The must anticipated Community Reinvestment Act (CRA) Interagency Final Rule was released on October 24, 2023. The release was the first time the rule had been revised in almost three decades. The final rule included a comprehensive overhaul of the requirements, including how banks will be evaluated. The Community Reinvestment Act (CRA) was created in 1977 and was designed to encourage banks to meet the credit needs of communities, with a strategic focus on low to moderate income communities. On April 1, 2024, the final rule and the public file requirements will be implemented. Banks have until January 1, 2026, to comply with most of the remaining provisions:
- New definitions
- Revised bank size and categories
- Designation of the eleven qualification criteria
- Interagency illustrative list of qualifying activities
- Retail lending assessment areas
- Receive credit for community development activities anywhere in the country, and
- data collection
The reporting requirements, for large banks only, will become effective on January 1, 2027, with the data to be reported no later than April 1, 2027. The final rule was designed to meet eight key objectives:
- CRA continues to be a strong and effective tool to address the credit needs of the underbanked and create innovative solutions to expand access to credit;
- Adapt to changes such as expanded role of mobile and online banking;
- Providing greater clarity, consistency, and transparency;
- Tailoring CRA evaluations and data collection to a bank’s size and business model;
- Tailor data collection and reporting requirements and use existing data whenever possible;
- Promote transparency;
- CRA and fair lending responsibilities are mutually reinforcing; and
- Promote a consistent regulatory approach.
The size and category requirements in the final rule are listed in the figure below:
Each of the tests for large and intermediate banks are listed below:
- Large Banks: Retail Lending Test (40%), Retail Products and Services Test (40%), Community Development Financing Test (10%), and Community Development Servicing Test (10%).
- Intermediate Banks: Retail Lending Test (50%), and either the existing Community Development Test or the Community Development Financing test (50%).
Additional retail services and product evaluations will be required for banks over $10 billion. It would include an evaluation of their digital delivery systems, and the availability and usage of responsive deposit products. Other new requirements for large banks include creating a retail lending assessment area (RLAA). The RLAA is map of geographic areas where the bank has originated at least 150 closed-end mortgage loans or 400 small-business loans in each of the two prior calendar years. Banks are excluded from this requirement when they conduct 80% or more of specified retail lending activity inside of their facility-based assessment areas. Facility based assessment areas are still at the core of a CRA examination. The agencies will develop a publicly available illustrative list of qualifying CRA activities. Banks can request clarification from their regulator for activities not included on the illustrative list.
Most people want to know what types of regulatory changes are expected over the next year or so to plan accordingly and increase compliance budgets for staffing or other resources. To help you prepare, here is a list of firm changes with effective dates, and what we believe is likely to either be finalize or become effective by December 31, 2024:
- Beneficial Ownership Rule – The new rule is effective January 1, 2024. Reporting companies created or registered before that date will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after creation or registration to file their initial reports;
- Section 1071 – A financial institution must begin collecting data and otherwise complying with the final rule on October 1, 2024, if it originated at least 2,500 covered originations in both 2022 and 2023;
- The Federal Deposit Insurance Corporation is amending its regulations governing deposit insurance coverage. The amendments simplify the deposit insurance regulations by establishing a “trust accounts” category that governs coverage of deposits of both revocable trusts and irrevocable trusts using a common calculation and provide consistent deposit insurance treatment for all mortgage servicing account balances held to satisfy principal and interest obligations to a lender.
- The Securities and Exchange Commission today adopted rules requiring registrants to disclose material cybersecurity incidents they experience and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy, and governance. Small companies won’t be required to comply until June 18th, 2024, at the latest;
- The National Institute for Standards and Technology (NIST) has published draft revisions to its Cybersecurity Framework (CSF). Public comments on the draft will be accepted until November 4. The developers plan to publish the final version of CSF 2.0 in early 2024.
- Section 1033: Personal Financial Data Rights – Expected effective date in 2024 – Gives consumers rights over their data, requires providers to create and deliver disclosures, and allows consumers to “break up” and change institutions if the are unhappy with their current provider. Due to other expected final rules in late 2023, we probably won’t see a final rule for this law until 2024.
- The FDIC proposed three options to reform the deposit insurance system to further ensure financial system stability, depositor protection, and reduce the risk of bank run offs like we saw earlier in the year. We don’t expect a final rule until sometime in 2024.
It’s only a matter of time before the US offers a digital currency option. The Stablecoin Transparency Bill would create legislation and guidance for a US digital currency option that would be fully backed by the US dollar, making it a stable cryptocurrency option. A final bill is not expected until late 2024 or early 2025.
Cybersecurity threats will continue to increase. This will cause added stress on existing, qualified cybersecurity professionals, causing them to switch jobs more frequently. Additionally, both federal and state privacy laws are expected to increase in 2024.
The Consumer Financial Protection Bureau (Bureau) issued a proposal to amend Regulation Z, which implements the Truth in Lending Act (TILA), to better ensure that the late fees charged on credit card accounts are “reasonable and proportional” to the late payment as required under TILA. A final rule is not expected until 2024.
An interagency proposed rule was released earlier this year that would likely implement quality control standards for automated valuation models (AVMs) used by mortgage originators and secondary market issuers, used to determine the value of consumer’s principal dwelling. The final rule is not expected until 2024.