OCC and FDIC Propose Major CRA Overhaul, Exempting Banks Under $10B and Narrowing Focus to Credit Services

On July 31, 2026, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) jointly unveiled a sweeping proposal to overhaul the Community Reinvestment Act (CRA). The draft rule represents a fundamental shift in how federal regulators evaluate whether financial institutions are meeting the credit needs of their local communities. By raising the asset threshold for the most rigorous examinations and narrowing the focus to direct lending, the agencies aim to simplify a regulatory framework that has grown increasingly complex over the past three decades.[1][4]

Enacted in 1977, the CRA is a landmark civil rights-era law designed to eliminate redlining—the discriminatory practice of denying credit to residents of low- and moderate-income (LMI) neighborhoods. For nearly fifty years, the law has required banks to demonstrate that they serve the financial needs of the entire geographic area in which they are chartered. A bank's CRA rating directly impacts its ability to open new branches, merge with other institutions, or acquire competitors.[4][6]

The most immediate and consequential change in the new proposal is the reclassification of bank sizes. Under the current framework, banks with assets over $1.65 billion face the full, comprehensive large-bank CRA examination. The OCC and FDIC proposal would dramatically raise that threshold to $10 billion. Institutions with less than $1 billion in assets would be classified as "small banks," while those holding between $1 billion and $10 billion would fall into a newly defined "intermediate bank" category.[2][5]

This threshold adjustment effectively exempts hundreds of community and regional banks from the most burdensome data collection and reporting requirements. According to regulatory data cited in the proposal, only 86 banks—representing roughly 2.4% of all U.S. depository institutions—would remain in the large-bank category. However, because the banking sector is highly consolidated, those 86 institutions still hold approximately 85.4% of total domestic banking assets.[2][4]

For the hundreds of banks moving below the $10 billion mark, the regulatory relief is substantial. These intermediate banks would no longer be subject to separate, distinct tests for their lending, investments, and retail services. The FDIC estimates that the streamlined requirements will eliminate more than 106,000 hours of annual compliance work, saving the banks it supervises approximately $10 million per year.[2][5]

Beyond threshold changes, the proposal fundamentally alters what activities earn CRA credit. The OCC and FDIC are pivoting the examination focus heavily toward direct credit services—specifically, a bank's major retail lending products, such as mortgages and small business loans. In doing so, the agencies are proposing to exclude deposit services, such as the provision of low-cost checking accounts, from the retail services evaluation.[1][3]

The agencies argue that this shift returns the CRA to its statutory roots: evaluating credit delivery rather than broad banking services. By concentrating on major product lines, examiners will assess whether a bank is actually putting capital into the hands of LMI borrowers and small businesses, rather than simply maintaining a physical branch presence or gathering local deposits.[2][3]

Another highly scrutinized provision involves how banks receive credit for community development grants and donations. Historically, banks have fulfilled part of their CRA obligations by funding nonprofit organizations, affordable housing initiatives, and community development groups. The new proposal tightens the parameters around these grants, requiring banks to document that the funds are used directly for specific community development projects.[1][4]

Specifically, large banks would be required to prove that no more than 15% of a grant recipient's funding is consumed by indirect or overhead administrative costs. The OCC and FDIC based this cap on standard federal grant guidance, asserting that it will ensure capital reaches the intended communities rather than being absorbed by operating expenses or diverted to broader advocacy efforts.[2][3]

This tightening of grant rules also includes a mandate for banks to collect more granular data on grant recipients, including specific geographic addresses. Regulators state this will increase transparency, ensuring that community development funds are spent locally rather than being distributed to national umbrella organizations that may not have a direct impact on the bank's immediate assessment area.[4][5]

Notably absent from the joint proposal is the Federal Reserve, the third major federal banking regulator. The Fed, which oversees state-chartered member banks, opted not to join the OCC and FDIC in this rulemaking effort. Instead, the central bank appears to be maintaining the existing regulatory framework, creating a fractured landscape where banks could face vastly different CRA expectations depending on their primary federal supervisor.[1][3]

The banking industry has largely welcomed the OCC and FDIC's effort to simplify the rules. Trade groups and industry advocates have long argued that the CRA's complex formulas and subjective investment tests disproportionately burden smaller institutions that lack massive compliance departments. A streamlined, objective framework focused on lending is seen as a necessary modernization that reflects the realities of contemporary banking.[2][5]

Conversely, community advocates and housing organizations have raised alarms about the unintended consequences of the overhaul. Critics argue that exempting intermediate banks from the investment test will lead to a severe drop in funding for affordable housing projects and local economic development initiatives. Because intermediate banks are often the primary financial engines in rural areas, advocates warn that these communities could see a significant reduction in vital grant capital.[3][4]

Furthermore, consumer advocates caution that excluding deposit services from CRA consideration could disincentivize banks from offering accessible, low-cost accounts to LMI individuals. Without regulatory credit for maintaining inclusive deposit products, banks might prioritize higher-margin lending products, potentially pushing vulnerable consumers toward alternative, higher-cost financial services.[1][6]

The proposal marks the latest chapter in a turbulent multi-year effort to modernize the CRA. In 2023, all three banking regulators finalized a massive 1,500-page overhaul, which was subsequently challenged in court and targeted for rescission. This new, streamlined approach underscores the ongoing political and ideological debate over how best to mandate corporate investment in underserved communities.[1][5]

As the proposal enters its public comment period, financial institutions are preparing for a potentially bifurcated regulatory environment. While large banks over $10 billion will continue to navigate rigorous lending and grant-tracking requirements, hundreds of community and regional banks are poised to operate under a significantly lighter compliance burden, reshaping the flow of community reinvestment capital across the country.[2][3]