OCC and FDIC Propose Sweeping CRA Overhaul, Exempting Banks Under $10 Billion and Limiting Advocacy Grants

For thousands of mid-sized U.S. banks, the cost of regulatory compliance is about to drop significantly, while the nonprofits relying on their capital face a sudden funding squeeze. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation have proposed a sweeping overhaul of the Community Reinvestment Act, raising the asset threshold for full compliance from $1.65 billion to $10 billion.[1][2]

The July 31 proposal effectively exempts hundreds of institutions from the CRA's most stringent data collection, reporting, and investment mandates. Banks falling under the new $10 billion ceiling will be reclassified as "intermediate" and will no longer be subject to the separate investment and service tests that have historically compelled them to funnel capital into qualified community developments.[2][4]

According to regulatory estimates, roughly 60 percent of the currently required-reporting population will drop out of the large-bank framework, fundamentally altering peer analysis and market competition. The revised framework will evaluate retail lending performance based only on a bank's "major product lines," narrowing the scope of examinations to focus heavily on credit services while excluding deposit services entirely.[1][5][6]

The regulatory rewrite also fundamentally alters how banks can fund community organizations. The proposal restricts CRA credit to grants directly tied to specific projects or initiatives, eliminating credit for general operating support. Furthermore, large banks—those remaining above the $10 billion threshold—must now document that a grant recipient's overhead and indirect costs do not exceed 15 percent.[2][7][8]

Regulators framed the overhaul as a necessary correction to reduce unnecessary burdens on community banks and ensure that capital reaches its intended targets. The OCC and FDIC stated the new rules would prevent community development funds from being absorbed by excessive administrative costs or diverted to what they termed "activist" groups.[2][3]

However, the Federal Reserve conspicuously declined to join the proposal. Because the Fed opted out, state member banks will remain subject to the legacy 1995 CRA framework. This split creates a fractured regulatory landscape where a bank's community investment obligations will depend entirely on its charter and primary regulator, complicating compliance for institutions navigating the bifurcated system.[4][5][7]

The proposal marks the latest reversal in a years-long battle over the 1977 civil rights law. A comprehensive 2023 interagency update was halted by a federal judge in Texas earlier this year; the OCC and FDIC recently dropped their appeal of that injunction to pursue this more targeted, deregulatory path.[3][5]

Community advocates warn the changes will devastate low-income neighborhoods. Organizations like the National Community Reinvestment Coalition argue that exempting banks under $10 billion removes a critical incentive for affordable housing investments. Meanwhile, nonprofit leaders caution that the 15 percent overhead cap will starve regional groups of the flexible funding required to maintain staff and identify local credit gaps.[3][8]

The proposal is now subject to a 60-day public comment period, closing in mid-October. As the window narrows, the banking sector is preparing for a fierce lobbying clash between industry groups eager to lock in the compliance relief and community organizations fighting to preserve the flow of capital to underserved markets.[2][3][4][8]