Community Reinvestment Act

Federal RegisterJun 3, 2022

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 25

[Docket ID OCC-2022-0002]

RIN 1557-AF15

FEDERAL RESERVE SYSTEM

12 CFR Part 228

[Regulation BB; Docket No. R-1769]

RIN 7100-AG29

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 345

RIN 3064-AF81

Community Reinvestment Act

AGENCY:

Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; and Office of the Comptroller of the Currency, Treasury

ACTION:

Joint notice of proposed rulemaking; request for comment.

SUMMARY:

The Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) propose to amend their regulations implementing the Community Reinvestment Act of 1977 (CRA) to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated.

DATES:

Comments must be received on or before August 5, 2022.

ADDRESSES:

Comments should be directed to:

OCC:

Commenters are encouraged to submit comments through the Federal eRulemaking Portal. Please use the title “Community Reinvestment Act” to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods:

•

Federal eRulemaking Portal—Regulations.gov:

Go to

https://regulations.gov/.

Enter “Docket ID OCC-2022-0002” in the Search Box and click “Search.” Public comments can be submitted via the “Comment” box below the displayed document information or by clicking on the document title and then clicking the “Comment” box on the top-left side of the screen. For help with submitting effective comments please click on “Commenter's Checklist.” For assistance with the

Regulations.gov

site, please call (877) 378-5457 (toll free) or (703) 454-9859 Monday-Friday, 9 a.m.-5 p.m. EST or email

regulations@erulemakinghelpdesk.com.

•

Mail:

Chief Counsel's Office, Attention: Comment Processing, Office of the Comptroller of the Currency, 400 7th Street SW, Suite 3E-218, Washington, DC 20219.

•

Hand Delivery/Courier:

400 7th Street SW, Suite 3E-218, Washington, DC 20219.

Instructions:

You must include “OCC” as the agency name and “Docket ID OCC-2022-0002” in your comment. In general, the OCC will enter all comments received into the docket and publish the comments on the

Regulations.gov

website without change, including any business or personal information provided such as name and address information, email addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not include any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure.

You may review comments and other related materials that pertain to this action by the following method:

•

Viewing Comments Electronically—Regulations.gov:

Go to

https://regulations.gov/.

Enter “Docket ID OCC-2022-0002” in the Search Box and click “Search.” Click on the “Documents” tab and then the document's title. After clicking the document's title, click the “Browse Comments” tab. Comments can be viewed and filtered by clicking on the “Sort By” drop-down on the right side of the screen or the “Refine Results” options on the left side of the screen. Supporting materials can be viewed by clicking on the “Documents” tab and filtered by clicking on the “Sort By” drop-down on the right side of the screen or the “Refine Documents Results” options on the left side of the screen.” For assistance with the

Regulations.gov

site, please call (877) 378-5457 (toll free) or (703) 454-9859 Monday-Friday, 9 a.m.-5 p.m. EST or email

regulations@erulemakinghelpdesk.com.

The docket may be viewed after the close of the comment period in the same manner as during the comment period.

Board:

You may submit comments, identified by Docket No. R-1769 and RIN 7100-AG29, by any of the following methods:

•

Agency Website: http://www.federalreserve.gov.

Follow the instructions for submitting comments at

http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.

•

Email:

regs.comments@federalreserve.gov.

Include docket and RIN numbers in the subject line of the message.

•

Fax:

(202) 452-3819 or (202) 452-3102.

•

Mail:

Ann E. Misback, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551.

Instructions:

All public comments are available from the Board's website at

http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm

as submitted. Accordingly, comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room M-4365A, 2001 C Street NW, Washington, DC 20551, between 9:00 a.m. and 5:00 p.m. during Federal business weekdays. For security reasons, the Board requires that visitors make an appointment to inspect comments. You may do so by calling (202) 452-3684. Upon arrival, visitors will be required to present valid government-issued photo identification and to submit to security screening in order to inspect and photocopy comments. For users of TTY-TRS, please call 711 from any telephone, anywhere in the United States.

FDIC:

You may submit comments, identified by RIN 3064-AF81, by any of the following methods:

•

Agency Website: https://www.fdic.gov/resources/regulations/federal-register-publications/.

Follow instructions for submitting comments on the Agency website.

•

Email:

comments@fdic.gov.

Include RIN 3064-AF81 on the subject line of the message.

•

Mail:

James P. Sheesley, Assistant Executive Secretary, Attention: Comments RIN 3064-AF81, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429.

•

Hand Delivery/Courier:

Comments may be hand delivered to the guard station at the rear of the 550 17th Street NW building (located on F Street NW) on business days between 7:00 a.m. and 5:00 p.m.

Public Inspection:

Comments received, including any personal information provided, may be posted without change to

https://www.fdic.gov/resources/regulations/federal-register-publications/.

Commenters should submit only information that the commenter wishes to make available publicly. The FDIC may review, redact, or refrain from posting all or any portion

of any comment that it may deem to be inappropriate for publication, such as irrelevant or obscene material. The FDIC may post only a single representative example of identical or substantially identical comments, and in such cases will generally identify the number of identical or substantially identical comments represented by the posted example. All comments that have been redacted, as well as those that have not been posted, that contain comments on the merits of this notice will be retained in the public comment file and will be considered as required under all applicable laws. All comments may be accessible under the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT:

OCC:

Heidi Thomas, Special Counsel, or Emily Boyes, Counsel, Chief Counsel's Office, (202) 649-5490; or Vonda Eanes, Director for CRA and Fair Lending Policy, or Karen Bellesi, Director for Community Development, Bank Supervision Policy, (202) 649-5470, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services.

Board:

S. Caroline (Carrie) Johnson, Manager, Division of Consumer and Community Affairs, (202) 452-2762; Amal S. Patel, Counsel, Division of Consumer and Community Affairs, (202) 912-7879, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. For users of TTY-TRS, please call 711 from any telephone, anywhere in the United States.

FDIC:

Patience R. Singleton, Senior Policy Analyst, Supervisory Policy Branch, Division of Depositor and Consumer Protection, (202) 898-6859; Pamela Freeman, Chief Fair Lending and CRA Examination Section, Division of Depositor and Consumer Protection, (202) 898-3656; Richard M. Schwartz, Counsel, Legal Division, (202) 898- 7424; or Sherry Ann Betancourt, Counsel, Legal Division, (202) 898- 6560, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

In this Notice of Proposed Rulemaking (NPR or proposal), the OCC, Board, and the FDIC, (together referred to as “the agencies”) seek feedback on changes to update and clarify the regulations to implement the CRA.

The CRA encourages banks

to help meet the credit needs of the local communities in which they are chartered, consistent with a bank's safe and sound operations, by requiring the Federal banking regulatory agencies to examine banks' records of meeting the credit needs of their entire community, including low- and moderate-income neighborhoods.

12 U.S.C. 2901

et seq.

For purposes of this

SUPPLEMENTARY INFORMATION

, the term “bank” includes insured national and state banks, Federal and state savings associations, Federal branches as defined in 12 CFR part 28, insured State branches as defined in 12 CFR 345.11(c), and state member banks as defined in 12 CFR part 208, except as provided in 12 CFR __.11(c).

The agencies implement the CRA through their CRA regulations.

The CRA regulations establish the framework and criteria by which the agencies assess a bank's record of helping to meet the credit needs of its community, including low- and moderate-income neighborhoods, consistent with safe and sound operations. Under the CRA regulations, the agencies apply different evaluation standards for banks of different asset sizes and types.

See

12 CFR part 25 (OCC), 12 CFR part 228 (Regulation BB) (Board), and 12 CFR part 345 (FDIC). For clarity and to streamline references, citations to the agencies'

existing

common CRA regulations are provided in the following format: 12 CFR __.xx; for example, references to 12 CFR 25.12 (OCC), 12 CFR 228.12 (Board), and 12 CFR 345.12 (FDIC) would be streamlined as follows: “12 CFR __.12.” Likewise, references to the agencies'

proposed

common CRA regulations are provided in the following format: “proposed § __.xx.”

This NPR seeks to update the CRA regulations in adherence with objectives that include the following:

• Update CRA regulations to strengthen the achievement of the core purpose of the statute;

• Adapt to changes in the banking industry, including the expanded role of mobile and online banking;

• Provide greater clarity and consistency in the application of the regulations;

• Tailor performance standards to account for differences in bank size and business models and local conditions;

• Tailor data collection and reporting requirements and use existing data whenever possible;

• Promote transparency and public engagement;

• Confirm that CRA and fair lending responsibilities are mutually reinforcing; and

• Create a consistent regulatory approach that applies to banks regulated by all three agencies.

A key part of the proposal is a new evaluation framework for evaluating CRA performance for banks. The agencies propose an evaluation framework that would establish the following four tests for large banks: Retail Lending Test; Retail Services and Products Test; Community Development Financing Test; and Community Development Services Test. Intermediate banks would be evaluated under the Retail Lending Test and the

status quo

community development test, unless they choose to opt into the Community Development Financing Test. Small banks would be evaluated under the

status quo

small bank lending test, unless they choose to opt into the Retail Lending Test. Wholesale and limited purpose banks would be evaluated under a tailored version of the Community Development Financing Test.

The agencies request feedback on all aspects of the proposal, including but not limited to the specific questions outlined in the

SUPPLEMENTARY INFORMATION

. The agencies are setting forth in this

SUPPLEMENTARY INFORMATION

the proposed rule using common regulation text for ease of commenter review. The agencies are proposing agency-specific amendatory text where necessary to account for differing agency authority and terminology.

Table of Contents

I. Introduction

II. Overview of Proposed Rule

III. Community Development Definitions

IV. Qualifying Activities Confirmation and Illustrative List of Activities

V. Impact Review of Community Development Activities

VI. Assessment Areas and Areas for Eligible Community Development Activity

VII. Performance Tests, Standards, and Ratings in General

VIII. Retail Lending Test Product Categories and Major Product Lines

IX. Retail Lending Test Evaluation Framework for Facility-Based Assessment Areas and Retail Lending Assessment Areas

X. Retail Lending Test Evaluation Framework for Retail Lending Test Conclusions at the State, Multistate MSAs, and Institution Level

XI. Retail Services and Products Test

XII. Community Development Financing Test

XIII. Community Development Services Test

XIV. Wholesale and Limited Purpose Banks

XV. Strategic Plans

XVI. Assigned Conclusions and Ratings

XVII. Performance Standards for Small Banks and Intermediate Banks

XVIII. Effect of CRA Performance on Applications

XIX. Data Collection, Reporting, and Disclosure

XX. Content and Availability of Public File, Public Notice by Banks, Publication of Planned Examination Schedule, and Public Engagement

XXI. Transition

XXII. Regulatory Analysis

XXIII. Text of Common Proposed Rule (All Agencies)

I. Introduction

A. Background

The CRA is designed to encourage regulated banks to help meet the credit needs of the local communities in which they are chartered. Specifically, Congress found that “(1) regulated financial institutions are required by law to demonstrate that their deposit facilities serve the convenience and needs of the communities in which they are chartered to do business; (2) the convenience and needs of communities include the need for credit as well as deposit services; and (3) regulated financial institutions have continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered.”

12 U.S.C. 2901(a).

The CRA statute requires the agencies to “assess the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution.”

Upon completing this assessment, the statute requires the agencies to “prepare a written evaluation of the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods.”

In addition, the statute requires making portions of these written evaluations, referred to by the agencies as performance evaluations, available to the public.

The statute further provides that each agency must consider a bank's CRA performance “in its evaluation of an application for a deposit facility by such institution.”

12 U.S.C. 2903(a)(1).

12 U.S.C. 2906(a).

12 U.S.C. 2906(b).

12 U.S.C. 2903(a)(2).

Since its enactment, Congress has amended the CRA several times, including through: the Financial Institutions Reform, Recovery, and Enforcement Act of 1989

(which required public disclosure of a bank's CRA written evaluation and rating); the Federal Deposit Insurance Corporation Improvement Act of 1991

(which required the inclusion of a bank's CRA examination data in the determination of its CRA rating); the Housing and Community Development Act of 1992

(which included assessment of the record of nonminority-owned and nonwomen-owned banks in cooperating with minority-owned and women-owned banks and low-income credit unions); the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994

(which (i) required an agency to consider an out-of-state national bank's or state bank's CRA rating when determining whether to allow interstate branches, and (ii) prescribed certain requirements for the contents of the written CRA evaluation for banks with interstate branches); and the Gramm-Leach-Bliley Act of 1999

(which, among other things, provided regulatory relief for smaller banks by reducing the frequency of their CRA examinations).

Public Law 101-73, 103 Stat. 183 (Aug. 9, 1989).

Public Law 102-242, 105 Stat. 2236 (Dec. 19, 1991).

Public Law 102-550, 106 Stat. 3874 (Oct. 28, 1992).

Public Law 103-328, 108 Stat. 2338 (Sept. 29, 1994).

Public Law 106-102, 113 Stat. 1338 (Nov. 12, 1999).

Congress directed the agencies to publish regulations to carry out the CRA's purposes,

and in 1978 the agencies promulgated the first CRA regulations, which included evidence of prohibited discriminatory or other illegal credit practices as a performance factor.

Since then, the agencies have together significantly revised and sought to clarify their CRA regulations twice, in 1995 and 2005—with the most substantive interagency update occurring in 1995. In addition, the agencies have periodically jointly published the Interagency Questions and Answers Regarding Community Reinvestment (Interagency Questions and Answers)

to provide guidance on the CRA regulations.

12 U.S.C. 2905.

43 FR 47144 (Oct. 12, 1978). Congress also charged, in addition to the agencies, the Office of Thrift Supervision (OTS) and its predecessor agency, the Federal Home Loan Bank Board, with implementing the CRA. The OTS had CRA rulemaking and supervisory authority for all savings associations. Pursuant to Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376, 1522 (2010), the OTS's CRA rulemaking authority for all savings associations transferred to the OCC and the OTS's CRA supervisory authority for State savings associations transferred to the FDIC. As a result, the OCC's CRA regulation applies to both State and Federal savings associations, in addition to national banks, and the FDIC enforces the OCC's CRA regulations with respect to State savings associations.

See

81 FR 48506 (July 25, 2016). “Interagency Questions and Answers” refers to the “Interagency Questions and Answers Regarding Community Reinvestment” guidance in its entirety. “Q&A” refers to an individual question and answer within the Interagency Questions and Answers.

B. The Current CRA Regulations and Guidance for Performance Evaluations

1. CRA Performance Evaluations

The agencies' CRA regulations provide different methods to evaluate a bank's CRA performance depending on its asset size and business strategy.

Under the current framework:

See generally

12 CFR _.21 through _.27. The agencies annually adjust the CRA asset-size thresholds based on the annual percentage change in a measure of the Consumer Price Index.

• Small banks—currently, those with assets of less than $346 million as of December 31 of either of the prior two calendar years—are evaluated under a lending test and may receive an “Outstanding” rating based only on their retail lending performance. Qualified investments, services, and delivery systems that enhance credit availability in a bank's assessment areas may be considered for an “Outstanding” rating, but only if the bank meets or exceeds the lending test criteria in the small bank performance standards.

• Intermediate small banks—currently, those with assets of at least $346 million as of December 31 of both of the prior two calendar years and less than $1.384 billion as of December 31 of either of the prior two calendar years—are evaluated under the lending test for small banks and a community development test. The intermediate small bank community development test evaluates all community development activities together.

• Large banks—currently, those with assets of more than $1.384 billion as of December 31 of both of the prior two calendar years—are evaluated under separate lending, investment, and service tests. The lending and service tests consider both retail and community development activities, and the investment test focuses on qualified community development investments. To facilitate the agencies' CRA analysis, large banks are required to report annually certain data on community development loans, small business loans, and small farm loans (small banks and intermediate small banks are not required to report these data unless they opt into being evaluated under the large bank lending test).

• Designated wholesale banks (those engaged in only incidental retail lending) and limited purpose banks (those offering a narrow product line to a regional or broader market) are evaluated under a standalone community development test.

• Banks of any size may elect to be evaluated under a strategic plan that sets out measurable, annual goals for lending, investment, and service activities in order to achieve a “Satisfactory” or an “Outstanding” rating. A strategic plan must be developed with community input and approved by the appropriate Federal banking agency.

The agencies also consider applicable performance context information to inform their analysis and conclusions when conducting CRA examinations. Performance context comprises a broad range of economic, demographic, and bank- and community-specific information that examiners review to calibrate a bank's CRA evaluation to its local communities.

2. Assessment Areas

The existing CRA regulations require a bank to delineate one or more assessment areas in which its record of meeting its CRA obligations will be evaluated.

The regulations require a bank to delineate assessment areas consisting of geographic areas (metropolitan statistical areas (MSAs) or metropolitan divisions) or political subdivisions

in which its main office, branches, and deposit-taking automated teller machines (ATMs) are located, as well as the surrounding geographies (

i.e.,

census tracts)

where a substantial portion of its loans are originated or purchased.

12 CFR _.41.

Political subdivisions include cities, counties, towns, townships, and Indian reservations.

See

Q&A § _.41(c)(1)-1.

12 CFR _.12(k).

The assessment area requirements and emphasis on branches reflects the prevailing business model for financial service delivery when the CRA was enacted. The statute instructs the agencies to assess a bank's record of meeting the credit needs of its “entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution, and to take such record into account in its evaluation of an application for a deposit facility by such institution.”

The statute does not prescribe the delineation of assessment areas, but they are an important aspect of the regulation because they define “community” for purposes of the evaluation of a bank's CRA performance.

12 U.S.C. 2903(a).

3. Qualifying Activities

The CRA regulations and the Interagency Questions and Answers provide detailed information, including applicable definitions and descriptions, respectively, regarding activities that are eligible for CRA consideration in the evaluation of a bank's CRA performance. Banks that are evaluated under a performance test that includes a review of their retail activities are assessed in connection with retail lending activity (as applicable, home mortgage loans, small business loans, small farm loans, and consumer loans)

and, where applicable, retail banking service activities (

e.g.,

the current distribution of a bank's branches in geographies of different income levels, and the availability and effectiveness of the bank's alternative systems for delivering banking services to low- and moderate-income geographies and individuals).

12 CFR_.12(j), (l), (v), and (w).

See generally

12 CFR _.21 through _.27 and _.24(d).

Banks evaluated under a performance test that includes a review of their community development activities are assessed with respect to community development lending, qualified investments, and community development services, which by definition must have a primary purpose of community development.

See generally

12 CFR _.12(g), (h), (i), and (t) and 12 CFR _.21 through _.27.

4. Guidance for Performance Evaluations

In addition to information included in their CRA regulations, the agencies also provide information to the public regarding how CRA performance tests are applied, where CRA activities are considered, and what activities are eligible through publicly available CRA performance evaluations,

the Interagency Questions and Answers, interagency CRA examination procedures,

and interagency instructions for writing performance evaluations.

See, e.g., https://apps.occ.gov/crasearch/default.aspx

(OCC);

https://www.federalreserve.gov/apps/CRAPubWeb/CRA/BankRating

(Board);

https://crapes.fdic.gov/

(FDIC).

See, e.g.,

Federal Financial Institutions Examination Council (FFIEC), “Community Reinvestment Act: CRA Examinations,”

https://www.ffiec.gov/cra/examinations.htm.

Id.

C. Stakeholder Feedback and Recent Rulemaking

The financial services industry has undergone transformative changes since the CRA statute was enacted, including the removal of national bank interstate branching restrictions and the expanded role of mobile and online banking. To better understand how these developments impact both consumer access to banking products and services and a bank's CRA performance, the agencies have reviewed feedback from the banking industry, community groups, academics, and other stakeholders on several occasions.

1. Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA)

From 2013 to 2016, the agencies solicited feedback on the CRA as part of the EGRPRA review process.

Stakeholders raised issues related to assessment area definitions; incentives for banks to serve low- and moderate-income, unbanked, underbanked, and rural individuals and communities; recordkeeping and reporting requirements; the need for clarity regarding performance measures and better examiner training to ensure consistency in examinations; and refinement of CRA ratings.

See, e.g.,

80 FR 7980 (Feb. 13, 2015).

See

FFIEC, Joint Report to Congress: Economic Growth and Regulatory Paperwork Reduction Act, 82 FR 15900 (Mar. 30, 2017),

https://www.ffiec.gov/pdf/2017_FFIEC_EGRPRA_Joint-Report_to_Congress.pdf.

2. OCC CRA Advance Notice of Proposed Rulemaking and Federal Reserve Outreach Sessions

On September 5, 2018, the OCC published an Advance Notice of Proposed Rulemaking (ANPR) to solicit ideas for a new CRA regulatory framework.

More than 1,500 comment letters were submitted in response. To augment that input, the Federal Reserve System (the Board and the Federal Reserve Banks) held about 30 outreach meetings with representatives of banks, community organizations, and the other agencies.

83 FR 45053 (Sept. 5, 2018).

For a summary of the Federal Reserve outreach session feedback,

see

“Perspectives from Main Street: Stakeholder Feedback on Modernizing the Community Reinvestment Act” (June 2019),

https://www.federalreserve.gov/publications/files/stakeholder-feedback-on-modernizing-the-community-reinvestment-act-201906.pdf.

3. OCC-FDIC CRA Notice of Proposed Rulemaking and OCC CRA Final Rule

On December 12, 2019, the FDIC and the OCC issued a joint NPR to revise and update their CRA regulations.

In response, the FDIC and the OCC received over 7,500 comment letters.

85 FR 1204 (Jan. 9, 2020).

On May 20, 2020, the OCC issued a CRA final rule (OCC 2020 CRA final rule), retaining the most fundamental elements of the proposal but also making adjustments to reflect stakeholder input.

The OCC deferred establishing the metrics-framework for evaluating banks' CRA performance until it was able to assess additional data,

with the final rule having an

October 1, 2020 effective date and January 1, 2023 and January 1, 2024 compliance dates for certain provisions.

85 FR 34734 (June 5, 2020).

See

OCC, News Release 2020-63, “OCC Finalizes Rule to Strengthen and Modernize Community Reinvestment Act Regulations” (May

20, 2020),

https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-63.html; see also

85 FR at 34736.

85 FR at 34784.

4. Board CRA Advance Notice of Proposed Rulemaking

On September 21, 2020, the Board issued a CRA ANPR (Board CRA ANPR) requesting public comment on an approach to modernize the CRA regulations by strengthening, clarifying, and tailoring them to reflect the current banking landscape and better meet the core purpose of the CRA.

The Board CRA ANPR sought feedback on ways to evaluate how banks meet the needs of low- and moderate-income communities and address inequities in credit access. The Board received over 600 comment letters on this ANPR.

85 FR 66410 (Oct. 19, 2020).

5. Recent Developments

On July 20, 2021, the agencies issued an interagency statement indicating their commitment to working collectively to, in a consistent manner, strengthen and modernize their CRA regulations.

On the same day, the OCC stated its intention to rescind the OCC 2020 CRA final rule.

Subsequently, on September 8, 2021, the OCC issued a notice of proposed rulemaking to rescind the OCC 2020 CRA final rule and replace it with CRA regulations based on those that the agencies jointly issued in 1995, as amended.

On December 15, 2021, the OCC issued a final rule completing the rescission and replacement effective January 1, 2022. The final rule also integrated the OCC's CRA regulation for savings associations into its national bank CRA regulation at 12 CFR part 25.

See

Interagency Statement on Community Reinvestment Act, Joint Agency Action (July 20, 2021),

https://www.occ.gov/news-issuances/news-releases/2021/nr-ia-2021-77.html

(OCC);

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210720a.htm

(Board);

https://www.fdic.gov/news/press-releases/2021/pr21067.html

(FDIC).

See

OCC, News Release 2021-76, Statement on Rescinding its 2020 Community Reinvestment Act Rule (July 20, 2021),

https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-76.html.

86 FR 52026 (Sept. 17, 2021).

86 FR 71328 (Dec. 15, 2021).

D. CRA, Illegal Discrimination, and Fair Lending

The CRA was one of several laws enacted in the 1960s and 1970s to address fairness and financial inclusion in access to housing and credit. During this period, Congress passed the Fair Housing Act (FHA) in 1968,

to prohibit discrimination in renting or buying a home,

and the Equal Credit Opportunity Act (ECOA) in 1974

(amended in 1976), to prohibit creditors from discriminating against an applicant in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, or age. These fair lending laws provide the legal basis for prohibiting discriminatory lending practices based on race and ethnicity.

42 U.S.C. 3601

et seq.

42 U.S.C. 3604 through 3606.

15 U.S.C. 1691

et seq.

See

Interagency Fair Lending Examination Procedures (Aug. 2009),

available at https://www.ffiec.gov/pdf/fairlend.pdf.

Prior to passage of these laws, inequitable access to credit and other financial services—due in large part to a practice known as “redlining”—along with a lack of public and private investment, greatly contributed to the economic distress experienced by lower-income and minority communities. The former Federal Home Owners' Loan Corporation (HOLC), established in 1933, employed color-coded maps

to designate its perception of the relative risk of lending in a range of neighborhoods, with “hazardous” (the highest risk) areas coded in red often with reference to the racial makeup of the neighborhood.

In addition to referring to HOLC maps, the term redlining has also been used to more broadly describe excluding neighborhoods or areas from provision of credit or other financial services on account of the race or ethnicity of residents in those areas. As Senator William Proxmire, who authored the CRA legislation, testified when discussing its purpose:

See

University of Richmond's Digital Scholarship Lab, “Mapping Inequality: Redlining in New Deal America,”

https://dsl.richmond.edu/panorama/redlining/#loc=5/39.1/-

94.58 (archive of HOLC maps).

See, e.g.,

Daniel Aaronson, Daniel Hartley, and Bhashkar Mazumder, Federal Reserve Bank of Chicago, “The Effects of the 1930s HOLC `Redlining' Map” (Revised Aug. 2020),

https://www.chicagofed.org/publications/working-papers/2017/wp2017-12,

p.1 (“Neighborhoods were classified based on detailed risk-based characteristics, including housing age, quality, occupancy, and prices. However, non-housing attributes such as race, ethnicity, and immigration status were influential factors as well. Since the lowest rated neighborhoods were drawn in red and often had the vast majority of African American residents, these maps have been associated with the so-called practice of `redlining' in which borrowers are denied access to credit due to the demographic composition of their neighborhood.”).

By redlining let me make it clear what I am talking about. I am talking about the fact that banks and savings and loans will take their deposits from a community and instead of reinvesting them in that community, they will actually or figuratively draw a red line on a map around the areas of their city, sometimes in the inner city, sometimes in the older neighborhoods, sometimes ethnic and sometimes black, but often encompassing a great area of their neighborhood.

123 Cong. Rec. 17630 (June 6, 1977).

Even with the implementation of the CRA and the other complementary laws, the wealth gap and disparities in other financial outcomes remain persistent. For example, “data from the 2019 Survey of Consumer Finances (SCF) show that long-standing and substantial wealth disparities between families in different racial and ethnic groups were little changed since the last survey in 2016; the typical White family has eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family.”

Neil Bhutta et al., “Disparities in Wealth by Race and Ethnicity in the 2019 Survey of Consumer Finances” (Sept. 28, 2020),

https://www.federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-finances-20200928.htm.

The Board CRA ANPR discussed this history of redlining and racial discrimination prior to the enactment of these laws and asked for feedback on the following question: “In considering how the CRA's history and purpose relate to the nation's current challenges, what modifications and approaches would strengthen CRA regulatory implementation in addressing ongoing systemic inequity in credit access for minority individuals and communities?”

The Board received comments from a number of stakeholders on this question, providing feedback across different topics.

85 FR at 66413.

As has been the case since the first regulations were issued by the agencies, the agencies continue to recognize that CRA and fair lending are mutually reinforcing. In this NPR, the agencies propose to retain the conditions that bank assessment areas are prohibited from reflecting illegal discrimination or arbitrarily excluding low- or moderate-income census tracts. The agencies also propose to retain the regulatory provision that CRA ratings can be downgraded as a result of discriminatory practices, among other practices. The agencies are committed to upholding their regulatory responsibilities for both fair lending and CRA examinations, and the agencies seek to coordinate those examinations where feasible to do so.

In furtherance of the agencies' objective to promote transparency, the agencies propose providing additional information to the public in CRA performance evaluations for large banks related to the distribution by borrower

race and ethnicity of the bank's home mortgage loan originations and applications in each of the bank's assessment areas. This disclosure would leverage existing data available under the Home Mortgage Disclosure Act (HMDA). As discussed in Section XIX of this

SUPPLEMENTARY INFORMATION

, providing the data in this disclosure would have no independent impact on the conclusions or ratings of the bank and would not on its own reflect any fair lending finding or violation. Instead, this proposal is intended to provide transparent information to the public.

II. Overview of Proposed Rule

This

SUPPLEMENTARY INFORMATION

includes a detailed discussion of the proposed rule, including on the following topics:

Community Development Definitions.

Section III discusses the following proposed definitions for community development activities: Affordable housing; economic development that supports small businesses and small farms; community supportive services; revitalization activities; essential community facilities; essential community infrastructure; recovery activities in designated disaster areas; disaster preparedness and climate resiliency activities; activities with minority depository institutions (MDIs), women's depository-institutions (WDIs), low-income credit unions (LICUs), and Community Development Financial Institutions (CDFIs) certified by the U.S. Department of the Treasury (Treasury Department), referred to as Treasury Department-certified CDFIs; financial literacy; and qualifying activities in Native Land Areas. The agencies propose using a

primary purpose

standard for determining eligibility of the above activities, with

pro rata

consideration for certain affordable housing activities.

Qualifying Activities Confirmation and Illustrative List of Activities.

Section IV describes the agencies' proposal to maintain a publicly available illustrative, non-exhaustive list of activities eligible for CRA consideration. In addition, the agencies propose a process, open to banks, for confirming eligibility of community development activities in advance.

Impact Review of Community Development Activities.

Section V describes the agencies' proposal for specific impact review factors to inform the impact and responsiveness evaluation of a bank's activities under the Community Development Financing Test, the Community Development Services Test, and the Community Development Financing Test for Wholesale or Limited Purpose Banks.

Assessment Areas and Areas for Eligible Community Development Activity.

Section VI describes proposals on delineating facility-based assessment areas for main offices, branches, and deposit-taking remote service facilities (to include ATMs). Under the proposal, large banks would delineate assessment areas comprised of full counties, metropolitan divisions, or MSAs. Intermediate and small banks could continue to delineate partial county facility-based assessment areas, consistent with current practice.

The section also describes the proposal for large banks to delineate retail lending assessment areas where a bank has concentrations of home mortgage and/or small business lending outside of its facility-based assessment areas. Under this proposal, a large bank would delineate retail lending assessment areas where it has an annual lending volume of at least 100 home mortgage loan originations or at least 250 small business loan originations in an MSA or nonmetropolitan area of a state for two consecutive years.

The section also discusses the proposal to allow banks to receive CRA credit for any qualified community development activity, regardless of location, although performance within facility-based assessment areas would be emphasized.

Performance Tests, Standards, and Ratings in General.

Section VII describes the agencies' proposed evaluation framework tailored for differences in bank size and business model. The agencies propose the following four tests for large banks: Retail Lending Test; Retail Services and Products Test; Community Development Financing Test; and Community Development Services Test. Intermediate banks would be evaluated under the Retail Lending Test and the

status quo

community development test, unless they choose to opt into the Community Development Financing Test. Small banks would be evaluated under the

status quo

Under this framework, large banks would be banks that had average quarterly assets, computed annually, of at least $2 billion in both of the prior two calendar years; intermediate banks would be banks that had average quarterly assets, computed annually, of at least $600 million in both of the prior two calendar years and less than $2 billion in either of the prior two calendar years; and small banks would be banks that had average quarterly assets, computed annually, of less than $600 million in either of the prior two calendar years. The agencies are in the process of seeking approval from the U.S. Small Business Administration (SBA) to use the $600 million threshold, where applicable and adjusted annually for inflation, rather than the SBA's recently updated size standards.

87 FR 18627, 18830 (Mar. 31, 2022). Of particular relevance to the Agencies' CRA regulations, the SBA revised the size standards applicable to small commercial banks and savings institutions, respectively, from $600 million to $750 million, based upon the average assets reported on such a financial institution's four quarterly financial statements for the preceding year. The final rule has a May 2, 2022 effective date.

The agencies propose to further tailor aspects of the proposal within the large bank category. The agencies propose that certain provisions of the Retail Services and Products Test and Community Development Services Test would apply only to large banks that had average quarterly assets, computed annually, of over $10 billion in both of the prior two calendar years. These banks are referred to in this

SUPPLEMENTARY INFORMATION

as large banks with assets of over $10 billion. Large banks that had average quarterly assets, computed annually, of $10 billion or less in either of the prior two calendar years are referred to in this

SUPPLEMENTARY INFORMATION

as large banks with assets of $10 billion or less.

The section also discusses a new proposed definition of “operations subsidiary” to the Board's CRA regulation and “operating subsidiary” for the FDIC's and OCC's CRA regulations (referred to collectively in this

SUPPLEMENTARY INFORMATION

as “bank subsidiaries”) to identify those bank affiliates whose activities would be required to be attributed to a bank's CRA performance. The agencies propose to maintain the current flexibilities that would allow a bank to choose to include or exclude the activities of other bank affiliates that are not considered “bank subsidiaries.” The section also discusses performance context, and the requirement for activity in accordance with safe and sound operations.

Retail Lending Test Product Categories and Major Product Lines.

Section VIII describes the proposed categories and standards for determining when a bank's retail lending product lines are evaluated under the Retail Lending Test. The agencies propose the following retail lending product line categories: A

closed-end home mortgage, open-end home mortgage, multifamily, small business, and small farm lending. The agencies also propose including automobile lending as an eligible retail lending product line. In addition, the agencies propose a major product line standard to determine when a retail lending product line is evaluated.

The NPR proposes to define the terms “small business” and “small farm” consistent with the Consumer Financial Protection Bureau's (CFPB) proposal under section 1071 (Section 1071 Rulemaking)

of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act

). The CFPB has proposed to define a “small business” as having gross annual revenues of $5 million or less in the preceding fiscal year. The agencies are in the process of seeking approval from the SBA to use the standard proposed by the CFPB in its Section 1071 Rulemaking rather than the SBA's size standards.

See

15 U.S.C. 1691c-2. The CFPB's Section 1071 Rulemaking would amend Regulation B to implement changes to ECOA made by section 1071 of the Dodd-Frank Act. This rulemaking would require covered financial institutions to collect and report to the CFPB data on applications for credit for small businesses, including businesses that are owned by women or minorities.

See

86 FR 56356 (Oct. 8, 2021), as corrected by 86 FR 70771 (Dec. 13, 2021).

Public Law 111-203, 124 Stat. 1376 (July 21, 2010).

This assumes the CFPB's section 1071 rulemaking is finalized as proposed with a “small business” defined as having gross annual revenues of $5 million or less.

Retail Lending Test Evaluation Framework for Facility-Based Assessment Areas and Retail Lending Assessment Areas.

Section IX discusses the proposed Retail Lending Test for standardizing evaluations of retail lending performance in facility-based assessment areas and retail lending assessment areas for large and intermediate banks. The agencies propose using a

retail lending volume screen

to evaluate a bank's retail lending volumes. The agencies also propose to evaluate a bank's major product lines using two distribution metrics that measure the bank's record of lending in low- and moderate-income census tracts and to borrowers of different income or revenue levels. Further, the agencies propose to establish a standardized methodology for setting performance expectations for specific product lines. The methodology defines performance ranges for each conclusion category for each product, and this performance is then averaged together. Under the methodology, the amount of lending needed to achieve a given conclusion would differ across assessment areas according to local credit demand and would calibrate across business cycles.

Retail Lending Test Evaluation Framework for Retail Lending Test Conclusions in State, Multistate MSAs, and at the Institution Level.

Section X describes the agencies' proposal to assign conclusions on the Retail Lending Test for large and intermediate banks at the state and multistate MSA levels based on the conclusions reached at individual facility-based and retail lending assessment areas, as applicable. The agencies also propose to assign conclusions on the Retail Lending Test at the institution level by similarly combining conclusions from all of a bank's facility-based and retail lending assessment areas, as applicable, as well as the bank's retail lending performance outside of its assessment areas. The consideration of outside lending recognizes that some bank lending may be geographically diffuse, without concentrations in particular local markets that would be captured by the proposed retail lending assessment areas.

Retail Services and Products Test.

Section XI describes the agencies' proposal to evaluate large banks under the Retail Services and Products Test. This test would use a predominantly qualitative approach, incorporating quantitative measures as guidelines, as applicable. First, the delivery systems part of the proposed test seeks to achieve a balanced evaluation framework that considers a bank's branch availability and services, remote service facility availability, and its digital and other delivery systems. The agencies propose that the evaluation of digital and other delivery systems and deposit products would be required for large banks with assets of over $10 billion, and not required for large banks with assets of $10 billion or less.

Second, the credit and deposit products part of the proposed test aims to evaluate a bank's efforts to offer products that are responsive to the needs of low- and moderate-income communities. The agencies propose that the evaluation of deposit products responsive to the needs of low- or moderate-income individuals would be required for large banks with assets of over $10 billion, and not required for large banks with assets of $10 billion or less.

Community Development Financing Test.

Section XII describes the agencies proposals for the Community Development Financing Test, which would apply to large banks as well as intermediate banks that choose to opt into this test. The Community Development Financing Test would consist of a community development financing metric, benchmarks, and an impact review. These components would be assessed at the facility-based assessment area, state, multistate MSA and institution levels, and would inform conclusions at each of those levels.

Community Development Services Test.

Section XIII describes the agencies' proposal to assess a large bank's community development services, underscoring the importance of these activities for fostering partnerships among different stakeholders, building capacity, and creating the conditions for effective community development. The agencies propose that in nonmetropolitan areas, banks may receive community development services consideration for volunteer activities that meet an identified community development need, even if unrelated to the provision of financial services. The proposed test would consist of a primarily qualitative assessment of the bank's community development service activities. For large banks with assets of over $10 billion, the agencies propose also using a metric to measure the hours of community development services activity per full time employee of a bank.

Wholesale and Limited Purpose Banks.

Section XIV describes the agencies' proposed Community Development Financing Test for Wholesale and Limited Purpose Banks, which would include a qualitative review of a bank's community development lending and investments in each assessment area and an institution level-metric measuring a bank's volume of activities relative to its capacity. The agencies also propose giving wholesale and limited purpose banks the option to have examiners consider community development service activities that would qualify under the Community Development Services Test.

Strategic Plans.

Section XV describes the agencies' proposal to maintain a strategic plan option as an alternative method for evaluation. Banks that elect to be evaluated under a CRA strategic plan would continue to request approval for the plan from their appropriate Federal banking agency. The agencies propose more specific criteria to ensure that all banks are meeting their CRA obligation to serve low- and moderate-income individuals and communities. Banks approved to be evaluated under a CRA strategic plan option would have the same assessment area requirements as other banks and would submit plans that include the same performance tests and standards that would otherwise apply unless the

bank is substantially engaged in activities outside the scope of these tests. In seeking approval for a plan that does not adhere to requirements and standards that are applied to other banks, the plan would be required to include an explanation of why the bank's view is that different standards would be more appropriate in meeting the credit needs of its communities.

Assigned Conclusions and Ratings.

Section XVI describes the agencies' proposal to provide greater transparency and consistency on assigning ratings for a bank's overall performance. The proposed approach would produce performance scores for each applicable test, at the state, multistate MSA, and institution levels based on a weighted average of assessment area conclusions, as well as consideration of additional test-specific factors at the state, multistate MSA, or institution level. These performance scores are mapped to conclusion categories to provide test-specific conclusions for the state, multistate MSA, and at the institution level. The agencies propose to combine these performance scores across tests to produce ratings at the state, multistate MSA, and the institution level.

The agencies propose to determine a bank's overall state, multistate MSA, or institution rating by taking a weighted average of the applicable performance test scores. For large banks the agencies propose the following weights: 45 percent for Retail Lending Test performance score; 15 percent for Retail Services and Products Test performance score; 30 percent for Community Development Financing Test performance score; and 10 percent for Community Development Services Test performance score. For intermediate banks, the agencies propose to weight the Retail Lending test at 50 percent and the community development test, or if the bank chooses to opt into the Community Development Financing Test, at 50 percent.

The agencies also propose updating the criteria to determine how discriminatory and other illegal practices would adversely affect a rating, as well as what rating level (state, multistate MSA, and institution) would be affected.

Performance Standards for Small and Intermediate Banks.

Section XVII describes the agencies' proposal to continue evaluating small banks under the small bank performance standards in the current CRA framework and to apply the proposed metrics-based Retail Lending Test to intermediate banks. Under the proposal, small banks could opt into the Retail Lending Test and could continue to request additional consideration for other qualifying CRA activities. For intermediate banks, in addition to the proposed Retail Lending Test, the agencies propose to also evaluate an intermediate bank's community development activity pursuant to the criteria under the current intermediate small bank community development test. Intermediate banks could also opt to be evaluated under the proposed Community Development Financing Test.

Effect of CRA Performance on Applications.

In Section XVIII, the agencies propose to maintain the current regulatory provisions for considering CRA performance on bank applications, such as those for mergers and acquisitions, deposit insurance, and branch openings and relocations.

Data Collection, Reporting, and Disclosure.

In Section XIX, the agencies propose to revise data collection and reporting requirements to increase the clarity, consistency, and transparency of the evaluation process through the use of standard metrics and benchmarks. The proposal recognizes the importance of using existing data sources where possible, and tailoring data requirements, where appropriate.

In addition to leveraging existing data, the proposal would require large banks to collect, maintain, and report additional data. All large banks would have the same requirements for certain categories of data, including community development financing data, branch location data, and remote service facility location data. Some new data requirements would only apply to large banks with assets of over $10 billion. Large banks with assets of over $10 billion would have data requirements for deposits data, automobile lending data, retail services data on digital delivery systems, retail services data on responsive deposit products, and community development services data. The proposal also provides updated standards for all large banks to report the delineation of their assessment areas. Data requirements for intermediate banks and small banks would remain the same as the current requirements.

Content and Availability of Public File, Public Notice by Banks, Publication of Planned Examination Schedule, and Public Engagement.

Section XX describes the agencies' proposal to provide more transparent information to the public on CRA examinations and encourage communication between members of the public and banks. The agencies propose to make a bank's CRA public file more accessible to the public by allowing any bank with a public website to include its CRA public file on its website. The agencies also propose publishing a list of banks scheduled for CRA examinations for the next two quarters at least 60 days in advance in order to provide additional notice to the public. Finally, the agencies propose to establish a way for the public to provide feedback on community needs and opportunities in specific geographies.

Transition.

Section XXI discusses the agencies' proposed timeline for the transition from the current regulatory and supervisory framework to the proposed rule's CRA regulatory and supervisory framework.

Regulatory Analysis.

Section XXII discusses the required regulatory analyses for the proposed rule. This includes a description of the Board's and the FDIC's Initial Regulatory Flexibility Analyses, which conclude that the proposed rule will not have a significant economic impact on a substantial number of small entities, and the OCC's certification that the proposed rule will not have a significant economic impact on a substantial number of small entities.

Text of Common Proposed Rule.

Section XXIII sets forth the common regulatory text for the proposed CRA regulation.

III. Community Development Definitions

Under the current and proposed CRA rule, a bank may, depending on its size, be evaluated for its community development lending, investments, and/or services under various tests. These activities must have community development as their primary purpose. Community development activities currently fall into four broad categories: Affordable housing; community services; economic development; and revitalization and stabilization. The agencies propose to revise the community development definitions in order to clarify eligibility criteria for different community development activities by including eleven categories that establish specific eligibility standards for a broad range of community development activities. The new definitions incorporate some aspects of guidance that are currently provided in the Interagency Questions and Answers. The proposed definitions reflect an emphasis on activities that are responsive to community needs, especially the needs of low- and moderate-income individuals and communities and small businesses and small farms.

A. Primary Purpose of Community Development

In § _.13, the agencies propose to define in the CRA regulations standards for determining whether a community development activity has a “primary purpose” of community development. Currently, the approach to demonstrating that an activity has a primary purpose of community development is explained in the Interagency Questions and Answers.

Under the proposal, a loan, investment, or service meets the primary purpose standard when it is designed for the express purpose of community development as set forth in proposed § _.13(a)(1). In general, activities with a primary purpose of community development, as proposed, would receive full CRA credit for the Community Development Financing Test and Community Development Services Test, as described below.

As discussed in the Interagency Questions and Answers, a loan, investment, or service has as its primary purpose community development when it is designed for the express purpose of revitalizing or stabilizing low- or moderate-income areas, designated disaster areas, or underserved or distressed nonmetropolitan middle-income areas, providing affordable housing for, or community services targeted to, low- or moderate-income persons, or promoting economic development by financing small businesses or small farms that meet the requirements set forth in 12 CFR _.12(g).

See

Q&A § _.12(h)-8.

To determine whether an activity is designed for an express community development purpose, the agencies propose applying several approaches. First, if a majority of the dollars, applicable beneficiaries, or housing units of the activity are identifiable to one or more of the community development activities defined in § _.13(a)(2), then the activity meets the requisite primary purpose and would receive full CRA credit.

Second, and alternatively, where the measurable portion of any benefit bestowed or dollars applied to the community development purpose is less than a majority of the entire activity's benefits or dollar value, then the activity may still be considered to possess the requisite primary purpose, and the bank may receive CRA credit for the entire activity, if: (i) The express,

bona fide

intent of the activity, as stated, for example, in a prospectus, loan proposal, or community action plan, is primarily one or more of the enumerated community development purposes; (ii) the activity is specifically structured to achieve the expressed community development purpose; and (iii) the activity accomplishes, or is reasonably certain to accomplish, the community development purpose involved.

Pro Rata Credit for Qualified Affordable Housing.

The agencies propose that affordable housing that is developed in conjunction with Federal, state, local, or tribal government programs that have a stated purpose or bona fide intent to promote affordable housing would be considered even if fewer than the majority of the beneficiaries of the housing are low- or moderate-income individuals. In such cases, the activity would be considered to have a primary purpose of affordable housing only for the percentage of total housing units in the development that are affordable. For example, if a bank makes a $10 million loan to finance a mixed-income housing development in which 10 percent of the units will be set aside as affordable housing for low- or moderate-income individuals, the bank may treat $1 million of such loan as a community development loan. In other words, the pro-rata dollar amount of the total activity would be based on the percentage of units set aside for affordable housing for low- or moderate-income individuals.

The agencies propose a different approach for an activity that involves low-income housing tax credits (LIHTCs). Specifically, a bank would receive consideration for the full amount of the loan or investment for a LIHTC-financed project, regardless of the share of units that are considered affordable. This proposal is consistent with current guidance adopted in 2010 that clarified that projects developed with LIHTCs had a bona fide intent of providing affordable housing.

See

75 FR 11642 (Mar. 11, 2010).

Pro Rata Consideration for Other Community Development Activities.

The proposal does not specify any other application of partial credit for activities, but the agencies seek feedback on whether such consideration is appropriate for this rulemaking in other specific cases. For example, an essential infrastructure project may serve a broad area where low- and moderate-income census tracts comprise a minority of total census tracts. In such cases, the activity could provide benefit to some low- or moderate-income individuals, although the overall project did not focus on low- or moderate-income census tracts or individuals. The agencies have considered whether banks should receive partial consideration more generally for these activities based on the share of low- or moderate-income census tracts or low- or moderate-income individuals that benefit from the project compared to the number of census tracts or total population that benefited from the project overall. However, partial consideration of activities could result in a significant expansion of the activities that could qualify, and thereby serve to divert limited resources from projects specifically targeted to benefit low- or moderate-income people or communities. In addition, the agencies believe that the proposed primary purpose standard retains appropriate flexibility to provide consideration for activities where less than the majority of the entire activity benefits low- or moderate-income individuals or communities, if those activities have the express, bona fide intent of community development.

Request for Feedback

Question 1.

Should the agencies consider partial consideration for any other community development activities (for example, financing broadband infrastructure, health care facilities, or other essential infrastructure and community facilities), or should partial consideration be limited to only affordable housing?

Question 2.

If partial consideration is extended to other types of community development activities with a primary purpose of community development, should there be a minimum percentage of the activity that serves low- or moderate-income individuals or geographies or small businesses and small farms, such as 25 percent? If partial consideration is provided for certain types of activities considered to have a primary purpose of community development, should the agencies require a minimum percentage standard greater than 51 percent to receive full consideration, such as a threshold between 60 percent and 90 percent?

B. Affordable Housing

The agencies are proposing a definition for affordable housing that includes four components: (i) Affordable rental housing developed in conjunction with Federal, state, and local government programs; (ii) multifamily rental housing with affordable rents; (iii) activities supporting affordable low- or moderate-income homeownership; and (iv) purchases of mortgage-backed securities that finance affordable housing. The proposed definition is intended to clarify the eligibility of affordable housing as well as to recognize the importance of promoting affordable housing for low- or moderate-income individuals.

1. Background

a. Current Approach to Affordable Housing

The current CRA regulations define “community development” to include “affordable housing (including multifamily rental housing) for low- or moderate-income individuals.”

The agencies have stated in the Interagency Questions and Answers that low- or moderate-income individuals must benefit or be likely to benefit from the housing in order to qualify and meet the existing primary purpose standard.

Currently, the agencies consider activities that support both single-family (1-4 family units) and multifamily (more than 4-family units) affordable housing. Single-family home mortgage loans are generally considered as part of the lending test, and other activities that are not home mortgage loans and that support single-family affordable housing may be considered as community development.

Multifamily loans are considered separately and may qualify for both retail lending and community development consideration if they meet the definition of affordable housing.

Purchases of mortgage-backed securities that primarily consist of single-family mortgage loans to low- or moderate-income individuals, or of multifamily affordable housing, are also considered as qualifying community development activities.

12 CFR _.12(g)(1).

See

Q&A § _.12(g)(1)-1.

Single-family home mortgage loans may be included as community development under the intermediate small bank methodology.

See

Q&A § _.12(h)-3.

See

Q&A § _.42(b)(2)-2.

See

Q&A § _.12(t)-2.

Multifamily Housing.

Multifamily housing qualifies under two different categories of affordable housing: Subsidized or unsubsidized housing. Housing that is financed or supported by a government affordable housing program or a government subsidy is considered subsidized affordable housing. Subsidized affordable housing is generally viewed as qualifying under affordable housing criteria if the government program or subsidy has a stated purpose of providing affordable housing to low- or moderate-income individuals, thereby satisfying Interagency Questions and Answers guidance that low- or moderate-income individuals benefit, or are likely to benefit, from the housing.

Examples of subsidized affordable housing include housing financed with LIHTCs, the HOME Investment Partnerships Program, or Project-Based Section 8 Rental Assistance.

See

Q&A § _.12(g)(1)-2.

Multifamily housing with affordable rents, but that is not financed or supported by a government affordable housing program or a government subsidy, is generally considered unsubsidized affordable housing, and is also referred to in this

SUPPLEMENTARY INFORMATION

as “naturally occurring affordable housing.” This housing can qualify as affordable housing if the rents are affordable to low- or moderate-income individuals, and if it is clear that low- or moderate-income individuals benefit, or are likely to benefit, from this housing. However, there are no standards currently in place for determining that low- or moderate-income individuals will benefit, or are likely to benefit, from the housing. Guidance indicates that it is not sufficient to determine that low- or moderate-income individuals are likely to benefit from the housing solely because the rents or housing prices are set according to a particular formula.

To assess whether the housing will benefit low- or moderate-income individuals, examiners may consider a range of demographic, economic or market factors, such as the median rents of the assessment area and the project based on project rent rolls; the low- or moderate-income population in the area of the project; or the past performance record of the organization(s) undertaking the project.

See

Q&A § _.12(g)(1)-1.

See

Q&A § _.12(g)(1)-1.

Under the current framework, there is not a specified standard for determining when a property or unit is considered affordable to low- or moderate-income individuals. One approach used by banks and examiners is to calculate an affordable rent based on what is affordable to a moderate-income renter, assuming that 30 percent of the renter's income is spent on rent. Alternatively, some use the U.S. Department of Housing and Urban Development's (HUD) Fair Market Rents as a standard for measuring affordability.

Stakeholders note that lack of a consistent standard for affordability, combined with unclear methods for determining whether low- or moderate-income individuals are likely to benefit, leads to inconsistent consideration of unsubsidized affordable housing.

See

HUD, Fair Market Rents,

https://www.hud.gov/program_offices/public_indian_housing/programs/hcv/landlord/fmr.

Single-Family Housing.

Certain activities related to single-family housing can also qualify as affordable housing provided that the housing is affordable and low- or moderate-income individuals benefit, or are likely to benefit, from the housing. While single-family mortgages qualify under the lending test,

activities that support the construction of affordable housing or other activities to promote affordable homeownership for low- or moderate-income individuals are considered as affordable housing under the community development definition. Similar to the issues noted above with unsubsidized rental housing, there are no consistent standards in place to demonstrate that single-family for-sale housing is affordable and likely to benefit low- or moderate-income individuals. Therefore, under the current framework, stakeholders note that it is difficult for certain single-family projects to qualify, unless it is a project developed in partnership with a government program or non-profit organization that has a mission of providing affordable housing to low- or moderate-income individuals.

See

Q&A § _.12(h)-3.

Mortgage-Backed Securities.

Mortgage-backed securities qualify as an affordable housing activity provided they demonstrate a primary purpose of community development. Specifically, the security must primarily address affordable housing (including multifamily housing) of low- or moderate-income individuals.

Thus, a mortgage-backed security that contains a majority of mortgages to low- or moderate-income borrowers can qualify as an investment with a primary purpose of affordable housing.

See

Q&A § _.12(t)-2.

b. Stakeholder Feedback on Affordable Housing

Stakeholders have expressed support for a definition of affordable housing that includes both subsidized and unsubsidized housing, and that is informed by more clear and specific eligibility standards. Stakeholders generally support the current approach of qualifying housing developed, purchased, rehabilitated, or preserved in conjunction with a Federal, state, local, or tribal government program. Many stakeholders also indicate support for including naturally occurring affordable housing in the definition of affordable housing, but note that more consistent and practically feasible qualification standards are needed. They also raise concerns about the types of requirements or restrictions—if any—that should be put in place to ensure that these properties remain affordable. For example, some stakeholders have noted that a bank financing a naturally

occurring affordable housing activity would often not be able to verify and document the income of tenants at time of rental and on an ongoing basis.

Regarding the current treatment of mortgage-backed securities, some stakeholders have expressed concern that some banks rely on purchases of mortgage-backed securities for CRA purposes in lieu of pursuing other activities that would have a more direct impact on the community or that would be more responsive to specific needs. Some stakeholders have also noted concerns that some banks may purchase high volumes of mortgage-backed securities shortly before their CRA examinations and sell them shortly afterwards, reducing any potential benefits to liquidity for lenders and credit availability for communities. Stakeholders generally have not opposed the consideration of mortgage-backed securities as a qualified investment, although some suggested additional requirements, such as preventing banks from receiving CRA credit for mortgage-backed securities that are purchased and then quickly resold.

2. Rental Housing in Conjunction With Government Programs

First, the agencies propose that a rental housing unit would be considered affordable housing if it is purchased, developed, financed, rehabilitated, improved, or preserved in conjunction with a Federal, state, local, or tribal government affordable housing plan, program, initiative, tax credit, or subsidy with a stated purpose or the bona fide intent of providing affordable housing for low- or moderate-income individuals. Examples below demonstrate how this component of the definition intends to add greater clarity around the many types of subsidized activities that currently qualify for consideration.

The proposal covers a broad range of government-related affordable rental housing activities for low- and moderate-income individuals, including affordable housing plans, programs, initiatives, tax credits, and subsidies pertaining to both multifamily and single-family properties. This would cover government subsidy programs that provide affordable rental housing for low- or moderate-income individuals, such as Project-Based Section 8 Rental Assistance and the HOME Investment Partnerships Program. The proposal also includes activities with rental properties receiving LIHTCs. Although LIHTCs are sometimes described as a “program,” the agencies propose including the term “tax credits” to provide clarity about the eligibility of tax credit programs focused on affordable housing for low- or moderate-income individuals.

The proposed language encompasses affordable housing activities tied to every level of government, not just Federal Government programs. In addition to affordable housing programs at the Federal level, the agencies also propose to include state and local affordable housing plans, programs, initiatives, tax credits, or subsidies that support affordable housing for low- or moderate-income individuals. This would include affordable rental units for low- or moderate-income individuals created as a result of local government inclusionary zoning programs. Inclusionary zoning provisions in many local jurisdictions provide requirements or incentives for developers to set aside a portion of housing units within a property that meet an affordability standard and are occupied by low- or moderate-income individuals. In addition, affordable multifamily housing programs offered by state housing finance agencies and affordable housing trust funds managed by a local government to support the development of affordable housing for low- or moderate-income individuals would be included in this component. The proposal also specifies that affordable housing activities related to tribal governments would be included under the scope of the definition.

To qualify under the proposed definition, a government-related affordable housing plan, program, initiative, tax credit, or subsidy would need to have a stated purpose or bona fide intent of supporting affordable rental housing for low- or moderate-income individuals. The agencies propose this requirement to emphasize affordable housing activities benefitting low- or moderate-income individuals. The agencies are not proposing a separate affordability standard for this prong of the definition and would rely upon the affordability standards set in each respective government affordable housing plan, program, initiative, tax credit, or subsidy, provided that the program has a stated purpose or bona fide intent of providing rental housing that is affordable to low- or moderate-income individuals.

The agencies seek feedback on whether additional requirements should be included to ensure that activities qualifying under this definition support housing that is both affordable to and occupied by low- or moderate-income individuals. For example, the agencies are considering whether to include a specific affordability standard of 30 percent of 80 percent of area median income for the cost of rents of housing that receives consideration under this definition, or a requirement that any programs verify that occupants of the affordable units are low- or moderate-income individuals.

The agencies seek feedback on whether activities involving government programs that have a stated purpose or bona fide intent to provide affordable housing serving low-, moderate-, and middle-income individuals should qualify under this definition in certain circumstances. For example, the agencies seek feedback on this alternative when the housing is located in a nonmetropolitan county, or in

High Opportunity Areas.

The agencies recognize that nonmetropolitan counties may have limited opportunities for affordable housing, and that it may be appropriate to consider affordable housing activities in these areas that include middle-income renters. Broadening this category to include activities that support housing that is affordable to middle-income individuals in nonmetropolitan counties could include developing affordable housing in conjunction with programs such as the U.S. Department of Agriculture Section 515 Rural Rental Housing or Multifamily Guaranteed Rural Rental Housing programs.

See

Rural Rental Housing Loans (Section 515) (Sept. 2002),

https://www.hud.gov/sites/documents/19565_515_RURALRENTAL.pdf,

and U.S. Department of Agriculture, Multifamily Guaranteed Rural Rental Housing (Dec. 2021),

https://www.rd.usda.gov/sites/default/files/fact-sheet/508_RD_FS_RHS_MFGuarantee.pdf.

Under a second alternative, the agencies would consider these activities in

high opportunity areas.

One option would be to define

high opportunity areas

to align with the definition of these areas by the Federal Housing Finance Agency (FHFA), as discussed in Section V.

These areas include census tracts with high costs of development and low poverty rates, and the agencies consider affordable housing activities in these areas to be especially responsive. For example, these activities may include financing for a multifamily rental housing development that serves middle-income residents in a

high opportunity area

that is supported by tax-exempt bonds that are issued by state or local agencies to support affordable housing. Consideration of

activities supporting housing that is affordable to middle-income families in these geographies would reflect the limited supply of affordable housing in these markets and would provide additional flexibility for banks to identify opportunities to address community needs. However, the agencies have also considered that broadening the definition could reduce the emphasis on activities that serve low-and moderate-income individuals more directly and where the need is more acute.

See, e.g.,

Federal Housing Financing Agency, “Overview of the 2020 High Opportunity Areas File” (2020),

https://www.fhfa.gov/DataTools/Downloads/Documents/Enterprise-PUDB/DTS_Residential-Economic-Diversity-Areas/DTS_High%20Opportunity_Areas_2020_README.pdf,

and HUD's Office of Policy Development and Research (PD&R), Qualified Census Tracts and Difficult Development Areas,

https://www.huduser.gov/portal/datasets/qct.html.

3. Multifamily Rental Housing With Affordable Rents

For the second prong of the affordable housing definition in proposed § _.13(b), the agencies propose to provide clear and consistent criteria in order to qualify affordable low- or moderate-income multifamily rental housing that does not involve a government program, initiative, tax credit, or subsidy, also referred to as “naturally occurring affordable housing” in this

SUPPLEMENTARY INFORMATION

, for purposes of CRA affordable housing consideration.

The agencies recognize that naturally occurring affordable housing is an important source of affordable housing for many low- and moderate-income individuals. In addition, the agencies also recognize that this category of housing poses unique challenges in terms of ensuring that its benefits extend to low- or moderate-income individuals, since there is often no consistent way to confirm renter income for these properties, in contrast to properties receiving government subsidies. The proposed definition seeks to address this by clarifying that this category of affordable housing can receive CRA credit if it meets a specified set of applicable standards.

First, in order to qualify under this prong of the proposed definition, the agencies propose that the rent for the majority of the units in a multifamily property could not exceed 30 percent of 60 percent of the area median income for the metropolitan area or nonmetropolitan county. These rental amounts would need to reflect the rents used by the bank to underwrite the property, including post-construction or post-renovation monthly rents. Second, naturally occurring affordable housing would also need to meet at least one of the following criteria in order to increase the likelihood that units benefit low- or moderate-income individuals: (i) The housing is located in a low- or moderate-income census tract; (ii) the housing is purchased, developed, financed, rehabilitated, improved, or preserved by a non-profit organization with a stated mission of, or that otherwise directly supports, providing affordable housing; (iii) there is an explicit written pledge by the property owner to maintain rents affordable to low- or moderate-income individuals for at least five years or the length of the financing, whichever is shorter; or (iv) the bank provides documentation that a majority of the residents of the housing units are low- or moderate-income individuals or families, for example documentation that a majority of residents have Housing Choice Vouchers.

a. Affordability Standard for Naturally Occurring Affordable Housing

The proposed rental affordability standard for naturally occurring affordable housing—30 percent of 60 percent of the area median income—is intended to target the definition for units affordable to low- or moderate-income households. This would establish a higher bar than what is often used today to determine whether rents are affordable for low- or moderate-income individuals, which is 30 percent of 80 percent of area median income. The agencies considered using the standard of 30 percent of 80 percent of area median income but believe it would be preferable to use a more targeted definition to ensure that rents are affordable to low-income households and to increase the likelihood that low- or moderate-income households will occupy the units. For example, in 2019, approximately 46 percent of occupied rental units with affordability levels between 61-80 percent of area median income were occupied by middle- or upper-income households.

This is compared to 24 percent of occupied rental units with affordability levels under 60 percent of area median income being occupied by middle- or upper-income households. Limiting eligibility to those units with affordability levels under 60 percent of area median income may therefore help to ensure that the households served by this housing are in fact low- or moderate-income households.

Thyria Alvarez and Barry L. Steffen, HUD, Office of Policy Development and Research, “Worst Case Housing Needs 2021 Report to Congress” (July 2020) (agencies' calculations using Exhibit A-12 at 74),

https://www.huduser.gov/portal/publications/Worst-Case-Housing-Needs-2021.html.

However, a potential drawback to using an affordability standard anchored to 60 percent of area median income is that it could restrict eligibility for properties with affordability levels at 80 percent of area median income where many, but not all, of the units are occupied by low- or moderate-income households. The agencies seek feedback on the alternative approach of using 80 percent area median income as the affordability standard under proposed § _.13(b)(2).

In calculating whether rents meet the affordability standard, the agencies propose using the monthly rental amounts as underwritten by the bank. The definition further specifies that this rent would need to reflect any post-construction or post-renovation rents considered as part of the bank's financing. Consider, for example, a multifamily property that meets the proposed affordability standard before bank financing, but where the property owner plans to renovate the building after receiving the loan and subsequently increases the rents above the affordability standard. In this example, if the bank relied on the post-renovation rents as part of its underwriting, then the loan would not count for CRA purposes under the proposed affordable housing definition. The agencies' objective in including this provision is to target CRA credit to properties that are likely to remain affordable and to avoid providing credit for activities that may result in displacement of low- or moderate-income individuals.

The agencies seek feedback on whether there are alternative ways to ensure that CRA credit for naturally occurring affordable housing is targeted to properties where rents remain affordable for low- or moderate-income individuals.

The proposed definition would require the majority of units in a naturally occurring affordable housing property to meet the affordability standard. Properties in which fewer than 50 percent of units are affordable would not qualify under the proposed definition. This requirement is intended to ensure that activities qualifying as naturally occurring affordable housing support housing that remains affordable to and occupied by low- or moderate-income individuals.

The agencies seek feedback on whether single-family rental housing should also be considered under the naturally occurring affordable housing category, provided it meets the same combination of criteria proposed for multifamily rental housing. The agencies also seek feedback on whether such an alternative should be limited to rural areas. The agencies recognize that the composition of the housing stock varies across geographies, and that some areas, such as rural communities, may lack affordable multifamily rental housing that is either in conjunction

with a government program or naturally occurring affordable housing. In these communities, single-family rental housing may be an important source of affordable housing for low- and moderate-income individuals. In considering how and whether to incorporate affordable single-family rental housing into the naturally occurring affordable housing definition, the agencies are mindful of the fact that home mortgage loans for single-family rental housing would count in the geographic distribution metrics of the proposed Retail Lending Test.

b. Additional Eligibility Standards for Naturally Occurring Affordable Housing

The agencies are proposing four additional criteria under proposed § _.13(b) for qualifying multifamily housing with affordable rents as naturally occurring affordable housing. These criteria are intended to focus the definition on housing that is more likely to benefit low- or moderate-income individuals or increase the likelihood that rents will remain affordable for low- or moderate-income individuals. In addition to the underwriting requirement (rents not exceeding 30 percent of 60 percent of area median income), the proposal requires a property to meet at least one of the following criteria: (i) The location of the housing is in a low- or moderate-income census tract; (ii) the housing is developed in association with a non-profit organization with a mission of, or that otherwise directly supports, affordable housing; (iii) the financing is provided in conjunction with a written affordability pledge by the developer of at least 5 years, or the length of the financing, whichever is shorter; or (iv) the bank provides documentation that the majority of the housing units are occupied by low- or moderate-income households.

Low- or Moderate-Income Census Tract.

The first proposed criterion is the location of eligible properties in a low- or moderate-income census tract, because the majority low- or moderate-income status of a census tract indicates that affordable rental housing in that census tract is likely to benefit low- or moderate-income individuals. Using geography as a proxy for tenant income is generally consistent with current guidance.

In addition, census tract income data is readily available and verifiable information, in contrast to verifying tenant income, which may prove infeasible for many property owners or developers.

See

Q&A § _.12(g)(1)-1.

An additional approach that the agencies seek feedback on is whether to expand this criterion to also encompass middle- and upper-income census tracts in which at least 50 percent of renters are low- or moderate-income. Following the same logic as the proposed low- and moderate-income census tract criteria, the agencies have considered that affordable rental housing in a neighborhood in which the majority of renters are low- or moderate-income would also be likely to benefit low- or moderate-income individuals. In addition, applying this standard would qualify affordable housing in more middle-and upper-income census tracts, thereby expanding this criterion beyond only low- and moderate-income census tracts. While 33 percent of census tracts are designated as low- or moderate-income, a total of 72 percent of census tracts meet either the low- and moderate-income census tract standard or the low- and moderate-income median renter census tract standard.

The agencies seek feedback on whether these additional census tracts should be added to the proposed definition.

The sample used for this analysis includes all census tracts for which there was non-missing renter median income data (2019 5-year American Community Survey) plus census tracts that were known to be low- or moderate-income but had missing data. The agencies' analysis found that there are 69,161 census tracts with non-missing renter median income data. Of those census tracts, 22,521 (33 percent) are designated low- or moderate-income; 27,070 (39 percent) are designated as renter low- or moderate-income; and the remaining 19,570 (28 percent) are neither low- or moderate-income nor renter low- or moderate-income. Seventy-three percent of all census tracts could be a geography where affordable housing is located under that alternative proposal.

Additionally, the agencies seek feedback on an alternative in which no geographic criteria are included. Under this option, activities qualifying as supporting naturally occurring affordable housing would instead be required to meet one of the other criteria described below (mission-driven non-profit organization, written affordability pledge, or tenant income documentation), in addition to the standard of rents not exceeding 30 percent of 60 percent of area median income. By removing the geographic criteria, this alternative approach would be intended to equally apply the other criteria across census tracts of all income levels. However, the agencies are mindful that this alternative would require banks to provide documentation required under the other proposed criterion in order to receive consideration for naturally occurring affordable housing.

Mission-Driven Non-Profit Organization.

A second proposed criterion for determining whether multifamily housing with affordable rents is eligible is if the housing is purchased, developed, financed, rehabilitated, improved, or preserved by any non-profit organization with a stated mission of, or that otherwise directly supports, providing affordable housing. The agencies intend this provision to encompass organizations that target services to low- or moderate-income individuals and communities, and may also have a mission to serve individuals and communities that are especially vulnerable to housing instability. In addition, affordable properties in any census tract, including middle- and upper-income census tracts, could qualify under this option. This criterion does not include government programs or entities, as such activities would be considered under the affordable housing category in proposed § _.13(b)(1).

Written Affordability Pledge.

A third proposed criterion for determining if multifamily housing with affordable rents is eligible under the definition is the presence of an explicit written pledge on the part of the property owner to maintain rents that are affordable for at least five years or for the length of the financing, whichever is shorter.

This prong would address concerns about the likelihood of rents in an eligible property increasing in the future and potentially displacing low- or moderate-income households. In addition, affordable properties in any census tract, including middle- and upper-income census tracts, could qualify under this option. Some stakeholders have urged the requirement of a written pledge in order for any naturally occurring affordable housing to qualify for CRA purposes. However, the agencies are mindful that such a requirement would necessitate additional documentation to receive consideration for naturally occurring affordable housing. For this reason, the agencies believe that it is preferable to include this criterion as one of several options for meeting the eligibility standard.

The agencies expect that the length of financing would often go beyond the five-year written affordability pledge. The agencies would scrutinize short-term financing (less than five years) to ensure such financing is not a way to avoid the affordability commitment.

Tenant Income Documentation.

A fourth proposed criterion for determining if multifamily housing with affordable rents is eligible under the definition is documentation provided by the bank demonstrating that the majority of the housing units are occupied by low- or moderate-income

individuals or households. Such documentation would be direct evidence that the activity benefits low- or moderate-income individuals. In addition, this criterion could apply to affordable properties in any census tract, including middle- or upper-income census tracts. For example, a multifamily rental property with a majority of rents set at 30 percent of 60 percent of area median income that is located in a middle-income census tract, and where the bank can document that the majority of occupants receive Housing Choice Vouchers,

would receive consideration under this criterion. The agencies recognize that it may be challenging for banks to obtain this documentation. Accordingly, the agencies are proposing to include this factor as one of several options for meeting the eligibility standard.

The housing choice voucher program is the Federal government's major program for assisting very low-income families, the elderly, and the disabled to afford decent, safe, and sanitary housing in the private market.

See

24 CFR part 982 (program requirements for the tenant-based housing assistance program under Section 8 of the United States Housing Act of 1937 (42 U.S.C. 1437f); the tenant-based program is the housing choice voucher program).

See also

12 CFR _.12(w) (defining a small farm loan as a loan included in “loans to small farms” as defined in the instructions for preparation of the Call Report).

Accordingly, the proposed economic development definition would not include a component to qualify a bank's loans to small businesses or small farms—apart from activities undertaken consistent with Federal, state, local, or tribal government plans, programs, or initiatives that support small businesses or small farms as those entities are defined in the plans, programs, or initiatives. With regard to economic development, the agencies currently evaluate businesses or farms that meet the size eligibility standards of the SBDC or SBIC programs (13 CFR 121.301) or have gross annual revenues of $1 million or less, only if not reported as a small business loan or a small farm loan under the CRA.

This would no longer be the case under the agencies' proposed economic development definition, since all reported lending for small businesses and small farms would be considered under the proposed Retail Lending Test.

12 CFR _.12(g)(3). Activities that promote economic development finance businesses and farms that meet the size eligibility standards of the SBDC or SBIC programs (13 CFR 121.301) or have gross annual revenues of $1 million or less.

The proposal to include small business loans and small farm loans in the Retail Lending Test, instead of under the economic development definition, is intended to recognize that loans to small businesses and small farms are primarily retail loan products, and more appropriately considered under the Retail Lending Test, while emphasizing other activities to promote access to financing for small businesses and small farms under the economic development definition. As discussed in Section XVII, the agencies are proposing that intermediate banks retain flexibility to have certain retail loans—small business, small farm, and home mortgage loans—be considered as community development loans. This option would be available to an intermediate bank if those loans have a primary purpose of community development and are not required to be reported by the bank.

Small business and small farm lending evaluated under the proposed Retail Lending Test would not have the accompanying requirement that these loans demonstrate job creation, retention, or improvement for low- or moderate-income areas or individuals, as is currently required for loans considered under the current criterion for economic development. As noted above, some stakeholders have reported having challenges demonstrating that activities satisfied this criterion, including demonstrating that jobs created or retained meaningfully benefit low- or moderate-income individuals and families. The agencies believe that this would appropriately broaden consideration of small business and small farm lending relative to the status quo, although it would involve a change of the test under which these loans would be considered.

The agencies recognize that these changes would have a number of intersecting impacts on the activities considered under the economic development definition and evaluated in the Retail Lending Test. For example, loans to certain businesses that meet SBIC and SBDC size standards and are now covered community development loans might not qualify for CRA consideration under the proposal. For some types of businesses, the SBIC and SBDC size standards exceed gross annual revenues of $5 million; accordingly, loans to businesses that meet SBIC and SBDC size standards and have gross annual revenues exceeding $5 million would no longer be covered community development loans. Under this scenario, these loans would also not be considered under the proposed Retail Lending Test.

Another example of the impact from this change involves the existing job creation, retention, or improvement for low- or moderate-income individuals standard. Compared to the volume of loans considered under the current economic development criteria, a greater volume of loans may be considered under the proposed Retail Lending Test as there would no longer be a requirement that loans to small businesses and small farms demonstrate job creation, retention, or improvement for low- or moderate-income individuals. The agencies recognize the critical importance of job creation as part of supporting local economies, and therefore seek feedback on the related proposals in both the Retail Lending Test and economic development definition sections.

The agencies also seek feedback on whether to continue considering bank loans to small businesses and small farms that currently qualify under the economic development criteria as community development activities during the transition period before solely considering these loans under the Retail Lending Test.

3. Activities Aligned With Federal, State, Local, or Tribal Efforts

The first prong of the proposed economic development definition includes activities undertaken consistent with Federal, state, local, or tribal government plans, programs, or initiatives that support small businesses or small farms as defined by these plans, programs, or initiatives. The current community development definitions do not include stand-alone criteria for economic development activities aligned with Federal, state, local, or tribal efforts. These activities are, however, referenced in the Interagency

Questions and Answers.

Aligning economic development activities with government programs that address identified needs for small businesses and small farms can encourage coordination between banks, government agencies, and other program participants for activities that can be highly responsive to the unmet needs of communities.

See, e.g.,

Q&A § _.12(g)(4)(i)-1 and Q&A § _.12(g)(3)-1.

In addition, this prong of the proposed definition specifies that lending to, investing in, or providing services to SBDCs, SBICs, New Markets Venture Capital Companies, qualified Community Development Entities, or U.S. Department of Agriculture Rural Business Investment Companies would qualify as economic development. The current regulation does not specifically address activities with these entities, but the Interagency Questions and Answers state that the agencies will presume that activities with these entities promote economic development.

As a result, the proposal is intended to provide greater clarity and encourage the continued participation in, and support of, programs offered through these providers of small business and small farm financing.

See

Q&A § _.12(g)(3)-1.

This prong of the proposed definition would not specify a gross annual revenue threshold of $5 million or under for the businesses or farms supported through these government plans, programs, or initiatives, or through the specified entities. Instead, this prong of the definition would leverage the size standards used by the respective government plans, programs, or initiatives. This would include using the standards established by SBDCs and SBICs for loans, investments, or services to these entities.

4. Support for Financing Intermediaries

The second prong of the proposed economic development definition includes activities with financial intermediaries that increase access to capital for businesses or farms with gross annual revenues of $5 million or less. The agencies propose using this same gross annual revenue standard to simplify the approach and to be consistent throughout the definition. The current regulation does not specifically address financing intermediaries that increase access to capital for small businesses and small farms, although both industry and community group stakeholders have stressed the importance of financial intermediaries, such as non-profit revolving loans funds, in providing access to financing for small businesses and small farms that are not ready for traditional bank financing. Examples of financial intermediaries include a Community Development Corporation that provides technical assistance to recently formed small businesses, or a CDFI that provides lending to support sustainability of small farms. The agencies propose to recognize the role of these financial intermediaries—which could include organizations, programs, and services—by including in the definition of economic development a component for activities that support financial intermediaries that lend to, invest in, or provide technical assistance to businesses or farms with gross annual revenues of $5 million or less.

5. Technical Assistance and Support Services for Small Businesses

The third prong of the proposed economic development definition includes technical assistance activities to support businesses or farms with gross annual revenues of $5 million or less. This prong would also include providing services such as shared space, technology, or administrative assistance to businesses or farms with gross annual revenues of $5 million or less, or to organizations that have a primary purpose of supporting such businesses or farms. While these activities are not included in the current regulation, they are addressed in the Interagency Questions and Answers.

In addition to reflecting current guidance, the agencies recognize that some small businesses and small farms may not be prepared to obtain traditional bank financing and may need technical assistance and other services in order to obtain credit in the future. Supporting these activities fills a gap in needed services for small businesses and small farms and plays a critical role in helping a small business and small farms grow and thrive.

See

Q&A § _.12(g)(3)-1.

6. Considering Workforce Development and Job Training Under Community Supportive Services

The agencies are proposing that workforce development and job training programs, which are currently qualified as a component of economic development, would instead be considered under the proposed definition of community supportive services. The current regulations do not address workforce development and training programs, but the Interagency Questions and Answers provide that these activities should be considered under the economic development definition. Stakeholders have affirmed the critical importance of workforce development and job training programs for low- and moderate-income individuals or unemployed persons. However, stakeholders have also noted the limitations of current guidance, which requires economic development activities to be tied to a financing activity for a small business. To address this concern, the agencies propose to recognize workforce development activities under the new community supportive services definition. The agencies believe that while the economic development definition could include workforce development and job training activities, such activities are better aligned with the focus of the proposed community supportive services definition, which does not restrict the size of the business involved. The proposal for community supportive services is discussed in greater detail in Section III.D.

Request for Feedback

Question 11.

Would lending to small businesses and small farms that may also support job creation, retention, and improvement for low- or moderate-income individuals and communities be sufficiently recognized through the analysis of small business and small farm loans and the qualitative review in the Retail Lending Test?

Question 12.

During a transition period, should the agencies continue to evaluate bank loans to small businesses and small farms as community development activities until these loans are assessed as reported loans under the proposed Retail Lending Test?

Question 13.

Should the agencies retain a separate component for job creation, retention, and improvement for low- and moderate-income individuals under the economic development definition? If so, should activities conducted with businesses or farms of any size and that create or retain jobs for low- or moderate-income individuals be considered? Are there criteria that can be included to demonstrate that the primary purpose of an activity is job creation, retention, or improvement for low- or moderate-income individuals and that ensure activities are not qualified simply because they offer low wage jobs?

D. Community Supportive Services

The agencies propose to replace “community services,” which is a type of activity that has a community development purpose under the current regulation, with a new definition of

“community supportive services.” Proposed § __.13(d) defines community supportive services as general welfare activities that serve or assist low- or moderate-income individuals, such as childcare, education, workforce development and job training programs, health services, and housing services programs. In specifying these categories, the agencies' goal is to provide clearer standards in the regulation for identifying the kind of activities that qualify under the definition. The change in terminology from “community services” to “community supportive services” is intended to more clearly distinguish these activities from “community development services,” which the proposal generally defines in § __.25(d) as volunteer service hours that meet any one of the community development purposes.

1. Background

a. Current Approach to Community Services

The CRA regulations currently define community development to include “community services targeted to low- or moderate-income individuals,” but the regulations do not further define community services.

The Interagency Questions and Answers include examples of activities that qualify for consideration as community services, such as programs for low- or moderate-income youth, homeless centers, soup kitchens, healthcare facilities, domestic violence shelters, and alcohol and drug recovery programs serving low- or moderate-income individuals.

See

12 CFR _.12(g)(2).

See

Q&A § _&.12(t)-4; and Q&A § _.12(g)(2)-1.

b. Stakeholder Feedback on Community Services

Stakeholders generally support continuing to target services to low- or moderate-income individuals, and various stakeholders have expressed support for including clear criteria in the regulation for determining whether a community service is targeted to low- or moderate-income individuals. In addition, some stakeholders have indicated that using a geographic proxy, such as an activity taking place in a low- or moderate-income census tract, should be sufficient to determine whether an activity is qualifying.

2. Defining Community Supportive Services

As discussed above, and in order to increase clarity and consistency, the agencies propose to define community supportive services as general welfare activities that serve or assist low- or moderate-income individuals such as, but not limited to, childcare, education, workforce development and job training programs, health services and housing services programs. The agencies also propose to incorporate standards in the regulation to demonstrate that a community supportive services activity has a primary purpose of serving low- or moderate-income individuals.

Specifically, the agencies propose building on current guidance by both clarifying and expanding upon a non-exclusive list of standards that banks can use to demonstrate that a program or organization primarily serves low- or moderate-income individuals. Examples in the proposal include services provided to students or their families at a school where the majority of students qualify for free or reduced-price meals under the U.S. Department of Agriculture's National School Lunch Program,

and services that are targeted to individuals who receive or are eligible to receive Medicaid.

See

USDA Food and Nutrition Service, National School Lunch Program,

https://www.fns.usda.gov/nslp.

See Medicaid.gov,

Medicaid program,

https://www.medicaid.gov/medicaid/index.html.

Additionally, the agencies propose that an activity performed in conjunction with a qualified community development organization located in a low- or moderate-income census tract is a community supportive service given that these community-based organizations often serve the community where they are located. This change builds on an example currently included in the Interagency Questions and Answers to clarify within the definition the use of a geographic proxy to determine eligibility for activities.

See

Q&A § _.12(g)(2)-1.

In addition, as noted previously, the agencies propose to consider workforce development and job training program activities under the definition of community supportive services and not as a component of economic development. The inclusion of workforce development activities within the community supportive services definition helps clarify that activities that support workforce development programs would receive consideration if the program's participants are low- or moderate-income individuals, and would not consider the size of the business.

E. Redefining Revitalization and Stabilization Activities

The agencies propose to replace the current revitalization and stabilization activities component of the community development definitions with six new categories of activities. The agencies intend for this new category of definitions to provide more clarity on the types of activities that qualify, and to better tailor the types of activities that qualify in different targeted geographies. Each of the categories focuses on place-based activities that benefit residents of targeted geographic areas: (i) Revitalization; (ii) essential community facilities; (iii) essential community infrastructure; (iv) recovery activities in designated disaster areas; (v) disaster preparedness and climate resiliency activities; and (vi) qualifying activities in Native Land Areas. These definitions are referred to collectively in this

SUPPLEMENTARY INFORMATION

as the place-based definitions.

The proposed definitions for the first four of these categories—revitalization activities undertaken with government plans, programs or initiatives; essential community facilities; essential community infrastructure; and recovery activities in designated disaster areas—build upon the current regulation's revitalization and stabilization component of the community development definitions and related guidance. Each of the new categories would provide additional clarity by capturing a specific set of activities, rather than falling under one broad category, as is currently the case under the current regulation. In addition, the agencies propose adding two new categories to the place-based definitions that may qualify for CRA consideration: (i) Disaster preparedness and climate resiliency activities and (ii) activities in Native Land Areas. While disaster preparedness and climate resiliency activities, and activities in Native Land Areas are not specified under the current approach, some activities that would qualify under these new categories would also qualify under the current approach, either as revitalization and stabilization, or under other prongs.

The six proposed place-based definitions share four common elements. First, each definition has a geographic focus (

e.g.,

low- or moderate-income census tracts) where the activities must occur. Second, each definition has standardized eligibility criteria that require the activity to benefit local residents, including low- or moderate-income residents, of the targeted geographies. Third, each definition has the eligibility requirement that the activity must not displace or exclude low- or moderate-income residents in the targeted geography. Finally, each definition provides that the activity must be

conducted in conjunction with a government plan, program, or initiative that includes an explicit focus on benefitting the targeted geography. Together, these four common elements are intended to provide necessary clarity regarding the activities that may qualify for CRA credit, while maintaining sufficient flexibility. In addition, these four common elements are intended to ensure a strong connection between the activities and community needs.

1. Background

a. Current Approach to Revitalization and Stabilization

Under the current regulation, the revitalization and stabilization activities component of the community development definitions is intended to encourage banks to direct additional resources toward comprehensive efforts to rebuild entire communities, rather than solely focusing on the needs of low- and moderate-income individuals in these communities. The current regulations define four types of eligible geographies where activities that revitalize or stabilize qualify: Low- or moderate-income geographies; distressed nonmetropolitan middle-income geographies; underserved nonmetropolitan middle-income geographies; and designated disaster areas.

See

12 CFR __.12(g)(4).

Current guidance states that revitalization and stabilization activities are those that help to “attract new, or retain existing, businesses or residents” in an eligible geography and qualifying activities are generally similar in eligible low- and moderate-income geographies, distressed nonmetropolitan middle-income geographies and designated disaster areas.

In all targeted geographies, community facilities and infrastructure can be considered to the extent that these activities help to attract or retain residents or businesses. However, these activities are only explicitly noted in the guidance for underserved nonmetropolitan middle-income areas.

See

Q&A § __.12(g)(4)(i)-1; Q&A § __.12(g)(4)(ii)-2; and Q&A § __.12(g)(4)(iii) -3.

See

Q&A § __.12(g)(4)(iii)-4.

Current guidance also states that an activity will be presumed to revitalize or stabilize a geography if the activity is consistent with a government plan for the revitalization or stabilization of the area.

However, the standards in the guidance for the types of plans that can be used to determine eligibility are inconsistent.

See

Q&A § __.12(g)(4)(i)-1; Q&A § __.12(g)(4)(ii)-2; and Q&A § __.12(g)(4)(iii)-3.

The current guidance also varies for the different targeted geographies. For instance, in both distressed and undeserved nonmetropolitan middle-income geographies and designated disaster areas, the guidance specifies that examiners will consider all activities that revitalize or stabilize a geography but give greater weight to those activities that are most responsive to community needs, including needs of low- or moderate-income individuals or neighborhoods.

However, in determining whether an activity revitalizes or stabilizes a low- or moderate-income geography, in absence of a Federal, state, local, or tribal government plan, guidance instructs examiners to evaluate activities based on the actual impact on the geography, if that information is available.

The Interagency Questions and Answers do not further specify how to measure an activity's actual impact for a targeted geography, which may create varying interpretations. As a result, considering activities under the existing revitalization and stabilization definition can prove challenging to banks, community groups, and examiners alike due to these inconsistent criteria.

See

Q&A § __.12(g)(4)(ii)-2 and Q&A § __.12(g)(4)(iii)-3.

See

Q&A § __.12(g)(4)(i)-1.

b. Stakeholder Feedback on Revitalization and Stabilization

Stakeholders have provided feedback on a number of issues related to the current revitalization and stabilization component of the community development definition. First, stakeholders have noted that current guidance does not provide sufficient upfront clarity about the range of activities that will be eligible for consideration or where the activities must occur to be considered. Various stakeholders also note the need for additional clarity in defining eligible revitalization and stabilization activities, while also maintaining flexibility to meet local needs and/or changing circumstances. Some stakeholders have also indicated that an illustrative list of qualifying revitalization and stabilization activity examples could help provide needed clarity.

Second, some community group stakeholders have noted that not all qualifying activities with a revitalization and stabilization purpose benefit low- or moderate-income individuals or underserved communities. Various community stakeholders indicate that the agencies should update the revitalization and stabilization activities component so that qualifying activities primarily benefit low- or moderate-income residents of targeted, underserved geographies, noting that activities currently considered under revitalization and stabilization do not always provide direct benefit for low- or moderate-income individuals.

Third, stakeholders have indicated varying levels of support for greater consistency regarding government plans to revitalize or stabilize a geography. Some stakeholders have stated that activities should not be required to align with a government plan, but that activities that do align with a government plan should receive automatic CRA consideration. Other stakeholders have stated opposition to placing great emphasis on a government plan as leading to more-or-less automatic qualification of an activity, noting government plans vary widely, including in scope, purpose, level of community engagement, and the rigor of included criteria.

Lastly, many stakeholders have supported providing consideration for activities related to disaster preparedness and climate resiliency. Some stakeholders supported evaluating these activities as essential infrastructure or within the broader category of revitalization activities. Community group stakeholders noted that low- and moderate-income communities are particularly vulnerable to weather-related disasters and expressed that consideration for disaster preparedness and climate resiliency activities should be limited to activities that benefit low- or moderate-income individuals or census tracts. Other stakeholders expressed concerns that the qualifying definitions should not be broadened to include activities whose purpose is to mitigate climate change, such as carbon capture facilities.

2. Common Elements for Proposed Place-Based Definitions

The agencies propose four common elements which would be required eligibility standards for each of the six place-based definitions. First, across all place-based definitions, the agencies propose targeted census tracts where activities would be eligible for consideration. Under this proposal, revitalization activities, essential infrastructure activities, essential community facilities activities, and disaster preparedness and climate resiliency activities would be eligible if they benefit residents of targeted census tracts. As set forth in proposed § __.12,

targeted census tracts include low- and moderate-income census tracts, as well as distressed or underserved nonmetropolitan middle-income census tracts. The proposed approach in § __.13 provides consistency on activities eligible across these targeted census tracts.

Consistent with current guidance, the agencies are also proposing that recovery activities in designated disaster areas qualify in census tracts of all income levels, provided that the activities benefit residents in an area subject to a Federal Major Disaster Declaration, excluding Major Disaster Categories A and B. Qualified activities in Native Land Areas would be eligible in those geographies, as separately defined in proposed § __.12. The agencies' approach of defining geographic eligibility under this framework is intended to tailor the requirements for each definition, while maintaining the flexibility needed for diverse, local redevelopment needs.

Second, the agencies propose that all place-based activities benefit or serve residents of the targeted census tract(s), including low- and moderate-income residents. Adding this specific eligibility requirement establishes the expectation that residents in targeted census tracts must benefit from the activity and is intended to provide greater certainty that an activity is responsive to community needs compared to the current approach that relies upon examiner judgment “to give greater weight to those activities that are most responsive to community needs” in targeted geographies.

For example, financing to support development of a new industrial park in conjunction with a city-sponsored revitalization plan would be eligible for CRA credit if it benefitted residents of the targeted census tracts by providing new employment opportunities, including for low- and moderate-income residents.

See

Q&A § __.12(g)(4)(i)-1; Q&A § __.12(g)(4)(ii)-2; and Q&A § __.12(g)(4)(iii)-3.

The agencies are not proposing that all place-based activities solely benefit or serve low- or moderate-income residents. Rather, the proposal seeks to maintain flexibility for activities to meet a range of community needs while also requiring the inclusion of low- or moderate-income residents as beneficiaries of an activity. Such flexibility is particularly important in distressed and underserved nonmetropolitan middle-income census tracts, which can have fewer low- or moderate-income residents.

Third, the agencies propose that eligible place-based activities cannot lead to the displacement or exclusion of low- or moderate-income residents in targeted geographies. For example, if low- or moderate-income individuals were not able to have access to or benefit from an activity, then the activity would not meet this part of the definition and would be ineligible for CRA credit. Likewise, as another example, if a project to build commercial development to revitalize an area involved demolishing housing occupied by low- or moderate-income individuals, then the activity would not meet this part of the definition and would be ineligible for CRA credit. In proposing these requirements, the agencies seek to ensure that qualifying activities do not have a detrimental effect on low- or moderate-income individuals or communities or on other underserved communities.

Lastly, under the proposal, activities eligible under the place-based community development definitions would need to be in conjunction with a government plan, program, or initiative that includes an explicit focus on benefitting the targeted census tracts. The current standard in Interagency Questions and Answers states that activities may qualify if consistent with the community's formal or informal plans for the revitalization and stabilization of a low- or moderate-income geography.

In addition, under current guidance, activities are presumed to revitalize or stabilize a distressed nonmetropolitan middle-income area if the activity is consistent with a “bona fide” government revitalization or stabilization plan.

See

Q&A § __.12(g)(4)(i)-1.

See

Q&A § __.12(g)(4)(iii)-3.

The agencies' proposal to require activities eligible under the place-based community development definitions to be in conjunction with a government plan, program, or initiative is intended to achieve several objectives. First, this standard helps to ensure that the activity is responsive to identified community needs. Second, the proposed standard is intended to increase clarity, because all activities eligible under the place-based community development definitions would need to meet this criterion. Currently, standards vary across the targeted geographies and the reliance on a plan to demonstrate that an activity helps to attract or retain residents is used inconsistently.

Third, the agencies' proposal is intended to provide flexibility, because it would allow consideration of an activity to be in conjunction with a government plan, program, or initiative. By including consideration for activities in conjunction with a program or initiative, in addition to a government plan, banks would have the flexibility to pursue responsive place-based activities that are in conjunction with a program or initiative even if not part of a plan. For example, a grant to support a park in a low-income census tract could qualify if it was in conjunction with a citywide initiative, or program, to expand greenspace in low- or moderate-income areas. Additionally, the standard of “in conjunction with” would provide greater clarity than provided under current guidance by expressly stating that an eligible activity must be included as part of a government plan, program, or initiative.

3. Revitalization Activities Undertaken With a Government Plan, Program, or Initiative

The agencies are proposing a new place-based definition for activities undertaken in conjunction with a Federal, state, local, or tribal government plan, program, or initiative that includes an explicit focus on revitalizing or stabilizing targeted census tracts. While the goals of a plan, program or initiative could include stabilization or revitalization of other geographies, the plan, program, or initiative would also need to specifically include the targeted census tracts. Activities meeting this definition would need to meet the four common elements for place-based criteria described above. This definition incorporates some aspects of existing guidance for revitalization and stabilization but would no longer focus eligibility of activities on the extent that an activity helps to attract or retain residents or businesses in targeted geographies. Instead, activities would be eligible for consideration under this proposal if they are in conjunction with a plan, program, or initiative for the targeted geography, allowing for more comprehensive redevelopment goals. Additionally, conducting activities in conjunction with a government plan, program, or initiative provides a mechanism to ensure that activities are intentional and support articulated community revitalization goals.

The agencies provide several examples in the proposed regulation that are drawn from current guidance to provide some clarity on the type of activities that could be considered under this definition. These examples include adaptive reuse of vacant or blighted buildings, brownfield redevelopment, or activities consistent with a plan for a business improvement district or main street program.

However, this list is not exhaustive, and the agencies' intent is to allow flexibility for qualifying activities to help meet a range of identified community needs.

The agencies propose that housing-related activities would not be covered by the definition of revitalization activities. Under current guidance, activities that provide housing for middle-income and upper-income individuals can qualify if the activities meet certain criteria and help to revitalize or stabilize a distressed or underserved nonmetropolitan middle-income geography or designated disaster area.

However, some stakeholders have noted concerns that housing that benefits middle- or upper-income individuals, particularly in a low- or moderate-income census tract, can lead to displacement of existing residents. In addition, the agencies note that additional clarity would come from qualifying most housing-related community development activities in the affordable housing definition. The agencies recognize that housing activities are often components of government plans, programs, and initiatives to revitalize communities, and therefore seek feedback on whether housing-related revitalization activities should be considered under either the affordable housing definition or the revitalization activities definition and under what circumstances.

See

Q&A § __.12(g)(4)-2.

4. Essential Community Infrastructure and Essential Community Facilities

The agencies propose creating separate definitions for essential community infrastructure and for essential community facilities that benefit or serve residents in one or more of the eligible targeted census tracts. Under proposed § __.13(f), activities that qualify as essential community infrastructure are those that provide financing or other support for such items as broadband, telecommunications, mass transit, water supply and distribution, and sewage treatment and collection systems. Activities that qualify as essential community facilities include those that finance or provide other support for public amenities in targeted areas. Illustrative examples of essential community facility activities include, but are not limited to, financing activities to support the development of schools, libraries, childcare facilities, parks, hospitals, healthcare facilities, and community centers. Similar to the other place-based definitions, the agencies specify that activities would need to be in conjunction with a Federal, state, local, or tribal government plan, program, or initiative with an explicit focus on benefitting a geographic area that includes the targeted census tracts. This proposal is intended to ensure that the activities have a clear objective of meeting needs in targeted communities.

The proposal builds on the current Interagency Questions and Answers guidance to clarify that both essential community infrastructure activities and essential community facilities activities would be considered if they are conducted in and benefit or serve residents of low- or moderate-income census tracts, as well as distressed or underserved nonmetropolitan middle-income census tracts. Current guidance explicitly notes that these activities are eligible in underserved middle-income nonmetropolitan geographies, but these activities are only qualified in low- or moderate-income census tracts, distressed nonmetropolitan middle-income census tracts or designated disaster areas if they help attract or retain businesses or residents. Consequently, the current treatment of these activities in targeted geographies is inconsistent, and the agencies' proposal aims to provide more clarity and certainty for when these activities can be considered and to do so consistently across the different categories of targeted census tracts.

The agencies' proposed requirements for all place-based definitions, described previously, is intended to ensure that any qualifying activity related to essential community infrastructure or essential community facilities benefits or serves residents of the eligible targeted census tracts, including low- or moderate-income residents. Several community stakeholders have raised concern that larger scale infrastructure projects can often provide limited benefits for targeted census tracts, especially for low- and moderate-income residents in these geographies. Under the agencies' proposal, such activities are eligible for consideration if there is a demonstrated benefit for the residents of the targeted census tracts and it is evident that low- or moderate-income residents would be beneficiaries of the activity and not be excluded from the larger-scale improvements. For example, a bank could purchase a bond to fund improvements for a city-wide water treatment project that is consistent with a city's capital improvement plan. This project would qualify if it benefits or serves residents in the eligible census tracts to a degree sufficient to meet the primary purpose standard and does not exclude low- or moderate-income residents. The agencies seek feedback on whether any additional criteria for infrastructure and essential community facilities would further ensure that activities include a benefit to low- or moderate-income residents in the communities served by these projects.

5. Recovery Activities in Designated Disaster Areas

The agencies propose a definition for activities targeted to the recovery of designated disaster areas. The needs of these areas often differ from other targeted geographic areas, and the proposed definition is intended to more accurately and specifically describe eligible disaster recovery activities. The proposed definition includes activities that revitalize or stabilize geographic areas subject to a Major Disaster Declaration administered by the Federal Emergency Management Agency (FEMA). Consistent with current guidance, activities in designated disaster areas that meet this eligibility standard would be considered, regardless of the income level of the designated census tracts. The agencies believe activities that promote the recovery of designated disaster areas benefit the entire community, including, but not limited to, low- or moderate-income individuals and low- or moderate-income communities.

To qualify under the proposed definition, a disaster recovery activity would need to be in conjunction with a Federal, state, local, or tribal government disaster plan that includes an explicit focus on the recovery of the geographic area. The proposed definition incorporates existing guidance that states an activity will be presumed to revitalize or stabilize a designated disaster area if the activity is consistent with a bona fide government revitalization or stabilization plan or disaster recovery plan.

Examples of activities eligible under this definition include, but are not limited to, assistance with rebuilding infrastructure and other community services, financing to retain businesses that employ local residents, and recovery-related housing or financial assistance to individuals in the designated disaster areas. Additionally, although activities in all census tract income-levels would be considered, these activities would need to be responsive to community needs, including low- or moderate-income community needs, and could not displace or exclude low- or

moderate-income residents of designated disaster areas.

See

Q&A § __.12(g)(4)(ii)-2.

The agencies considered whether the definition of a designated disaster area should include any FEMA disaster declaration, including areas receiving Categories A and B assistance. However, the agencies believe that activities covered under Categories A and B are generally short-term recovery activities that would significantly expand the number of designated disaster areas where activities could be considered without providing long-term benefits to impacted communities. Therefore, the agencies propose to retain the definition of designated disaster areas included in the Interagency Questions and Answers and propose that exceptions be considered, such as the disaster declarations for the COVID-19 pandemic, on a case-by-case basis.

6. Disaster Preparedness and Climate Resiliency Activities

The agencies propose a definition for disaster preparedness and climate resiliency activities that is separate from the recovery activities in the designated disaster areas category that exists under the current CRA framework. The proposed definition focuses on activities that assist individuals and communities to prepare for, adapt to, and withstand natural disasters, weather-related disasters, or climate-related risks. The proposal would encompass activities in low- or moderate-income census tracts, as well as distressed and underserved nonmetropolitan middle-income census tracts. To be eligible, the proposed disaster preparedness and climate resiliency definition would require these activities to be conducted in conjunction with a government plan, program, or initiative that is focused on disaster preparedness or climate resiliency that includes an explicit focus on benefitting a geographic area that includes the targeted census tracts.

a. Background

There is growing evidence that highlights the ways in which lower-income households and communities are especially vulnerable to the impact of natural disasters and weather-related disasters, as well as climate-related risks.

100

Low- and moderate-income communities are more likely to be located in areas or buildings that are particularly vulnerable to disasters or climate-related risks, such as storm shocks or drought.

101

Since residents of affordable housing are more likely to be low-income, and affordable housing tends to be older and of poorer quality, low- and moderate-income households are more likely to have housing that is susceptible to disaster-related damage.

102

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