NCRC Recommends New Way to Establish CRA Assessment Areas for Branchless Banks

Branchless banks that primarily make loans over the internet are increasingly applying to the federal bank agencies for bank charters. As the Federal Reserve Board and the other regulatory agencies embark on an effort to reform the Community Reinvestment Act (CRA) regulations, one of the critical questions is how to establish CRA Assessment Areas (AAs), which are traditionally tied to bank branch locations, for branchless banks.

The Federal Reserve Board has suggested designating AAs for branchless banks based on either concentrations of loans or deposits in various geographical areas. It has also suggested that AAs be weighed on CRA exams based on the percentage of a bank’s loans or deposits in AAs.

However, by using a different metric – loans per one thousand people – the National Community Reinvestment Coalition (NCRC) in a recent paper was able to identify smaller states and metropolitan areas that are underserved by traditional banks but are better served by branchless banks.

Since the approach is more effective than traditional approaches used in the past in identifying underserved communities, NCRC recommends that the regulatory agencies consider loans per thousand people as a means of identifying AAs for branchless banks and determining the weights various AAs will have on CRA exams.

By doing so, NCRC’s approach would be helpful in increasing lending, investing and bank services in underserved areas. That was the exact intent of the Community Reinvestment Act when it was enacted in 1977.

“The agencies emphasize the importance of combating racial inequities and economic disparities across rural and urban areas, but they have not proposed specifics for doing this,” said Jesse Van Tol, CEO of NCRC. “Combined with our previous research that identifies underserved census tracts and counties that should have more weight on CRA exams, this methodology for designating geographical areas on CRA exams should reduce inequities spoken about greatly, but not addressed specifically.” 

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