At an open board meeting on Tuesday, the federal banking agencies released a final rule that will fundamentally change how they will assess compliance with the Community Reinvestment Act. The interagency final rule spans 1,494 pages. On Tuesday, the NCBA circulated a member alert with additional details, including the effective dates of various provisions.

The final rule includes flexibility in retail lending evaluations for banks with less than $600 million in assets, and new data collection and reporting requirements for banks over $2 billion. The final rule will implement a new retail lending evaluation for banks with between $600 million and $2 billion in total assets and provide the option of evaluation under a new test for community development financing. Banks over $2 billion would be evaluated under four tests: (1) retail lending, (2) retail services and products, (3) community development financing, and (4) community development services. For banks over $10 billion, retail services and product evaluations would include digital delivery systems. Banks with limited retail products and services will be evaluated exclusively on community development financing activities. The final rule also creates retail lending assessment areas for banks with more than $2 billion in assets where the bank makes more than 150 closed-end home mortgage loans or 400 small-business loans in each of the two prior calendar years. Banks that conduct 80% or more of specified retail lending activity inside of their facility-based assessment areas are exempt from the retail lending assessment area requirements.

Fed Chairman Jerome Powell said the final rule will encourage banks to expand credit, investment and banking services in low- and moderate-income communities. Governor Michelle Bowman, who cast the only opposing vote on the Fed board, warned that the final rule was overly prescriptive and would increase the number of banks rated “needs to improve” from 1% today to nearly 10%. “This seems like regulatory overreach, and as I have already noted, there is little evidence that banks are not currently meeting the credit needs of their communities,” she said. When the rulemaking was before the FDIC board, for a more narrow 3-2 vote in favor, Vice Chairman Travis Hill and board member Jonathan McKernan cast the opposing votes. Hill said the rule would create evaluation methodologies so complex that it would be hard for institutions to determine whether their actions would result in favorable assessments. He also said the new retail lending tests, in conjunction with the new retail assessment areas, would disincentivize banks from lending to certain communities.

The Fed and the FDIC have each released various materials related to the final rule, including an overview.