Community Reinvestment Act: Best Practices for Final Rule Compliance

by Pamela C. Acciardo, Managing Principal, Capco Compliance Consulting Services

Following our recent Community Reinvestment Act webinar – CRA Compliance in the Modern Era: Expert Insights & Best Practices – we are pleased to share some key takeaways and calls to action to ensure firms can prepare promptly to meet the first round of new CRA final rule requirements on January 1, 2026.

Jointly issued in October 2023 by the Federal Reserve, FDIC, and OCC, the final rule, which strengthens and modernizes the Community Reinvestment Act regulations, seeks to expand access to credit, investment, and banking services among other key changes. 

Communication around the final rule will need to be timely and intentional as the changes impact multiple business lines throughout your organization. Ensure that all stakeholders understand how the bank’s responsibilities may affect the organization’s business plan or strategy, as well as their business line.

First, continue to socialize the CRA final rule at Compliance, CRA, and other Committee meetings as appropriate. Develop and implement a detailed action plan, including tentative effective dates, and assign accountability for key milestones such as the following:

• Remain abreast of new developments, including the outcome of the preliminary injunction and update your action plan and effective dates accordingly 
• Determine if your institution should opt into new tests or stay with the default tests:

Check out Capco's latest insights from our recent webinar and Q&A session, "CRA Compliance in the Modern Era: Expert Insights & Best Practices," recorded on Thursday, June 20th from 2 to 3 PM EST...

Community Reinvestment Act: Best Practices for Final Rule Compliance (capco.com)

CRA and Fair Lending : A Picture is Worth a Thousand

by Pamela C. Acciardo, Managing Principal, Capco Compliance Consulting Services

As US banks of all sizes study the extensive final Community Reinvestment Act (CRA) Rule and devise appropriate implementation plans, the adage “a picture is worth a thousand words” should be front of mind. We look at how mapping can be instrumental in identifying and mitigating redlining and other risk factors. 

Since President Biden signed Executive Order 13985 – Advancing Racial Equity and Support for Underserved Communities Through the Federal Government – in 2021, and the Department of Justice (DOJ) subsequently launched its Combatting Redlining Initiative, we have seen an increased focus on this form of discrimination. The DOJ has since announced redlining settlements with 10 banks and mortgage lenders, with 24 investigations pending.1 

Redlining is a type of disparate treatment in which a lender provides unequal access, or terms of credit based on a prohibited characteristic, to the residents of an area in which the borrower resides or will reside, or in which a residential property to be mortgaged is located. For example, a blanket avoidance of providing home loans and other mortgage services in majority Black and Hispanic neighborhoods would constitute redlining. 

Commensurate with the heightened regulatory focus and scrutiny that has resulted in the recent increase in redlining enforcement actions, the FDIC (among other agencies) is encouraging banks to generate maps plotting both loan applications and originations to proactively identify – and, critically, address – any potential disparities. Maps can help visually identify any gaps in loan applications and originations, particularly within majority-monitory and low-income census tracts....Read More

Check out Capco's latest insights from our recent webinar and Q&A session, "CRA Compliance in the Modern Era: Expert Insights & Best Practices," recorded on Thursday, June 20th from 2 to 3 PM EST. 
 

Starting Strong in Compliance – Your Guide to Success in a New Role

by Trey Anderson, J.D., Senior Consultant, Capco Academy

One of the key elements of an effective Compliance Management System (CMS) is performing ongoing compliance monitoring and testing. In our experience, partnering with financial institutions of all sizes, charters, and complexity, we have noted two common themes: 1. Some financial institutions are better at this than others; and 2. Some business units or departments are better at this than others. Therein lies the gap, and an opportunity that Capco is pleased to have addressed through the testing component of our CMS Solution...

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Navigating Incentive Compensation Programs- Managing the Risks of Incentive Compensation Programs

by Christopher Price, CAMS, AMLP, Senior Consultant, Regulatory Advisory Services

Incentive Compensation Programs (ICPs) can play a crucial role in driving the success of financial institutions. According to the Supplementary Information section of the Interagency Guidance on Sound Incentive Compensation Policies, ICPs can attract skilled staff, enhance organization-wide and employee performance, encourage employee retention, provide retirement security, and align personnel costs with revenues.

Given these benefits, it's no wonder financial institutions use them. However, compensation arrangements come with inherent risks. Inadequate risk management in ICPs has led to imprudent risks taken by both C-Level management and employees, risking possible reputation and consumer harm, as well as civil and criminal penalties. Over the last seven years...

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The Shield & the Sword: How the Three Lines of Defense Allow You to Avoid the Pain of Self-Reporting

by Becky Breland, J.D., Principal Consultant, Regulatory Advisory Services

Sometimes it is better to use your shield before falling on your sword.  A large regional bank in the Southeast recently learned that lesson.  The Federal Reserve Board imposed a staggering fine, of approximately $2.95 million for unsafe and unsound practices in the bank’s flood insurance compliance program and for flood insurance regulatory violations. The bank agreed to the fine, without admitting or denying the allegations, on August 14, 2023.  This is even though the bank self-reported the violations with respect to not effectively monitoring a significant number of home equity loans and home equity lines of credit.  According to a spokesman for the bank, “We took corrective action and remediated the issue by 2017. There was no customer impact as the matter was confined to our own internal monitoring of flood insurance policies on certain properties.”

Is Self-Reporting Still Beneficial in 2023?

Sometimes, we have to fall on our sword. Regulatory Advisory Services has long advocated when financial institutions identify regulatory violations during their monitoring processes, to self-report to their primary regulator that the violations were discovered and that, as applicable, corrective measures were undertaken to remedy those violations and prevent future violations from occurring...

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