NCRC analysis of CRA Treasury report

Key Points

  • The Treasury memorandum correctly urges the federal agencies to update assessment areas on CRA exams to include areas with branches and also other areas where banks gather deposits or conduct substantial business.
  • The Treasury memorandum also recognizes community benefits agreements, urges more real time communication among banks, regulators, and community groups, advocates for more objective measures of performance, and more regular and timely release of CRA exams.
  • The Treasury memorandum errs in providing too many escape hatches from penalties for either poor CRA performance or discrimination. The memorandum also advocates that CRA exams deemphasize the importance of branches, which remain vital in low- and moderate-income communities for accessing loans and basic banking services.

The Department of Treasury released its long anticipated memorandum recommending changes and updates to the Community Reinvestment Act (CRA) in early April. Spring is a season of renewal and CRA is a law that indeed needs refreshing and updating. Passed in 1977, it imposes an affirmative obligation on banks to serve the needs of local communities. The statute directs federal bank agencies to examine and rate banks on their lending and service in low- and moderate-income communities. The examination regime has motivated banks to make trillions of dollars of loans and investments in modest income communities.[1] Yet, CRA’s full potential has not been realized because the regulations have not been updated since the mid-1990s when the internet was in its infancy and most of us did not know what a cellphone was.

While CRA needs to be updated to reflect changes in the banking industry, a fetishism relying on technology to answer all the needs of the underserved will result in inadequate CRA exams that do not effectively hold banks accountable for serving low- and moderate-income neighborhoods. Branches, for example, remain a central means for lower income populations to receive bank loans and services. De-emphasizing the importance on branches in CRA exams will lead to less lending and services in modest income communities. Below, NCRC reviews the recommendations in the Treasury memorandum. The Treasury report strove to be balanced and Treasury listened seriously to the concerns of community organizations. Treasury got some things right like recognition of community benefit agreements but they erred in other recommendations that could end up giving banks too easy a pass on their CRA exams. Easy grading leads to less lending.


Below is NCRC’s review of Treasury’s recommendations:

Beneficial Recommendations

  • Updating definition of assessment areas– Assessment areas are geographical areas where bank performance are evaluated on CRA exams. Currently, these areas include bank branches and deposit-taking ATMs. The Department of Treasury suggests that a number of banks are making loans outside of branch networks, using alternative delivery channels including the internet. Treasury recommends that the definition of assessment areas be expanded to also include “areas where the bank accepts deposits and does substantial business.”[2] NCRC appreciates this recommendation because we have advocated for several years that CRA exams need to evaluate lending, investing, and services in areas outside of branches where a bank is gathering deposits or conducting substantial business. At the same time, however, NCRC asks Treasury to clarify this recommendation because it refers at one point to credit just for investments (not loans and services) in areas outside of branch networks. NCRC also does not want to allow banks to make CRA-related investments anywhere which could result in a surplus of investments in easier-to-serve areas.
  • Community benefit agreements (CBAs)– Community groups and banks negotiate CBAs when banks are seeking to acquire other banks or improve their CRA ratings. CBAs are forward looking commitments establishing specific lending, investment, and service goals over a multi-year time period. Since 2016, NCRC and banks have negotiated $84 billion in CBAs.[3] CBAs help banks demonstrate public benefits, which is a legal requirement that banks must fulfill before receiving approval for mergers. The Treasury Department recognizes CBAs as an “effective tool” to “demonstrate how the approved application would benefit the communities served.”[4] While Treasury appears to recommend CBAs in general, sentences in this particular recommendation can be construed to emphasize or confine the use of CBAs to banks with less than Satisfactory CRA ratings. NCRC asks Treasury to clarify that CBAs are useful for a wide variety of banks, not just those with failed CRA ratings.
  • Eligibility Determinations– Banks have reported instances of hesitating to pursue some community development lending and investing opportunities because they are uncertain whether the activities will receive favorable consideration on their next CRA exams. Treasury recommends that banks should be “allowed a limited number of eligibility determinations in advance on specific loans, investments, and services” so that banks know that these activities will count on their next CRA exams.[5] This is a sensible approach. Treasury also recommends that these determinations be made public, which NCRC supports wholeheartedly as making the CRA process transparent.
  • Performance context – Performance context refers to economic conditions and demographic characteristics of communities that impact community needs and banks’ abilities to respond to needs. Performance context analysis is often done poorly on CRA exams. Treasury recommends that research and policy staff at the federal bank agencies be involved in developing performance context for CRA exams.[6] NCRC supports this recommendation as a means to significantly improve performance context analysis. NCRC described a number of other steps to improve performance context analysis in a recent white paperincluding enhancing agency outreach to community groups and consideration of their comments on CRA exams.[7]
  • Improving Objectivity of Performance MeasuresBanks have complained that CRA exams have subjective performance measures. For example, one criterion on the lending test is the percentage of loans in a bank’s assessment area. Currently, the federal agency examination guidelines say that a “substantial” majority of a bank’s loans in its assessment areas correspond to outstanding performance on this criterion while other adjectives describe satisfactory and below satisfactory performance. Treasury suggests more objective benchmarks such as certain percentages corresponding to the different ratings for this criterion.[8] Over the years, the agencies have been concerned that such benchmarking would be criticized as “credit allocation.” However, the agencies can clarify that these benchmarks are not quotas. They can be expressed in ranges with appropriate qualification such as reiterating that lackluster performance on one criterion can be compensated by better performance on other criteria. Overall, more objective benchmarks would improve the predictability of CRA exams.
  • Schedule for CRA Exams – The timeliness of CRA exams has been a significant concern for banks and community organizations since a number of exams, particularly for the largest banks, can be delayed for several years. Treasury recommends that the agencies establish clear and public CRA exam schedules and that the schedules be consistent across agencies.[9] CRA exams can also be delayed when agencies are conducting investigations probing for violations of fair lending and consumer compliance law. These investigations can be complex and can delay release of CRA exams. NCRC has recommended that the agencies release exams in these situations since delays can result in CRA exams with out-of-date data that are not useful during merger application reviews. If the investigations find illegal action, CRA ratings can be downgraded retroactively. Treasury recommended that the violations can be considered on subsequent CRA exams and that an addendum to the most recent exam be added noting the violations.[10] NCRC appreciates Treasury’s attention to this issue but disagrees with this recommendation. Penalties such as ratings downgrades should result in more immediate consequences and should be applied as much as possible to the most recent or current exam.
  • Rural Areas Should Receive More Consideration – CRA exams designate assessment areas as either full scope or limited scope. Full scope areas receive comprehensive analysis and the most weight on exams. Limited scope areas receive short shrift. Non-metropolitan areas are more likely to be limited scope areas as NCRC found in a recent white paper. Treasury is correct to note this issue but did not offer a specific recommendation.[11] NCRC’s recent white paper had a number of recommendations including some random assignment of full scope assessment areas or at least considering all rural areas in a state as one full scope assessment area.[12]
  • Inclusion of AffiliatesTreasury discusses the long time concern of NCRC and community organizations of banks having the option to include their non-bank affiliates on CRA exams. The optional treatment can invite manipulation of CRA exams. Banks can choose to exclude affiliates if they are either engaged in abusive lending or disproportionately lending to middle- and upper-income borrowers. Treasury stops short of calling for mandatory inclusion of affiliates but urges the agencies to evaluate their “approach to affiliates in order to ensure that performance evaluations accurately reflect the CRA-eligible activity of the overall bank.” The agencies have not opted for mandatory inclusion for several years, but one option they could consider is adjusting the CRA rating of the bank if the affiliate is engaged in activity that is at wide variance from the bank such as not lending to modest income populations while the bank is offering a higher percentage of their loans to these populations. Disparate patterns like this could very well reflect gaming exams.[13]
  • End Disparate Treatment of Community Development Lending and InvestmentsCRA exams count community development loans in the year originated.[14]  contrast, exams count both current investments and previous investments undertaken prior to the current CRA exam time period as long as the investment is still on the banks’ books. The rationale for this treatment of investments is that the bank cannot use capital tied up in the investment for other purposes. NCRC acknowledges the rationale for counting previous time period investments but asked the agencies to separately report and evaluate current and previous investments. A similar procedure can be reasonable for lending. However, NCRC also seeks to make sure that examiners expect banks to continue making investments and loans rather than just relying on previous tine period community development financing to help them pass their CRA exams. Therefore, exams should weigh current period community development loans and investments more heavily.
  • Impact of Capital Analysis and Review on CRA community development financing – Treasury states that differing assessments of the risk to capital might be creating perverse incentives for banks to favor certain types of investments such as those in Low Income Housing Tax Credits (LIHTCs) over others such as investments into Community Development Financial Institutions (CDFIs).[15] Treasury recommends that the agencies evaluate the performance of investments and adjust risk assessments as appropriate. NCRC agrees that distortions in investing should not occur, particularly if not justified by any differences in performance of the investments.
  • Nonbanks and CRATreasury acknowledges that banks and community organizations have called for applying CRA to non-bank financial institutions such as mortgage companies and credit unions. Treasury refrains from explicitly recommending expanding CRA to non-banks but urges the agencies to study the performance of non-banks in serving low- and moderate-income borrowers.[16] While we appreciate Treasury has addressed this issue, NCRC has been calling for the expansion of CRA to non-banks as a needed to increase safe and sound lending and other financial services to underserved communities.

Harmful Recommendations 

  • De-emphasis on bank branches– Currently, the CRA service test places primary emphasis on bank branches while still considering alternative service delivery. Treasury recommends discontinuing this practice since the Treasury asserts that transactions through bank branches are declining while the use of alternative services is increasing.[17] On some measures, this could be true such as the decline of teller transactions that Treasury observes. However, bank branches remain a vital source of loans and bank services for low- and moderate-income people and other traditionally underserved populations. A large body of research including NCRC research conducted for the Appalachian Regional Commission documents that home and small business lending increases to low- and moderate-income people in areas with more branches. Deemphasizing bank branches on CRA exams could cause banks to pay less attention to neighborhoods where they receive deposits (redlining or not reinvesting in neighborhoods generating deposits for banks was the major concern of lawmakers when they passed CRA). Moreover, lending and bank services to low- and moderate-income people are likely to decline.
  • Allowing banks with less than Satisfactory ratings to merge or open up branches– Treasury recommends that the agencies adopt a memo of the Office of the Comptroller of the Currency (OCC) that allows banks with failed CRA ratings to merge or open branches if banks have or promise to improve their CRA performance and if the transactions have the potential to benefit communities.[18] Currently, the only penalties for failed CRA ratings is the possibility of denial of merger or branch applications. This is one of the few sticks that motivates banks to pass their CRA exams. The OCC memo provides too many escape valves or “get out of jail free cards” such as allowing a bank that failed a CRA exam to claim a vague public benefit from merging by saying its larger asset size improves its ability to offer products. Approval of applications must be the exception, not the rule for banks with failed CRA ratings, which only constitute about 1 to 2 percent of all banks in a given year.
  • Adoption of OCC fair lending memo– Treasury urges the agencies to adopt the OCC memo on fair lending reviews.[19] The OCC memo states that violations of fair lending and consumer compliance law will henceforward not result in a double-downgrade of a CRA rating (for example, from Outstanding to Needs to Improve). This procedure disallows a sanction (a double downgrade) that could very well be necessary for a bank that has committed egregious legal violations. Moreover, the OCC memo disallows a legal violation associated with a loan product (such as consumer lending) not considered on a CRA exam from causing a downgrade on a CRA exam. However, if the violation in such a loan product is widespread is the bank genuinely serving community needs in a safe and sound manner as required by CRA?
  • Expansion of Types of Loans, Investments, and Services Eligible for CRA Credit – Treasury states that banks have difficultly determining which investments, loans, and services are “responsive,” “innovative,” and “complex.” These are terms in the CRA regulation that examiners use to judge the extent to which activities receive favorable consideration. The interagency Question and Answer (Q&A) document has attempted to clarify this issue over the years, but further clarification would be useful for encouraging lending, investing, and services most needed by communities. However, a harmful over-reaction to ambiguity about what counts is to greatly expand what counts. Bank trade associations advocate for inclusion of activities that have overall benefits for a locality like financing construction of a new hospital but are often not directed to low- and moderate-income people or communities. For example, the hospital could be located in a relatively affluent part of the community and is not easily accessible by transit. CRA eligible activities must retain their focus on low- and moderate-income communities. Congress originally passed CRA to combat redlining against modest income neighborhoods and communities of color. Treasury has a one-line recommendation for expanding the number of activities qualifying for CRA credit; this cursory recommendation is a cause for concern.[20]
  • Viewing Public Participation as an Obstacle – Public participation is the heart and soul of CRA. Congress passed CRA to ensure that banks are serving the needs of local communities. The foremost authority on these needs are local residents. If commenting and communicating on bank CRA performance or merger applications becomes more difficult or is truncated, the agencies would be failing to fulfill the central purpose of CRA ensuring that banks are addressing needs. The Treasury report does not discuss public participation in detail; it mentions that banks state that public participation requirements in the strategic plan option slows down plan development and makes the process for amending plans cumbersome. Specifically large banks complain that participation requirements are difficult when they have several assessment areas. In contrast, NCRC views public participation requirements not as a cumbersome “check the box” exercise, but as essential to creating CRA strategic plans that are most responsive to needs for loans, investments, and services. In order to produce robust plans, public participation requirements are essential. NCRC has managed meetings with large banks across the country to discuss CRA plans and needs. These always improve CRA plans. The agency response should not be to shortchange public participation requirements but build in sufficient time for them and not to penalize banks engaged in a thoughtful participation process.[21]



[1]NCRC, The Community Reinvestment Act: Vital for Neighborhoods, the Country, and the Economy, June 2016, See also, Josh Silver, The Community Reinvestment Act at 40: A Careful Review of the Reviews, September 2017,

[2]Memorandum for the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation from the Department of Treasury, Community Reinvestment Act – Findings and Recommendations,, p. 6.


[4]Treasury memo, p. 22

[5]Treasury memo, p. 8.

[6]Treasury memo, p. 9.

[7]NCRC, CRA Performance Context: Why it is Important for Community Development and How to Improve It, April 2016,

[8]Treasury memo, p. 12.

[9]Treasury memo, p. 17.

[10]Treasury memo, p. 20.

[11]Treasury memo, p. 18.

[12]NCRC, The Community Reinvestment Act and Geography, May 2017,

[13]Treasury memo, p. 24.

[14]Treasury memo, p. 23.

[15]Treasury Memo, p. 24.

[16]Treasury memo, p. 24.

[17]Treasury memo, p. 15.

[18]Treasury memo, p. 20-21.

[19]Treasury memo, p. 19.

[20]Treasury memo, p. 7

[21]Treasury memo, pp. 12-13

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