On October 24, 2023, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (together, the “Agencies”) issued a final rule designed to modernize and fine tune the Community Reinvestment Act’s (“CRA”) implementing regulations. The Agencies believe that the final rule, which will mostly become applicable between January 1, 2026 and January 1, 2027, is designed to achieve four primary goals:

  1. To increase low- and moderate-income communities’ access to banking services;
  2. To adapt the CRA to address the present-day digital banking landscape (i.e., online/mobile and branchless banking);
  3. To enable the Agencies’ to apply the CRA to covered financial institutions in a more consistent and transparent manner; and
  4. To tailor the implementation of the CRA by considering bank size (i.e., large banks, intermediate banks and small banks), business models and local conditions when performing CRA evaluations and imposing data collection requirements.

With regard to bank size, the final rule creates three new classifications which are described at a high level in the table below; however, the final rule excepts “limited purpose banks” (i.e., banks that do not extend, except on an incidental/accommodation basis, (i) closed-end home mortgage loans, (ii) small business loans, (iii) small farm loans or (iv) automobile loans to retail customers) from such size classifications regardless of their asset amounts.

Large BanksAt least $2 billion (held at year-end) in both of the prior two (2) calendar yearsEvaluated under (i) the Retail Lending Test, (ii) the Retail Services and Products Test, (iii) the Community Development Financing Test and (iv) the Community Development Services Test
Intermediate BanksAt least $600 million (held at year-end) in both of the prior two (2) calendar years AND less than $2 billion (held at year-end) in either of the prior two (2) calendar yearsEvaluated under (i) the Retail Lending Test and (ii) either the Intermediate Bank Community Development Test or the Community Development Financing Test
Small BanksLess than $600 million (held at year-end) in either of the prior two (2) calendar yearsEvaluated under either the Small Bank Lending Test or the Retail Lending Test

Among many other updates to the CRA’s implementing regulations, it provides the Agencies with six distinct performance tests1 to be used to evaluate large, intermediate and small banks: (i) the Retail Lending Test; (ii) the Retail Services and Products Test; (iii) the Community Development Financing Test; (iv) the Community Development Services Test; (v) the Intermediate Bank Community Development Test (i.e., the current community development test); and (vi) the Small Bank Lending Test (i.e., the current CRA small bank lending test). While the final rule requires Large Banks to be assessed under the first four tests listed above, it provides Intermediate and Small Banks with greater flexibility as to what tests can be used during evaluations. Overviews of each of the four new performance tests, can be found in the table below.

Retail Lending TestThis test is designed to evaluate a bank’s record of helping to meet the credit needs of its entire community through the bank’s origination and purchase of home mortgage loans, multifamily loans, small business loans and small farm loans, as well as through automobile lending if the bank is a majority automobile lender.
Retail Services and Products TestThis test evaluates the availability of a bank’s retail banking services and retail banking products and the responsiveness of those services and products to the credit needs of the bank’s entire community, including low- and moderate-income individuals, low- and moderate-income census tracts, small businesses and small farms.
Community Development Financing TestThis test evaluates how well a Large bank and an Intermediate bank that opts into this performance test meet the community development financing needs in each facility-based assessment area in which it operates, as well as in each state and/or metropolitan statistical area in which it operates. This test includes the following components: (1) a “Community Development Financing Metric” used to assess the dollar volume of a bank’s community development loans/investments relative to its deposit base; (2) standardized criterion to use in evaluating performance; and (3) an impact and responsiveness audit to guarantee consideration of community development loans/investments that are decidedly impactful or responsive.
Community Development Services TestThis test considers the importance of community development services in fostering partnerships among different stakeholders, building capacity and creating conditions for effective community development, including in rural areas.

The new CRA rule also creates new assessment area criteria and provides for evaluating institutions based on lending activities in these assessment areas. In particular, the new rule generally provides for evaluating an institution’s lending activities in a “facility based assessment area,” which is an area that encompasses or is adjacent to deposit-taking facilities. In addition, Large Banks with 80% or less of their lending in facility-based assessment areas, will also have their closed-end home mortgage or small business lending evaluated in “retail lending assessment areas,” which are areas in which they originated more than 150 closed-end home mortgage loans or 400 small business loans in both the prior two years. Large Banks will also be evaluated on retail lending in an “outside retail lending area,” which is defined to mean the entire United States and its territories, excluding (1) the bank’s facility-based assessment areas and retail lending assessment areas; and (2) any county in a nonmetropolitan area in which the bank did not originate or purchase any closed-end home mortgage loans, small business loans, small farm loans or automobile loans (if the bank engages in auto lending). Also, Intermediate Banks that conduct a majority of their retail lending outside of their facility-based assessment areas, small banks that opt to be evaluated under the Retail Lending Test, would be evaluated based on retail lending in the “outside retail lending area.”

Along with the joint press release, the Agencies published an “Interagency Overview of the Community Reinvestment Act Final Rule” (available here) and a condensed fact sheet on the final rule (available here). If you have any questions concerning the above, please contact your attorney at Vedder Price or one of the authors.

1 The final rule requires the Agencies to evaluate limited purpose banks under a separate seventh performance test, the Community Development Financing Test for Limited Purpose Banks. This test evaluates a limited purpose bank’s record of helping to meet the credit needs of its entire community through community development loans and community development investments.