Payments Might No Longer Count for the Community Reinvestment Act

Proposed changes to the Community Reinvestment Act could change the ways payments products are treated under the rules.

The Community Reinvestment Act was signed into law in 1977 to encourage banks to lend in low- and moderate-income areas in their markets. Currently the test includes three parts: the lending test, the service test, and the investment test. The lending test looks at a bank’s loan portfolio. The service test considers what kinds of products the institution offers. The investment test looks are investments the bank makes in its community including things like grants.

In July, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. released a proposed rule to update the regulations that govern how the regulators examine banks. Among other changes, the proposed rule would change asset size thresholds, change data and reporting requirements, and shift the lending test to focus only on major product lines.

One potentially big change for banks is that the service change would change from evaluating banks on all their products to just those related to credit. The proposal says this would reduce regulatory complexity because it would simplify what qualifies under CRA rules and saves the bank time in self-assessments.

In the past banks have used their prepaid portfolios to meet the service test of the CRA. This has worked for large and small banks. According to some bankers I have spoken with, this was always a well-received part of the CRA exam.

If these changes are finalized as written banks will need to adjust their compliance plans when it comes to the Community Reinvestment Act. They may need to make adjustments in their lending portfolios as part of their plans.

The comment period closes on October 13. Payments teams who have been part of CRA exams in the past should meet with their compliance teams and determine how these new rules could affect them.