Federal Reserve panel divides over proposed rollbacks to the Community Reinvestment Act

At a Federal Reserve System consumer-regulations panel, advocates and bank representatives clashed over proposed changes to the Community Reinvestment Act (CRA) and how regulators should evaluate banks’ service to low‑ and moderate‑income communities.

Kevin Hill, senior policy adviser at the National Community Reinvestment Coalition, told the board that increasing the small‑bank asset threshold or rolling back the 2023 CRA rule would ‘‘result in less private capital for needed community development projects’’ including affordable rental housing, medical facilities and other projects in lower‑income and rural areas. Hill said intermediate small banks combined ‘‘average about $3 billion a year in community development financing’’ and warned that removing modern provisions — such as the 2023 rule’s online strategic‑plan posting and clearer metrics — would ‘‘roll back’’ progress and further disadvantage majority Native American counties, which have far fewer branches than other counties.

Mickey Marshall, vice president and regulatory counsel at the Independent Community Bankers of America, disputed that the 2023 framework is an unalloyed improvement. Marshall said community banks ‘‘are not in the business of siphoning deposits’’ from underserved areas and argued that a lighter, less costly CRA evaluation for small banks would direct more resources into lending. Marshall said higher asset thresholds would better reflect industry consolidation and prevent small institutions from being evaluated by standards that group them with the largest banks.

Horatio Mendes, president and CEO of the Woodstock Institute, urged more transparency and consistency from regulators. Mendes proposed the Federal Reserve align its public‑welfare investment authority with CRA treatment, publish internal supervisory guidance that affects examinations, revive interagency directories of community development investments, and restore advanced examiner training to reduce inconsistent exam outcomes.

Victoria Hosendorf, of the Enterprise Center, urged the agencies to expand CRA incentives beyond lending. She recommended that CRA evaluation recognize ‘‘blended capital’’ and investments that strengthen small businesses’ balance sheets — equity, patient capital and intermediaries that help entrepreneurs reach scale — in addition to traditional loan volume.

The panel moved into a follow‑up exchange where advocates pressed that the branch‑based approach to defining assessment areas risks missing lending activity that occurs far from branch footprints; Hill cited agency data showing a quarter of bank mortgage and small‑business originations between 2021 and 2023 occurred outside counties where banks maintain branches. Several participants also noted that a high share of banks receive satisfactory CRA ratings even as fair‑lending enforcement actions continue, a dynamic advocates said points to weaknesses in oversight.

Panelists converged on several practical near‑term requests: issue clear federal guidance so community development financial institution (CDFI) financing continues to qualify for CRA consideration amid certification delays; clarify when banks can receive CRA credit for activities outside assessment areas; and improve examiner education to reduce regional inconsistency.

The board did not take action during the session. The moderator said an open comment period would begin at 4:55 and thanked the panelists for their participation.