec. __.12(g)(4)(ii)-
2; and Q&A Sec. __.12(g)(4)(iii)-3.
---------------------------------------------------------------------------

The current guidance also varies for the different targeted
geographies. For instance, in both distressed and undeserved
nonmetropolitan middle-income geographies and designated disaster
areas, the guidance specifies that examiners will consider all
activities that revitalize or stabilize a geography but give greater
weight to those activities that are most responsive to community needs,
including needs of low- or moderate-income individuals or
neighborhoods.\93\ However, in determining whether an activity
revitalizes or stabilizes a low- or moderate-income geography, in
absence of a Federal, state, local, or tribal government plan, guidance
instructs examiners to evaluate activities based on the actual impact
on the geography, if that information is available.\94\ The Interagency
Questions and Answers do not further specify how to measure an
activity's actual impact for a targeted geography, which may create
varying interpretations. As a result, considering activities under the
existing revitalization and stabilization definition can prove
challenging to banks, community groups, and examiners alike due to
these inconsistent criteria.
---------------------------------------------------------------------------

\93\ See Q&A Sec. __.12(g)(4)(ii)-2 and Q&A Sec.
__.12(g)(4)(iii)-3.
\94\ See Q&A Sec. __.12(g)(4)(i)-1.
---------------------------------------------------------------------------

b. Stakeholder Feedback on Revitalization and Stabilization
Stakeholders have provided feedback on a number of issues related
to the current revitalization and stabilization component of the
community development definition. First, stakeholders have noted that
current guidance does not provide sufficient upfront clarity about the
range of activities that will be eligible for consideration or where
the activities must occur to be considered. Various stakeholders also
note the need for additional clarity in defining eligible
revitalization and stabilization activities, while also maintaining
flexibility to meet local needs and/or changing circumstances. Some
stakeholders have also indicated that an illustrative list of
qualifying revitalization and stabilization activity examples could
help provide needed clarity.
Second, some community group stakeholders have noted that not all
qualifying activities with a revitalization and stabilization purpose
benefit low- or moderate-income individuals or underserved communities.
Various community stakeholders indicate that the agencies should update
the revitalization and stabilization activities component so that
qualifying activities primarily benefit low- or moderate-income
residents of targeted, underserved geographies, noting that activities
currently considered under revitalization and stabilization do not
always provide direct benefit for low- or moderate-income individuals.
Third, stakeholders have indicated varying levels of support for
greater consistency regarding government plans to revitalize or
stabilize a geography. Some stakeholders have stated that activities
should not be required to align with a government plan, but that
activities that do align with a government plan should receive
automatic CRA consideration. Other stakeholders have stated opposition
to placing great emphasis on a government plan as leading to more-or-
less automatic qualification of an activity, noting government plans
vary widely, including in scope, purpose, level of community
engagement, and the rigor of included criteria.
Lastly, many stakeholders have supported providing consideration
for activities related to disaster preparedness and climate resiliency.
Some stakeholders supported evaluating these activities as essential
infrastructure or within the broader category of revitalization
activities. Community group stakeholders noted that low- and moderate-
income communities are particularly vulnerable to weather-related
disasters and expressed that consideration for disaster preparedness
and climate resiliency activities should be limited to activities that
benefit low- or moderate-income individuals or census tracts. Other
stakeholders expressed concerns that the qualifying definitions should
not be broadened to include activities whose purpose is to mitigate
climate change, such as carbon capture facilities.
2. Common Elements for Proposed Place-Based Definitions
The agencies propose four common elements which would be required
eligibility standards for each of the six place-based definitions.
First, across all place-based definitions, the agencies propose
targeted census tracts where activities would be eligible for
consideration. Under this proposal, revitalization activities,
essential infrastructure activities, essential community facilities
activities, and disaster preparedness and climate resiliency activities
would be eligible if they benefit residents of targeted census tracts.
As set forth in proposed Sec. __.12,

[[Page 33903]]

targeted census tracts include low- and moderate-income census tracts,
as well as distressed or underserved nonmetropolitan middle-income
census tracts. The proposed approach in Sec. __.13 provides
consistency on activities eligible across these targeted census tracts.
Consistent with current guidance, the agencies are also proposing
that recovery activities in designated disaster areas qualify in census
tracts of all income levels, provided that the activities benefit
residents in an area subject to a Federal Major Disaster Declaration,
excluding Major Disaster Categories A and B. Qualified activities in
Native Land Areas would be eligible in those geographies, as separately
defined in proposed Sec. __.12. The agencies' approach of defining
geographic eligibility under this framework is intended to tailor the
requirements for each definition, while maintaining the flexibility
needed for diverse, local redevelopment needs.
Second, the agencies propose that all place-based activities
benefit or serve residents of the targeted census tract(s), including
low- and moderate-income residents. Adding this specific eligibility
requirement establishes the expectation that residents in targeted
census tracts must benefit from the activity and is intended to provide
greater certainty that an activity is responsive to community needs
compared to the current approach that relies upon examiner judgment
``to give greater weight to those activities that are most responsive
to community needs'' in targeted geographies.\95\ For example,
financing to support development of a new industrial park in
conjunction with a city-sponsored revitalization plan would be eligible
for CRA credit if it benefitted residents of the targeted census tracts
by providing new employment opportunities, including for low- and
moderate-income residents.
---------------------------------------------------------------------------

\95\ See Q&A Sec. __.12(g)(4)(i)-1; Q&A Sec. __.12(g)(4)(ii)-
2; and Q&A Sec. __.12(g)(4)(iii)-3.
---------------------------------------------------------------------------

The agencies are not proposing that all place-based activities
solely benefit or serve low- or moderate-income residents. Rather, the
proposal seeks to maintain flexibility for activities to meet a range
of community needs while also requiring the inclusion of low- or
moderate-income residents as beneficiaries of an activity. Such
flexibility is particularly important in distressed and underserved
nonmetropolitan middle-income census tracts, which can have fewer low-
or moderate-income residents.
Third, the agencies propose that eligible place-based activities
cannot lead to the displacement or exclusion of low- or moderate-income
residents in targeted geographies. For example, if low- or moderate-
income individuals were not able to have access to or benefit from an
activity, then the activity would not meet this part of the definition
and would be ineligible for CRA credit. Likewise, as another example,
if a project to build commercial development to revitalize an area
involved demolishing housing occupied by low- or moderate-income
individuals, then the activity would not meet this part of the
definition and would be ineligible for CRA credit. In proposing these
requirements, the agencies seek to ensure that qualifying activities do
not have a detrimental effect on low- or moderate-income individuals or
communities or on other underserved communities.
Lastly, under the proposal, activities eligible under the place-
based community development definitions would need to be in conjunction
with a government plan, program, or initiative that includes an
explicit focus on benefitting the targeted census tracts. The current
standard in Interagency Questions and Answers states that activities
may qualify if consistent with the community's formal or informal plans
for the revitalization and stabilization of a low- or moderate-income
geography.\96\ In addition, under current guidance, activities are
presumed to revitalize or stabilize a distressed nonmetropolitan
middle-income area if the activity is consistent with a ``bona fide''
government revitalization or stabilization plan.\97\
---------------------------------------------------------------------------

\96\ See Q&A Sec. __.12(g)(4)(i)-1.
\97\ See Q&A Sec. __.12(g)(4)(iii)-3.
---------------------------------------------------------------------------

The agencies' proposal to require activities eligible under the
place-based community development definitions to be in conjunction with
a government plan, program, or initiative is intended to achieve
several objectives. First, this standard helps to ensure that the
activity is responsive to identified community needs. Second, the
proposed standard is intended to increase clarity, because all
activities eligible under the place-based community development
definitions would need to meet this criterion. Currently, standards
vary across the targeted geographies and the reliance on a plan to
demonstrate that an activity helps to attract or retain residents is
used inconsistently.
Third, the agencies' proposal is intended to provide flexibility,
because it would allow consideration of an activity to be in
conjunction with a government plan, program, or initiative. By
including consideration for activities in conjunction with a program or
initiative, in addition to a government plan, banks would have the
flexibility to pursue responsive place-based activities that are in
conjunction with a program or initiative even if not part of a plan.
For example, a grant to support a park in a low-income census tract
could qualify if it was in conjunction with a citywide initiative, or
program, to expand greenspace in low- or moderate-income areas.
Additionally, the standard of ``in conjunction with'' would provide
greater clarity than provided under current guidance by expressly
stating that an eligible activity must be included as part of a
government plan, program, or initiative.
3. Revitalization Activities Undertaken With a Government Plan,
Program, or Initiative
The agencies are proposing a new place-based definition for
activities undertaken in conjunction with a Federal, state, local, or
tribal government plan, program, or initiative that includes an
explicit focus on revitalizing or stabilizing targeted census tracts.
While the goals of a plan, program or initiative could include
stabilization or revitalization of other geographies, the plan,
program, or initiative would also need to specifically include the
targeted census tracts. Activities meeting this definition would need
to meet the four common elements for place-based criteria described
above. This definition incorporates some aspects of existing guidance
for revitalization and stabilization but would no longer focus
eligibility of activities on the extent that an activity helps to
attract or retain residents or businesses in targeted geographies.
Instead, activities would be eligible for consideration under this
proposal if they are in conjunction with a plan, program, or initiative
for the targeted geography, allowing for more comprehensive
redevelopment goals. Additionally, conducting activities in conjunction
with a government plan, program, or initiative provides a mechanism to
ensure that activities are intentional and support articulated
community revitalization goals.
The agencies provide several examples in the proposed regulation
that are drawn from current guidance to provide some clarity on the
type of activities that could be considered under this definition.
These examples include adaptive reuse of vacant or blighted buildings,
brownfield redevelopment, or activities consistent with a plan for a
business improvement district or main street program.

[[Page 33904]]

However, this list is not exhaustive, and the agencies' intent is to
allow flexibility for qualifying activities to help meet a range of
identified community needs.
The agencies propose that housing-related activities would not be
covered by the definition of revitalization activities. Under current
guidance, activities that provide housing for middle-income and upper-
income individuals can qualify if the activities meet certain criteria
and help to revitalize or stabilize a distressed or underserved
nonmetropolitan middle-income geography or designated disaster
area.\98\ However, some stakeholders have noted concerns that housing
that benefits middle- or upper-income individuals, particularly in a
low- or moderate-income census tract, can lead to displacement of
existing residents. In addition, the agencies note that additional
clarity would come from qualifying most housing-related community
development activities in the affordable housing definition. The
agencies recognize that housing activities are often components of
government plans, programs, and initiatives to revitalize communities,
and therefore seek feedback on whether housing-related revitalization
activities should be considered under either the affordable housing
definition or the revitalization activities definition and under what
circumstances.
---------------------------------------------------------------------------

\98\ See Q&A Sec. __.12(g)(4)-2.
---------------------------------------------------------------------------

4. Essential Community Infrastructure and Essential Community
Facilities
The agencies propose creating separate definitions for essential
community infrastructure and for essential community facilities that
benefit or serve residents in one or more of the eligible targeted
census tracts. Under proposed Sec. __.13(f), activities that qualify
as essential community infrastructure are those that provide financing
or other support for such items as broadband, telecommunications, mass
transit, water supply and distribution, and sewage treatment and
collection systems. Activities that qualify as essential community
facilities include those that finance or provide other support for
public amenities in targeted areas. Illustrative examples of essential
community facility activities include, but are not limited to,
financing activities to support the development of schools, libraries,
childcare facilities, parks, hospitals, healthcare facilities, and
community centers. Similar to the other place-based definitions, the
agencies specify that activities would need to be in conjunction with a
Federal, state, local, or tribal government plan, program, or
initiative with an explicit focus on benefitting a geographic area that
includes the targeted census tracts. This proposal is intended to
ensure that the activities have a clear objective of meeting needs in
targeted communities.
The proposal builds on the current Interagency Questions and
Answers guidance to clarify that both essential community
infrastructure activities and essential community facilities activities
would be considered if they are conducted in and benefit or serve
residents of low- or moderate-income census tracts, as well as
distressed or underserved nonmetropolitan middle-income census tracts.
Current guidance explicitly notes that these activities are eligible in
underserved middle-income nonmetropolitan geographies, but these
activities are only qualified in low- or moderate-income census tracts,
distressed nonmetropolitan middle-income census tracts or designated
disaster areas if they help attract or retain businesses or residents.
Consequently, the current treatment of these activities in targeted
geographies is inconsistent, and the agencies' proposal aims to provide
more clarity and certainty for when these activities can be considered
and to do so consistently across the different categories of targeted
census tracts.
The agencies' proposed requirements for all place-based
definitions, described previously, is intended to ensure that any
qualifying activity related to essential community infrastructure or
essential community facilities benefits or serves residents of the
eligible targeted census tracts, including low- or moderate-income
residents. Several community stakeholders have raised concern that
larger scale infrastructure projects can often provide limited benefits
for targeted census tracts, especially for low- and moderate-income
residents in these geographies. Under the agencies' proposal, such
activities are eligible for consideration if there is a demonstrated
benefit for the residents of the targeted census tracts and it is
evident that low- or moderate-income residents would be beneficiaries
of the activity and not be excluded from the larger-scale improvements.
For example, a bank could purchase a bond to fund improvements for a
city-wide water treatment project that is consistent with a city's
capital improvement plan. This project would qualify if it benefits or
serves residents in the eligible census tracts to a degree sufficient
to meet the primary purpose standard and does not exclude low- or
moderate-income residents. The agencies seek feedback on whether any
additional criteria for infrastructure and essential community
facilities would further ensure that activities include a benefit to
low- or moderate-income residents in the communities served by these
projects.
5. Recovery Activities in Designated Disaster Areas
The agencies propose a definition for activities targeted to the
recovery of designated disaster areas. The needs of these areas often
differ from other targeted geographic areas, and the proposed
definition is intended to more accurately and specifically describe
eligible disaster recovery activities. The proposed definition includes
activities that revitalize or stabilize geographic areas subject to a
Major Disaster Declaration administered by the Federal Emergency
Management Agency (FEMA). Consistent with current guidance, activities
in designated disaster areas that meet this eligibility standard would
be considered, regardless of the income level of the designated census
tracts. The agencies believe activities that promote the recovery of
designated disaster areas benefit the entire community, including, but
not limited to, low- or moderate-income individuals and low- or
moderate-income communities.
To qualify under the proposed definition, a disaster recovery
activity would need to be in conjunction with a Federal, state, local,
or tribal government disaster plan that includes an explicit focus on
the recovery of the geographic area. The proposed definition
incorporates existing guidance that states an activity will be presumed
to revitalize or stabilize a designated disaster area if the activity
is consistent with a bona fide government revitalization or
stabilization plan or disaster recovery plan.\99\ Examples of
activities eligible under this definition include, but are not limited
to, assistance with rebuilding infrastructure and other community
services, financing to retain businesses that employ local residents,
and recovery-related housing or financial assistance to individuals in
the designated disaster areas. Additionally, although activities in all
census tract income-levels would be considered, these activities would
need to be responsive to community needs, including low- or moderate-
income community needs, and could not displace or exclude low- or

[[Page 33905]]

moderate-income residents of designated disaster areas.
---------------------------------------------------------------------------

\99\ See Q&A Sec. __.12(g)(4)(ii)-2.
---------------------------------------------------------------------------

The agencies considered whether the definition of a designated
disaster area should include any FEMA disaster declaration, including
areas receiving Categories A and B assistance. However, the agencies
believe that activities covered under Categories A and B are generally
short-term recovery activities that would significantly expand the
number of designated disaster areas where activities could be
considered without providing long-term benefits to impacted
communities. Therefore, the agencies propose to retain the definition
of designated disaster areas included in the Interagency Questions and
Answers and propose that exceptions be considered, such as the disaster
declarations for the COVID-19 pandemic, on a case-by-case basis.
6. Disaster Preparedness and Climate Resiliency Activities
The agencies propose a definition for disaster preparedness and
climate resiliency activities that is separate from the recovery
activities in the designated disaster areas category that exists under
the current CRA framework. The proposed definition focuses on
activities that assist individuals and communities to prepare for,
adapt to, and withstand natural disasters, weather-related disasters,
or climate-related risks. The proposal would encompass activities in
low- or moderate-income census tracts, as well as distressed and
underserved nonmetropolitan middle-income census tracts. To be
eligible, the proposed disaster preparedness and climate resiliency
definition would require these activities to be conducted in
conjunction with a government plan, program, or initiative that is
focused on disaster preparedness or climate resiliency that includes an
explicit focus on benefitting a geographic area that includes the
targeted census tracts.
a. Background
There is growing evidence that highlights the ways in which lower-
income households and communities are especially vulnerable to the
impact of natural disasters and weather-related disasters, as well as
climate-related risks.\100\ Low- and moderate-income communities are
more likely to be located in areas or buildings that are particularly
vulnerable to disasters or climate-related risks, such as storm shocks
or drought.\101\ Since residents of affordable housing are more likely
to be low-income, and affordable housing tends to be older and of
poorer quality, low- and moderate-income households are more likely to
have housing that is susceptible to disaster-related damage.\102\
Additionally, lower-income households tend to have fewer financial
resources, making them less resilient to the temporary loss of income,
property damage, displacement costs, and health challenges they face
from disasters.\103\ Finally, low- and moderate-income communities are
often disproportionately affected by the health impacts associated with
natural disasters and climate-related events.\104\
---------------------------------------------------------------------------

\100\ Federal Reserve Bank of New York, ``Reducing Climate Risk
for Low-Income Communities,'' news release, (Nov. 19, 2020), <a href="https://www.newyorkfed.org/newsevents/events/regional_outreach/2020/1119-2020">https://www.newyorkfed.org/newsevents/events/regional_outreach/2020/1119-2020</a>; Jesse M. Keenan and Elizabeth Mattiuzzi, ``Climate Adaptation
Investment and the Community Reinvestment Act,'' Community
Development Research Briefs (June 16, 2019), <a href="https://www.frbsf.org/community-development/publications/community-development-research-briefs/2019/june/climate-adaptation-investment-and-the-community-reinvestment-act/">https://www.frbsf.org/community-development/publications/community-development-research-briefs/2019/june/climate-adaptation-investment-and-the-community-reinvestment-act/</a>.
\101\ Eleanor Kruse and Richard V. Reeves, Brookings
Institution, ``Hurricanes hit the poor the hardest,'', (Sept. 18,
2017), <a href="https://www.brookings.edu/blog/social-mobility-memos/2017/09/18/hurricanes-hit-the-poor-the-hardest/">https://www.brookings.edu/blog/social-mobility-memos/2017/09/18/hurricanes-hit-the-poor-the-hardest/</a>; U.S. Global Research
Program, Fourth National Climate Assessment, Volume II: Impacts,
Risks, and Adaptation in the United States (Washington, DC: U.S.
Global Change Research Program, 2018), <a href="https://nca2018.globalchange.gov/">https://nca2018.globalchange.gov/</a>; Bev Wilson, Journal of the American
Planning Association, Volume 86, 2020--Issue 4, ``Urban Heat
Management and the Legacy of Redlining'' (2020), <a href="https://www.tandfonline.com/doi/full/10.1080/01944363.2020.1759127">https://www.tandfonline.com/doi/full/10.1080/01944363.2020.1759127</a>.
\102\ Maya K. Buchanan et al., Environ. Res. Lett. 15 124020
(2020), ``Sea level rise and coastal flooding threaten affordable
housing,'' <a href="https://iopscience.iop.org/article/10.1088/1748-9326/abb266">https://iopscience.iop.org/article/10.1088/1748-9326/abb266</a>.
\103\ U.S. Global Research Program, Fourth National Climate
Assessment, Volume II: Impacts, Risks, and Adaptation in the United
States (Washington, DC: U.S. Global Change Research Program, 2018),
<a href="https://nca2018.globalchange.gov/">https://nca2018.globalchange.gov/</a>; Patrick Sisson, Bloomberg, ``In
Many Cities, Climate Change Will Flood Affordable Housing'' (Dec. 1,
2020), <a href="https://www.bloomberg.com/news/articles/2020-12-01/how-climate-change-is-targeting-affordable-housing">https://www.bloomberg.com/news/articles/2020-12-01/how-climate-change-is-targeting-affordable-housing</a>; and Eleanor Kruse
and Richard V. Reeves, Brookings Institution, ``Hurricanes hit the
poor the hardest,'' (Sept. 18, 2017), <a href="https://www.brookings.edu/blog/social-mobility-memos/2017/09/18/hurricanes-hit-the-poor-the-hardest/">https://www.brookings.edu/blog/social-mobility-memos/2017/09/18/hurricanes-hit-the-poor-the-hardest/</a>.
\104\ Eleanor Kruse and Richard V. Reeves, ``Hurricanes hit the
poor the hardest,'' Brookings Institution (Sept. 18, 2017), <a href="https://www.brookings.edu/blog/social-mobility-memos/2017/09/18/hurricanes-hit-the-poor-the-hardest/">https://www.brookings.edu/blog/social-mobility-memos/2017/09/18/hurricanes-hit-the-poor-the-hardest/</a>; U.S. Global Research Program, Fourth
National Climate Assessment, Volume II: Impacts, Risks, and
Adaptation in the United States (Washington, DC: U.S. Global Change
Research Program, 2018), <a href="https://nca2018.globalchange.gov/">https://nca2018.globalchange.gov/</a>.
---------------------------------------------------------------------------

To date, the agencies' CRA regulations have allowed CRA credit for
certain activities that help communities, including low- or moderate-
income communities, recover from natural disasters. Under the current
CRA framework, banks can receive consideration for activities that help
to revitalize and stabilize designated disaster areas, such as
financial assistance for services to individuals who have been
displaced from designated disaster areas, and financial assistance for
rebuilding needs.\105\ On a limited basis, activities that help
designated disaster areas mitigate the impact of future disasters may
be considered under CRA if Hazard Mitigation Assistance is included in
the FEMA disaster declaration.\106\ Outside of activities related to
disaster recovery, current CRA guidance provides that consideration
will be given for loans financing renewable energy facilities or
energy-efficient improvements in either affordable housing or community
facilities that otherwise meet the existing definition of community
development.\107\ Current guidance does not explicitly include
activities related to helping low- or moderate-income individuals, low-
or moderate-income communities, small businesses, or small farms
prepare for disasters or build resilience to future climate-related
events.
---------------------------------------------------------------------------

\105\ See Q&A Sec. __.12(g)(4)(ii)-2.
\106\ See FEMA, How A Disaster Gets Declared, <a href="https://www.fema.gov/disaster/how-declared">https://www.fema.gov/disaster/how-declared</a>.
\107\ See Q&A Sec. __.12(h)-1.
---------------------------------------------------------------------------

b. Defining Disaster Preparedness and Climate Resiliency Activities
Under the proposed definition, disaster preparedness and climate
resiliency activities are defined as activities that assist individuals
and communities to prepare for, adapt to, and withstand natural
disasters, weather-related disasters, or climate-related risks. The
proposed definition would encompass activities that help low- or
moderate-income individuals and communities proactively prepare for or
mitigate the effect of disasters and climate-related risks, for
example, earthquakes, severe storms, droughts, flooding, and forest
fires.
Examples of eligible activities could include, but would not be
limited to, developing financial products and services that help
residents, small businesses, and small farms in targeted geographies
prepare for and withstand the impact of future disasters; supporting
the establishment of flood control systems in a flood prone low- or
moderate-income or underserved or distressed nonmetropolitan middle-
income census tract; and retrofitting affordable housing to withstand
future disasters or climate-related events. Additional examples of
qualifying activities could include, but would not be limited to:
Promoting green space in low- or moderate-income census tracts

[[Page 33906]]

in order to mitigate the effects of extreme heat, particularly in urban
areas; energy efficiency improvements to community facilities that
lower energy costs; financing community centers that serve as cooling
or warming centers in low- or moderate-income census tracts that are
more vulnerable to extreme temperatures; infrastructure to protect
targeted geographies from the impact of rising sea levels; and
assistance to small farms to adapt to drought challenges.
Similar to the other place-based definitions, disaster preparedness
and climate resiliency activities would need to meet the required
common elements specified in proposed Sec. _.13(e). To ensure that a
range of activities qualify for consideration, the agencies have
proposed a comprehensive definition of disaster preparedness and
climate resiliency activities; however, the agencies recognize that
there may be overlap between the various components of the definition.
For example, a loan to help develop a levee to prevent flooding in a
moderate-income community could qualify as either a preparation to
withstand a natural disaster or to adapt to climate-related risks.
The agencies intend that some energy efficiency activities would be
eligible under the proposed definition for activities that help low- or
moderate-income individuals and communities proactively prepare for,
adapt to, or withstand natural disasters, weather-related disasters, or
climate-related risks. As noted earlier, under current guidance,
consideration could be given for loans that finance energy-efficient
improvements in either affordable housing or community facilities that
otherwise meet the existing definition of community development. Such
activities may help lower utility costs, therefore making housing more
affordable to low- and moderate-income individuals and lowering
operating expenses for needed community facilities. Examples include,
but are not limited to, weatherization upgrades to affordable housing
in a targeted census tract, new and more efficient heating and air-
cooling systems, or new energy efficient appliances. The agencies seek
feedback on whether certain activities that support energy efficiency
should be included as an explicit component of the proposed disaster
preparedness and climate resiliency definition. Alternatively, the
agencies seek feedback on whether these activities should be included
when appropriate in other definitions, such as affordable housing and
community facilities. Additionally, the agencies seek feedback on
whether there should be energy efficiency standards for determining
whether an activity provides a sufficient benefit to targeted census
tracts, including low- or moderate-income residents.\108\
---------------------------------------------------------------------------

\108\ See 12 CFR 1282.34(d)(2) and (d)(3). For example, under
its Duty to Serve regulation, the FHFA sets a standard that energy
or water efficiency improvements must reduce energy or water
consumption by at least 15 percent and that these energy
efficiencies generated over an improvement's expected life will
exceed the cost of installation.
---------------------------------------------------------------------------

The agencies also seek feedback on the extent to which energy-
related activities that would benefit residents in targeted census
tracts should be considered as part of a disaster preparedness and
climate resiliency definition. Although distinct from projects that
focus on energy-efficiency improvements to housing or other buildings,
some stakeholders suggest that focusing on access to renewable energy
could also provide important benefits to targeted communities. Under
the proposed definition an example of such a qualifying project could
include, but would not be limited to, battery storage projects in low-
and moderate-income areas with high flood or wind risk, thereby
reducing risks of power loss due to flooding and high winds. However,
the agencies do not intend that the proposed definition would include
utility-scale projects.
The agencies seek feedback on whether the discussion above captures
the range of activities that promote disaster preparedness and climate
resiliency, and are appropriately tailored to meet the needs in low-
and moderate-income communities and distressed or underserved
nonmetropolitan middle-income areas.
In order for an activity to be eligible under this definition, the
agencies propose that an activity must benefit or serve residents of
targeted census tracts--specifically, low- or moderate-income census
tracts, as well as distressed and underserved nonmetropolitan middle-
income census tracts. The agencies considered whether eligibility for
disaster preparedness and climate resiliency activities should extend
to designated disaster areas. Activities related to disaster recovery,
which can also include some activities to mitigate the impact of future
disasters, would still be considered in all designated disaster areas.
However, the agencies intend to provide eligibility for disaster
preparedness and climate resiliency activities in geographic areas with
more limited resources to prepare for, adapt to, and withstand natural
disasters, weather-related disasters, or climate-related risks.
Therefore, the agencies propose to limit consideration to activities
conducted in low- or moderate-income census tracts and distressed or
underserved nonmetropolitan middle-income census tracts.
The agencies also seek feedback on whether the disaster
preparedness and climate resiliency definition should include a
separate prong that specifically focuses on activities that benefit
low- or moderate-income individuals. Incorporating a separate prong of
the definition for low- or moderate-income individuals would allow
consideration in all communities for certain activities that are tied
specifically to assisting low- or moderate-income individuals, and not
just those in targeted geographies. For example, this could include
activities that help low- or moderate-income individuals in any
community with weatherization improvements or to establish savings
accounts to mitigate the impact from future disasters. The agencies
seek feedback on this option, as well as the types of activities that
would be appropriate to consider under this prong.
Similar to the other place-based definitions, the agencies propose
that disaster preparedness and climate resiliency activities must be in
conjunction with a Federal, state, local, or tribal government plan,
program, or initiative that includes an explicit focus on benefitting a
geographic area that includes the targeted census tracts. This proposal
is intended to ensure that the activities have a clear objective of
meeting needs in targeted communities. However, the agencies recognize
that disaster preparedness or climate resiliency plans or programs may
not be in place for some targeted communities. Additionally, some
government plans may not be specifically focused on disaster
preparation or climate resiliency. Therefore, the agencies seek
feedback on whether a plan, program, or initiative provides sufficient
standards around what kinds of activities benefit targeted census
tracts and should qualify for CRA purposes. The agencies also seek
feedback on whether there are other options to determine whether
disaster preparedness and climate resiliency activities are
appropriately targeted.
Request for Feedback
Question 14. Should any or all place-based definition activities be
required to be conducted in conjunction with a government plan,
program, or initiative and include an explicit focus of benefitting the
targeted census tract(s)?

[[Page 33907]]

If so, are there appropriate standards for plans, programs, or
initiatives? Are there alternative options for determining whether
place-based definition activities meet identified community needs?
Question 15. How should the proposals for place-based definitions
focus on benefitting residents in targeted census tracts and also
ensure that the activities benefit low- or moderate-income residents?
How should considerations about whether an activity would displace or
exclude low- or moderate-income residents be reflected in the proposed
definitions?
Question 16. Should the agencies include certain housing activities
as eligible revitalization activities? If so, should housing activities
be considered in all, or only certain, targeted geographies, and should
there be additional eligibility requirements for these activities?
Question 17. Should the agencies consider additional requirements
for essential community infrastructure projects and essential community
facilities to ensure that activities include a benefit to low- or
moderate-income residents in the communities served by these projects?
Question 18. Should the agencies consider any additional criteria
to ensure that recovery of disaster areas benefits low- or moderate-
income individuals and communities?
Question 19. Does the disaster preparedness and climate resiliency
definition appropriately define qualifying activities as those that
assist individuals and communities to prepare for, adapt to, and
withstand natural disasters, weather-related disasters, or climate-
related risks? How should these activities be tailored to directly
benefit low- or moderate-income communities and distressed or
underserved nonmetropolitan middle-income areas? Are other criteria
needed to ensure these activities benefit low- or moderate-income
individuals and communities?
Question 20. Should the agencies include activities that promote
energy efficiency as a component of the disaster preparedness and
climate resiliency definition? Or should these activities be considered
under other definitions, such as affordable housing and community
facilities?
Question 21. Should the agencies include other energy-related
activities that are distinct from energy-efficiency improvements in the
disaster preparedness and climate resiliency definition? If so, what
would this category of activities include and what criteria is needed
to ensure a direct benefit to the targeted geographies?
Question 22. Should the agencies consider utility-scale projects,
such as certain solar projects, that would benefit residents in
targeted census tracts as part of a disaster preparedness and climate
resiliency definition?
Question 23. Should the agencies include a prong of the disaster
preparedness and climate resiliency definition for activities that
benefit low- or moderate-income individuals, regardless of whether they
reside in one of the targeted geographies? If so, what types of
activities should be included under this prong?
Question 24. Should the agencies qualify activities related to
disaster preparedness and climate resiliency in designated disaster
areas? If so, are there additional criteria needed to ensure that these
activities benefit communities with the fewest resources to address the
impacts of future disasters and climate-related risks?

F. Activities With MDIs, WDIs, LICUs, and CDFIs

The agencies are seeking ways to strengthen CRA provisions to
support MDIs, WDIs, LICUs, and Treasury Department-certified CDFIs. To
emphasize such activity, the agencies propose several provisions
related to activities with these entities.
1. Background
a. Current Treatment of MDIs, WDIs, LICUs, and CDFIs
Under the CRA statute, nonminority- or nonwomen-owned financial
institutions can receive CRA credit for capital investment, loan
participation, and other ventures in cooperation with MDIs, WDIs,\109\
and LICUs, provided that these activities help meet the credit needs of
local communities in which such institutions and credit unions are
chartered. These activities need not also benefit a bank's assessment
areas or the broader statewide or regional area that includes the
bank's assessment areas.
---------------------------------------------------------------------------

\109\ The terms minority-owned financial institution and women-
owned financial institution are not defined in the CRA statute. See
12 U.S.C. 2903(b). The CRA statute does define similar terms for
minority depository institution (MDI) and women's depository
institution (WDI) for purposes of the branch-related activities
referenced in 12 U.S.C. 2907(a). This SUPPLEMENTARY INFORMATION uses
MDI and WDI unless it is necessary to use the terms minority-owned
financial institution or women-owned financial institution for
clarity.
---------------------------------------------------------------------------

b. Stakeholder Feedback on MDIs, WDIs, LICUs, and CDFIs
Stakeholders have noted that CRA activities through bank
partnerships with MDIs, WDIs, LICUs, and CDFIs are key in helping to
meet the credit needs of low- or moderate-income individuals and
communities. Stakeholders have supported a stronger emphasis on
community development financing and services that support these
institutions, including equity investments, long-term debt financing,
technical assistance, and contributions to non-profit affiliates. Some
stakeholders have suggested the need to increase certainty surrounding
the treatment of activities in partnership with MDIs, WDIs, LICUs, and
CDFIs. For example, stakeholders have noted that examiners may require
extensive documentation that a CDFI assists low-income populations,
even though CDFI certification by the Treasury Department is an
indication of having a mission of community development.\110\ To
provide a stronger incentive and reduce burden, most stakeholders
support conferring automatic CRA community development consideration
for community development activities with Treasury Department-certified
CDFIs.
---------------------------------------------------------------------------

\110\ See Treasury Department, Community Financial Institutions
Fund, CDFI Certification, <a href="https://www.cdfifund.gov/programs-training/certification/cdfi">https://www.cdfifund.gov/programs-training/certification/cdfi</a>.
---------------------------------------------------------------------------

2. Activities Related to MDIs, WDIs, LICUs, and Treasury Department-
Certified CDFIs
The agencies propose a definition in Sec. _.13 specific to MDIs,
WDIs, LICUs, and Treasury Department-certified CDFIs. In addition, in
Sec. _.12, the proposal defines the term MDI in two ways. For purposes
of a bank engaging in an activity described in 12 U.S.C. 2907(a) (i.e.,
a bank that donates, sells on favorable terms, or makes certain
branches available on a rent-free basis to an MDI), the proposal
defines MDI by cross-reference to the definition of the term in 12
U.S.C. 2907(b)(1). Section 2907(b)(1) states that an MDI is a
depository institution (as defined in 12 U.S.C. 1813(c)) in which (i)
more than 50 percent of the ownership or control is held by one or more
minority individuals and (ii) more than 50 percent of the net profit or
loss of which accrues to one or more minority individuals).\111\ For
all other purposes, the proposal defines an MDI as a bank that (i)
meets the 12 U.S.C. 2907(b)(1) definition; (ii) is an MDI as defined in
section 308 of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA) (12 U.S.C. 1463 note);

[[Page 33908]]

or (iii) is considered to be a MDI by the appropriate Federal banking
agency. The agencies based the second part of the definition on 12
U.S.C. 4703a(a)(6).\112\
---------------------------------------------------------------------------

\111\ Two sections of the CRA statute reference minority- and
women-owned institutions: 12 U.S.C. 2903(b) and 12 U.S.C. 2907.
However, these sections use different terms for these institutions
(e.g., 12 U.S.C. 2903(b) uses the term ``minority- and women-owned
financial institutions'' and 12 U.S.C. 2907 uses the terms
``minority depository institution'' and ``women's depository
institution''). Note that the definitions in the CRA statute apply
only to the activities referenced in 12 U.S.C. 2907.
\112\ Under 12 U.S.C. 4703a(a)(6), the term ``minority
depository institution'' means an entity that is (1) an MDI, as
defined in section 308 of the FIRREA (12 U.S.C. 1463 note); (2)
considered to be an MDI by (i) the appropriate Federal banking
agency or (ii) the National Credit Union Administration, in the case
of an insured credit union; or (3) listed in the FDIC's Minority
Depository Institutions List published for the Third Quarter 2020.
In this proposal, the agencies did not include insured credit unions
designated by the National Credit Union Administration as MDIs but
are seeking feedback on whether they should be included. In
addition, the proposal does not include the FDIC's Minority
Depository Institutions List published for the third quarter of 2020
because it reflects a point in time and the list is updated
regularly.
---------------------------------------------------------------------------

By recognizing these two contexts, the proposal both ensures
consistency with the CRA statute and provides flexibility for each
agency to define MDI as it determines appropriate. Specifically, the
proposal limits the definition of MDI to the definition in 12 U.S.C.
2907 where required by the CRA statute and includes a broader
definition where legally permissible, namely for other activities
conducted in cooperation with ``minority- and women-owned financial
institutions'' (as described in 12 U.S.C. 2903(b)). By including both
parts of the definition, the proposal would ensure that activities
conducted in cooperation with banks owned by minority individuals
receive consideratio

[…truncated; see source link]

View on FederalRegister.gov →Plain-text source

Indexed from Federal Register on June 3, 2022.

This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.