For the first time in 28 years, interagency regulations overhauling implementation of the Community Reinvestment Act (CRA) were released jointly by the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency on October 24. We are hopeful that the new rule will allow the CRA to continue to work to achieve its goals of reversing racial inequities in lending and investment practices while supporting lending and investments to preserve and expand the supply of affordable housing.

The CRA was enacted in 1977 and requires these federal banking regulators to encourage financial institutions to help meet the credit needs of the communities in which they do business, including in low and moderate-income neighborhoods. Today’s new rule expands CRA to reflect society’s broader understanding of the nature of modern banking, including internet banking.

A significant structural change to the rule is the evaluation of community development lending and investment activities in a combined test worth half the overall rating. The prior rule evaluated community development lending and investment separately. The addition of a metric and impact factor to evaluate bank investments under the Low Income Housing Tax Credit and the New Markets Tax Credit is intended to encourage bank investment and address concerns that a combined test will lead to a substantial shift in bank activity towards lending alone.

The new rule also supports affordable housing by clearly delineating it as one of the activities for which banks can receive CRA credit under the community development financing test.