Fintech Nexus Newsletter (October 25, 2023): CRA Rules Are Finally Here...fintech Shows Its Impact

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Born out of a need to address inequities in access to credit, the 1977 Community Reinvestment Act (CRA) marked a distinct change in lending legislation. Unlike previous civil rights laws that focused on what lenders shouldn’t do, it established a precedent of what they should.

As such, lenders have been obligated to reinvest in the communities in which they operate, including low-income areas.

But as the banking world shifted towards digital, the rule was in need of a revamp. For years, a proposal has been in the works.

As finalization loomed closer, banks showed concern. In a letter written to federal regulators, a delay in finalizing the rule was requested. Apparently, passing the rule now could disincentivize mortgage lending to lower-income families.

It was swiftly ignored, and yesterday, the official legislation was issued to make the long-awaited adjustment.

As is often the case, the rule’s updated literature is long and detailed – too long and detailed to summarize in a newsletter introduction. (American Banker published a comprehensive writeup that you can access here.)

But the digital world has made its mark, and one of the more significant updates is the focus of the rule.

The rule no longer focuses on the communities where the bank is physically located. Instead, it requires banks to engage where they have high concentrations of mortgages and small business loans.

As physical branches close nationwide, it is only fair that banks’ dwindling reliance on physical presence is mirrored in their obligations.

FEATURED

Community Reinvestment Act rule finally crosses the finish line

After years of discussion among regulators, the Federal Reserve Board has approved changes to its CRA rules that will base compliance exams on where lending occurs rather than branch locations.

FROM FINTECH NEXUS

ALSO MAKING NEWS

Isabelle is a journalist for Fintech Nexus News and leads the Fintech Coffee Break podcast.

Isabelle’s interest in fintech comes from a yearning to understand society’s rapid digitalization and its potential, a topic she has often addressed during her academic pursuits and journalistic career.

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