FDIC Chairman Travis Hill told reporters Tuesday that the joint proposal from his agency and the Office of the Comptroller of the Currency is aimed at ensuring more CRA-credited money reaches low- and moderate-income communities rather than being absorbed by intermediary organizations with high overhead. The plan, unveiled last month, would only grant banks CRA credit for community development grants if recipients cap overhead and administrative costs at 15%.
Objective Criteria or Political Targeting?
Hill pushed back against the suggestion that the proposal targets organizations critical of the Trump administration. “The criteria in the proposal is fairly objective in nature,” he said. “The criteria is a cap on overhead and administrative costs and a requirement that the recipient is located in the community.”
The agencies’ summary explicitly says the rewrite would prevent money from being “diverted to activist causes or consumed by excessive operating costs.” Hill acknowledged that regulators are specifically trying to prevent funds from ending up with Washington-based organizations that act as funding intermediaries between banks and neighborhood groups.
That framing has drawn sharp pushback from Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition — one of the organizations the Trump administration singled out in comments to the New York Post for a July 31 story on the proposal. Van Tol said the explicit callout of Washington-based groups makes the rule appear “arbitrary and capricious” and creates the appearance that regulators are targeting organizations on a political basis for advocating against administration policies.
Unintended Consequences for Small Groups
Van Tol warned the proposal could backfire by reducing the amount of money that actually reaches the small community groups the agencies say they want to help. Many of the smallest neighborhood organizations have relatively high overhead costs, he said, and the proposed reporting requirements would make it harder for banks to partner with them directly.
For banks, CRA compliance is not a peripheral concern. A poor CRA grade can lead federal regulators to block merger applications and branch expansion plans, giving the rules real teeth in shaping where banks direct their philanthropic and lending activity.
The tension at the center of the debate is structural: intermediary groups based in Washington and elsewhere often serve as the connective tissue between large banks and small, locally focused organizations that lack the capacity to manage complex banking relationships on their own. Cutting those intermediaries out of the credit equation could streamline funding — or it could sever the pipeline.
Split Among Regulators
The proposal also exposes a rift among the three federal agencies that share CRA oversight. The FDIC, the OCC, and the Federal Reserve moved together on a 2023 CRA rewrite under the Biden administration, but a federal judge in Texas vacated that plan. The OCC and the FDIC dropped their appeal of the ruling to clear the path for the new July proposal. The Fed, however, has neither withdrawn its appeal nor signed on to the new framework.
Hill said “it’s always optimal” for the three agencies to act together on CRA rules and confirmed that conversations are ongoing. “There are always deviations on approaches to certain rules,” he said. “We certainly would like the Fed to come along.”
A fragmented regulatory approach could create compliance headaches for banks that operate across jurisdictions supervised by different agencies. If the Fed ultimately declines to join the proposal, banks could face divergent CRA expectations depending on which regulator examines them.
What Happens Next
The proposal now enters what is likely to be a contentious public comment period, with community development groups, banking trade associations, and civil rights organizations all expected to weigh in. Watch for the NCRC and allied organizations to mount a coordinated campaign arguing that the overhead cap and locality requirement will choke off funding to the smallest, least-resourced community groups.
The Federal Reserve’s decision on whether to join the FDIC and OCC — or continue pursuing its own path — will be the single most consequential variable. A unified three-agency proposal would carry far more weight with banks and courts than a two-agency framework opposed by the third. If the Fed stays out, expect legal challenges similar to those that felled the 2023 rewrite, with opponents arguing the agencies acted arbitrarily and without a coherent rationale.
For banks, the practical question is how to recalibrate community development strategies before any final rule takes effect. Institutions that have relied on Washington-based intermediaries to satisfy CRA obligations may need to begin building direct relationships with local organizations — or risk losing credit for grants that no longer qualify under the new overhead and location tests.
— Sofia Alvarez, government desk, AXO News