Cra Compliance: Post-Rescission Examination Strategy

Community Reinvestment Act of 1977 (12 U.S.C. § 2901-2908) requires federal banking agencies to evaluate insured depository institutions' record of meeting credit needs of entire community including low- and moderate-income neighborhoods. October 2023 CRA Final Rule was issued to modernize CRA framework but was enjoined by Texas Bankers Association v. OCC (N.D. Tex. March 29, 2024) preliminary injunction and never took effect. Federal banking agencies (OCC, FDIC, Federal Reserve) announced March 28, 2025 intent to rescind 2023 CRA Final Rule and proposed rescission rule on July 16, 2025, with 1995 CRA framework currently remaining in effect. Current 1995 CRA framework applies three-test structure (Lending Test, Investment Test, Service Test) to Large Banks ($1.564 billion+ in 2024-2025) with simpler standards for Intermediate Small ($391 million to $1.564 billion) and Small Banks. Our banking laws practice handles 1995 CRA framework compliance, post-rescission examination preparation, and parallel rule transition analysis as banks navigate regulatory uncertainty.

CRA assessment areas under 1995 framework are geographic areas around bank's main office, branches, and deposit-taking ATMs that bank delineates and includes one or more whole geographies (census tracts) where bank has substantial portion of lending. Bank must delineate assessment areas reflecting whole communities and avoid arbitrarily excluding low- or moderate-income geographies, with regulatory review for reasonableness during examinations. CRA examinations occur every 3-5 years based on prior rating with Outstanding-rated banks typically examined less frequently and Substantial Noncompliance ratings triggering more frequent reviews. Performance context analysis under § 25.21 considers demographic, economic, and competitive factors in assessment area to calibrate examination expectations to actual community needs and bank capabilities. Our bank laws practice handles assessment area delineation review, performance context documentation, and parallel examination scope coordination across multi-market banks.

Equal Credit Opportunity Act (ECOA, 15 U.S.C. § 1691) and implementing Regulation B prohibit discrimination in any aspect of credit transaction based on protected characteristics including race, color, religion, national origin, sex, marital status, age, and receipt of public assistance income. Fair Housing Act § 805 (42 U.S.C. § 3605) prohibits discrimination in residential real estate-related transactions including mortgage lending, with disparate treatment and disparate impact theories both actionable. HMDA (Home Mortgage Disclosure Act) reporting under Regulation C provides primary data source for fair lending examinations with statistical analysis of lending patterns by race, ethnicity, and income. Discriminatory underwriting standards, pricing disparities, and redlining (refusing to lend in minority neighborhoods) create both Fair Housing Act/ECOA violations and CRA performance issues. Our affordable housing law practice handles ECOA Regulation B compliance, Fair Housing Act disparate impact defense, and parallel HMDA reporting strategy across community lending programs.

Community development qualifying activities under 1995 framework include affordable housing for low- and moderate-income individuals, community services targeted to low- and moderate-income individuals, economic development activities supporting small businesses, and revitalization/stabilization of low- and moderate-income geographies. Qualified community development investments include LIHTC (Low-Income Housing Tax Credit) projects, New Markets Tax Credit (NMTC) investments, SBA loans, mortgage-backed securities secured by affordable housing, and CDFI (Community Development Financial Institution) deposits. Service Test evaluates retail banking services accessibility including branch distribution in low- and moderate-income geographies, branch hours, deposit account terms, and alternative service delivery (mobile banking, ATMs, online banking). Community Development Services include financial education programs, technical assistance to nonprofits, board service on community development organizations, and homebuyer counseling. Our consumer financial services practice handles community development qualification, LIHTC investment structuring, and parallel Service Test documentation across complex CRA programs.

Lending Test for Large Banks evaluates geographic distribution of loans (concentration in low- and moderate-income geographies), borrower characteristics distribution (low- and moderate-income borrowers, small businesses with revenues under $1 million), community development lending, and innovative/flexible lending practices. Investment Test evaluates community development qualified investments by dollar amount, complexity and innovation, and responsiveness to community needs with both retained portfolio and prior-period investments considered. Service Test evaluates retail banking services accessibility (especially in low- and moderate-income geographies), community development services, and reasonableness of branch closures with statistical and qualitative analysis. CRA Large Bank examination methodology weighs Lending Test approximately 50%, Investment Test 25%, and Service Test 25% in composite rating determination. Our consumer financial protection bureau (CFPB) practice handles examination preparation across all three tests, statistical analysis review, and parallel community development project structuring.

CRA ratings determine bank's CRA performance level with Outstanding (highest), Satisfactory, Needs to Improve, and Substantial Noncompliance (lowest) tiers each carrying distinct merger application implications and reputational profile. Outstanding rating signals exemplary community reinvestment performance with strong merger approval factor and lower examination frequency in subsequent cycles. Satisfactory rating signals adequate performance meeting CRA standards with acceptable merger approval factor and standard examination cycle. Less than Satisfactory ratings (Needs to Improve or Substantial Noncompliance) create substantial merger application risk under 12 U.S.C. § 2903 community reinvestment record evaluation requirement and potential consent order exposure. Our banking litigation practice handles rating challenge procedures, examination response strategy, and parallel consent order defense across regulatory enforcement proceedings.

Bank merger applications under Bank Merger Act (12 U.S.C. § 1828(c)) and Bank Holding Company Act (12 U.S.C. § 1842) require agencies to consider applicant's CRA performance with public notice and 30-day comment period for community input. Community groups (NCRC, local advocates) submit formal comments highlighting CRA deficiencies, redlining patterns, and unfulfilled community commitments creating substantial review delay and remediation pressure. Public hearings under § 1842 may be required for significant applications with substantial community opposition or controversial CRA performance issues. Community Benefits Agreements (CBAs) negotiated by merger applicants with community groups provide commitment frameworks including lending pledges, investment commitments, and branch maintenance promises addressing CRA concerns pre-merger. Our civil rights litigation practice handles merger application defense, public comment response, and parallel Community Benefits Agreement negotiation across bank consolidation transactions.

Recent CRA enforcement actions include consent orders requiring increased community development investments, branch openings in underserved areas, fair lending program enhancements, and management oversight strengthening with public disclosure of remediation. OCC, FDIC, and Federal Reserve coordinate fair lending enforcement under DOJ referral framework for pattern-or-practice violations under ECOA § 706(g) and Fair Housing Act § 814. Parallel state attorney general fair lending enforcement under state UDAP statutes creates additional remediation layer with potential settlement obligations and ongoing monitoring requirements. Recent redlining enforcement actions in 2023-2024 (Washington Trust, Citizens Bank, Patriot Bank, ESSA Bank) demonstrate enhanced DOJ Fair Lending Unit focus with substantial monetary penalties and remediation obligations. Coordinated class actions and consumer defense counsel manages consent order remediation, DOJ Fair Lending Unit investigation defense, and parallel state AG enforcement coordination across multi-agency proceedings.

The 1995 CRA framework remains in effect after the 2023 CRA Final Rule was enjoined by Texas Bankers Association v. OCC (N.D. Tex. March 2024) and the agencies announced intent to rescind the 2023 rule in March 2025. Current framework applies three-test structure (Lending, Investment, Service Tests) to Large Banks with simpler standards for Intermediate Small and Small Banks. The 2023 modernization rule never took effect, and banks continue operating under the longstanding 1995 framework.

CRA ratings for Large Banks are determined through three-test analysis weighing Lending Test (approximately 50%), Investment Test (25%), and Service Test (25%) with composite rating assigned at Outstanding, Satisfactory, Needs to Improve, or Substantial Noncompliance level. Examiners consider geographic distribution, borrower characteristics, community development activities, and innovation/flexibility within each test category. Public CRA Performance Evaluations (PEs) provide detailed rating documentation available to public scrutiny.

Less Than Satisfactory ratings (Needs to Improve or Substantial Noncompliance) create substantial merger application risk under Bank Merger Act § 1828(c) requirement to consider applicant's CRA performance record. While not automatic merger blocker, Less Than Satisfactory ratings frequently trigger public hearings, extended review periods, additional remediation commitments, and Community Benefits Agreement requirements. Community group opposition focused on CRA deficiencies can substantially delay or modify merger approval.