OCC and FDIC propose stricter limits on community development grants

Federal banking regulators have unveiled a new proposal designed to reshape how large financial institutions manage their Community Reinvestment Act obligations. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation announced Friday that they intend to restrict the ability of banks to provide grants to groups classified by the agencies as activist community organisations. This regulatory shift aims to refocus bank efforts primarily on lending activities rather than donations or support for advocacy campaigns.

The proposed rule seeks to ensure that funds designated for community development reach their intended beneficiaries without being diverted towards excessive administrative costs or unrelated operational expenses. Under the new framework, large banks would be required to verify that recipients of such grants maintain overhead costs at fifteen per cent or less before receiving funding. This verification process is part of a broader strategy to tighten oversight on how these funds are utilised within local communities.

Simultaneously, the proposal significantly alters which institutions must comply with data collection and reporting mandates associated with the Community Reinvestment Act. Currently, banks with assets under four hundred twelve million dollars are exempt from certain community development requirements. The new measure would raise this asset threshold to one billion dollars while introducing an intermediate category for institutions holding between one billion and ten billion in assets. Consequently, hundreds of smaller lenders that currently face strict compliance obligations might see their regulatory burdens reduced or eliminated entirely.

Jesse Van Tol, chief executive officer of the National Community Reinvestment Coalition, has voiced strong opposition to the plan. He argues that the proposal dramatically weakens banks’ responsibilities to invest in working-class neighbourhoods and threatens affordable housing initiatives recently enacted into law. According to Van Tol, bank capital is essential for creating affordable housing because it drives activity under the CRA framework. With hundreds of banks potentially exempt from these duties, he warns that the requirement will become weaker overall, which could deepen existing challenges within the nation’s housing market.

The Community Reinvestment Act was originally enacted in nineteen seventy-seven as legislation to combat redlining and govern lending practices in low-income areas. Regulatory approaches have oscillated significantly under both Republican and Democratic administrations since its last major overhaul in nineteen ninety-five. The current proposal narrows the evaluation criteria for banks, meaning that examinations of retail services will prioritise credit activity while excluding deposit-taking functions from these assessments.

Regulatory officials stated they would monitor grants to ensure funds are directly used for projects with community development as a primary purpose. However, details regarding which specific activities qualify for CRA credit remain under development. Officials declined to confirm whether climate-related initiatives such as solar panel installation or flood mitigation would be included in the list of eligible projects.

The Federal Reserve did not endorse this Friday’s proposal, marking another instance where two agencies attempted to advance a regulatory change without full consensus among all federal banking regulators. Previous attempts by the OCC alone faced significant resistance from community advocates and state banking organisations who described earlier updates as disjointed or rushed. Legal challenges filed in recent years have already forced some of these unilateral changes to be rescinded, highlighting the contentious nature of reforming this long-standing law.