Updating CRA Geography: It’s Not Just About Assessment Areas

The current system of assessment areas under the CRA creates geographical limits that often deter large retail internet banks from serving a wider range of LMI communities. Expanding the number of AAs for these banks could introduce significant burdens and discourage them from engaging in community development activities in smaller and rural communities. Instead, a more effective approach would involve using existing CRA tools and expanding their application to broader geographic areas.

By removing regulatory barriers and providing clearer criteria for CRA performance evaluation, banks could be incentivized to serve a more diverse set of LMI communities. This proposal suggests maintaining AAs but expanding the use of community development tests currently applied to wholesale and limited purpose banks. These tests could be adapted to evaluate the CRA activities of large retail internet banks on a national scale, ensuring that their efforts are recognized and rewarded regardless of physical presence.

Additionally, addressing the concentration of CRA activities in certain hotspots requires scaling performance standards to better reflect the local share of deposits or retail sales. This could prevent over-concentration in specific areas and encourage more balanced investment in underserved communities. By modernizing the CRA framework to accommodate the realities of modern banking, the proposed changes aim to enhance the overall impact of the CRA, ensuring that more LMI communities benefit from community reinvestment activities.