Ceres welcomes release of rule modernizing the Community Reinvestment Act

Ceres released the following statement in response to the adoption of a historic, interagency Community Reinvestment Act (CRA) rulemaking. The final amendments to the regulations implementing the CRA are the result of a joint effort by the Federal Reserve Board of Governors (the Fed), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) and represents the most significant changes to the CRA rules in 20 years. These updated rules are expected to increase lending, investment, and financial services to underserved and financially vulnerable communities. 

"We applaud the hard work and collaboration of these agencies in strengthening the original purpose of the Community Reinvestment Act and increasing its effectiveness in addressing lending discrimination and disinvestment in financially vulnerable communities,” said Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets at Ceres. “Although the proposed climate resiliency provisions were ultimately revised as weather resiliency, we are encouraged to see natural disaster and weather resiliency provisions included for the first time. As noted by the regulators in their final rule release, low- and moderate-income communities, communities of color, and other historically marginalized communities disproportionately grapple with the consequences of extreme climate events. These provisions are a critical step forward in addressing a growing risk that exacerbates economic and racial inequality.”  

Enacted in 1977 as part of a series of civil rights laws, the CRA encourages banks to meet the credit needs of the communities in which they do business with a focus on low- and moderate-income (LMI) neighborhoods. Under the CRA and the rules implementing the law, regulators must evaluate banks’ performance on CRA requirements and take that record into account when reviewing an institution’s applications for activities such as mergers and branch expansion. 

Climate risks threaten the CRA’s directive to address the nation's history of lending discrimination and disinvestment in underserved communities. Ceres has advocated for the modernization of the CRA rules and the explicit inclusion of racial justice and climate provisions since February 2021. In 2021, Ceres strongly supported the OCC’s proposal to rescind its 2020 CRA rules. In response to the 2022 interagency notice of proposed rulemaking, Ceres submitted comments to the Fed, FDIC, and OCC urging them to modernize the CRA rules by explicitly incorporating crucial climate resiliency and racial equity provisions—the latter of which we were disappointed to not see included.   

As a member of the National Community Reinvestment Coalition (NCRC), Ceres has also signed on to NCRC-led public comments related to the CRA alongside many other partner organizations. 

Today’s rule changes will allow banks to undertake activities that support disaster preparedness and weather resiliency in low- and moderate-income (LMI) communities. This could include: 

• Construction of flood control systems in flood-prone areas

• Retrofitting multifamily affordable housing to withstand future disasters or weather-related events 

• Community solar projects 

• Upgrades to affordable housing such as more energy-efficient appliances 

However, the final rule makes several language modifications that leave LMI individuals at risk. For example, the proposal required CRA-qualifying bank activities not displace LMI individuals, but the final rule only requires that these activities do not directly result in displacement. Similarly, the final rule requires only that these activities benefit or serve LMI individuals and does not require those activities be conducted in targeted LMI communities or primarily benefit or serve LMI individuals.  

“This rule is an important step towards justice for climate-vulnerable communities, which continue to be disproportionately affected by the financial risks and losses of increasing significant weather events,” Rothstein added. “Ceres hopes to serve as a resource to financial institutions navigating the implementation of the new natural disaster and weather resiliency provisions, as well as to financial regulators assessing the impact of these activities for the first time and crediting financial institutions accordingly, including through the development of an illustrative list of resiliency activities.” 

Ceres is a nonprofit organization working with the most influential capital market leaders to solve the world’s greatest sustainability challenges. The Ceres Accelerator for Sustainable Capital Markets is a center of excellence within Ceres that aims to transform the practices and policies that govern capital markets to reduce the worst financial impacts of the climate crisis. It spurs action on climate change as a systemic financial risk—driving the large-scale behavior and systems change needed to achieve a net zero emissions economy through key financial actors including investors, banks, and insurers. The Ceres Accelerator also works with corporate boards of directors on improving governance of climate change and other sustainability issues. For more information, visit ceres.org and ceres.org/accelerator and follow @CeresNews.