Memo on US Banking Regulators’ Pending Rulemaking on Community Reinvestment Act Regulations

On Tuesday, October 24, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation’s Board of Directors will hold separate open meetings to discuss the final interagency rule to revise the regulation implementing the Community Reinvestment Act (CRA). It is likely that the final rule will be released on Tuesday.

The final rule comes after a comment period held from May to August 2022 on the proposed rulemaking to strengthen and modernize the CRA, which was led by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board, and the Federal Deposit Insurance Corporation (FDIC). 

The CRA is a landmark civil rights law passed in 1978 in response to the banking industry’s continued failure to fairly serve low-income communities and communities of color. The law was intended to compel the banking industry to remedy its failures, which had persisted by design for decades due to racist government and corporate policies. The central directive of the law required banking regulators to ensure that banks provided adequate access to credit and services to all parts of a community, regardless of wealth or income.

Advocacy group comment letters:

During the comment period, a coalition of advocacy groups including the Sierra Club, Americans for Financial Reform Education Fund, Greenlining Institute, Public Citizen, and others submitted public comments focused on calling for enhanced access to funds for climate resilience, as well as greater attention to climate change-related risks facilitated by bank financing of fossil fuel-related activities. 

The proposed updates to the CRA regulations detail additional compliance rules for banks, however, they were missing one essential component: climate vulnerability as a primary element for directing services. Advocacy groups believe this was a key missed opportunity: If leveraged correctly, the updated CRA regulations can be a critical tool not only for reducing the racial wealth gap, but also for mitigating climate risk, uplifting vulnerable communities, and ensuring no communities are left behind in the transition to a sustainable and clean energy economy. 

In addition to the coalition comment letter signed by more than 80 organizations, the Sierra Club submitted its own comment letter and comments from grassroots supporters, and Americans for Financial Reform Education Fund, the Greenlining Institute, and Public Citizen submitted a longer climate-focused letter with technical implementation recommendations.

• Read the coalition comment letter from Americans for Financial Reform Education Fund, Greenlining Institute, Public Citizen, and 83 undersigned organizations here
• Read Americans for Financial Reform, Greenlining Institute, and Public Citizen’s technical comment letter here
• Read the Sierra Club’s comment letter here
• Read the Sierra Club's supporter comments here

Key policy recommendations on the proposed rule included:

• Expanding the list of climate-related eligible activities under the CRA regulations to include activities such as electrification and water efficiency measures for residential homes, including multifamily properties;
• Explicitly using race as a metric to ensure that historically and current redlined communities receive improved access to credit and services, including investments in community-based climate resilience; 
• Encouraging banks to increase community engagement and relationship building with climate and environmental justice organizations, including through the use of Community Benefits Agreements; and
• Examining the role bank financing activities play in climate change, especially those that disproportionately impair access to credit for Black communities.

Experts available to comment:

• Adele Shraiman, Senior Campaign Strategist, Sierra Club’s Fossil-Free Finance Campaign, adele.shraiman@sierraclub.org (Please CC ginny.cleaveland@sierraclub.org) 
• Jessica Garcia, Climate Finance Policy Analyst, Americans for Financial Reform Education Fund, jessica@ourfinancialsecurity.org 
• Anne Perrault, finance policy counsel with Public Citizen’s Climate Team, aperrault@citizen.org 
• Monica Palmeira, Climate Finance Strategist, Greenlining Institute, monica.palmeira@greenlining.org 

More information:

Read more about the Community Reinvestment Act in this Sierra Club blog: How a civil rights-era law can protect vulnerable communities from climate change.

Read more on the need for banking regulators to incentivize banks to build relationships with and drive investments in climate vulnerable communities through the CRA in this memo written by AFREF and the Greenlining Institute.