A milestone discussion on the past, present, and future of the Community Reinvestment Act
A Historic Milestone Meets a Historic Expert
For our landmark 100th episode of the Compliance 9-1-1 Show, hosts Dean Stockford of M&M Consulting and Len Susio of Geodata Vision knew they needed someone special. Enter Dr. Kenneth H. Thomas, Ph.D. - quite literally the person who "wrote the book" on the Community Reinvestment Act.
Dr. Thomas isn't just any CRA expert. He's been involved with this regulation from its very inception in 1977, working alongside Senator William Proxmire during the law's creation. His credentials speak volumes:
- Congressional Testimony: Advised lawmakers on CRA implementation and reform
- Federal Regulator Advisor: Worked directly with banking agencies on policy development
- Examiner Trainer: Educated federal bank examiners on CRA evaluation techniques
- Published Authority: Author of multiple books and articles, including the comprehensive CRA Handbook
- Industry Pioneer: Founded two community development funds and has influenced CRA policy for nearly five decades
The Current CRA Landscape: From Chaos to Opportunity
The podcast dives deep into what Dr. Thomas calls the "tumultuous" last five years of CRA regulation. After decades of stability following the major 1995 revision, the regulation has ping-ponged between dramatically different approaches:
The Trump Era (2020): Introduced a controversial rule focusing on quantitative metrics, which included Dr. Thomas's innovative 5% rule for deposit-based assessment areas.
The Biden Era (2023): Implemented an extraordinarily complex 1,500-page regulation that was so convoluted it united the entire banking industry in legal opposition - a first in American banking history.
The Current Moment (2025): A return to the 1995 regulations with the rescission of the 2023 rule, leaving the critical need for modernization unaddressed.
Dr. Thomas's Game-Changing 5% Rule
One of the most compelling segments discusses Dr. Thomas's proposed solution to the "branchless banking" problem. His 5% rule is elegantly simple: when any bank collects more than 5% of deposits from a metropolitan area, they should have CRA obligations in that area - specifically directing benefits to low- and moderate-income communities within that market.
This addresses what Dr. Thomas calls "weblining" - the practice of major online banks extracting billions in deposits from major metropolitan areas while concentrating all CRA benefits in just three "sanctuary states" (Delaware, South Dakota, and Utah) where their single headquarters are located.
The numbers are staggering: approximately $40 billion annually in CRA benefits are being misdirected away from the communities that generate the deposits.
Critical Takeaways for Banking Professionals
The conversation reveals several urgent action items for the banking community:
1. Engage in the Regulatory Process
The comment period for the NPR (Notice of Proposed Rulemaking) ends August 18, 2025. Dr. Thomas emphasizes that passive banks will be "run over by community activists" if they don't participate in shaping CRA's future.
2. Don't Let Your Guard Down
Despite the current administration's deregulatory stance, banks cannot afford complacency. CRA exams look back 3-4 years, and DOJ reviews span five years. What you do today will impact future examinations and M&A approvals.
3. Community Development Investment is Non-Negotiable
Dr. Thomas introduces his "1% rule" - banks should maintain community development investments equal to at least 1% of average assets. His reasoning is compelling: "There's no excuse for not writing a check" for government-guaranteed, liquid investments that help low- and moderate-income communities.
4. Data Reporting Should Be Universal
The hosts make a strong case for mandatory CRA data reporting by all banks, not just large institutions. Currently, 85% of CRA-covered banks don't report their data, making peer comparisons impossible and leaving community banks without credit for their often-excellent local performance.
The Political Reality
Dr. Thomas provides crucial historical context about CRA's evolution from an "apolitical" law focused on helping low- and moderate-income people to today's politically charged environment. He traces this transformation to the Trump administration's personal experiences with CRA challenges, which led to regulations driven by political rather than policy considerations.
His hope? A return to the original spirit of CRA - helping communities that need it most, regardless of political affiliation.
Looking Forward: The Modernization Imperative
All three experts agree that simply reverting to the 1995 regulations, while better than the 2023 complexity, leaves a dangerous vacuum. Without addressing the legitimate need for modernization - particularly the branchless banking issue - future administrations will inevitably attempt their own "fixes," potentially creating even more regulatory whiplash.
Dr. Thomas's prescription is refreshingly straightforward: implement the deposit-based 5% rule through a simple regulatory adjustment, similar to how other assessment area types have been added over the years. No Congressional action required, no 1,500-page complexity - just a focused solution to a specific problem.
Why This Matters Beyond Compliance
The discussion reveals CRA as more than just a compliance obligation - it's a critical tool for community development that channels approximately $40 billion annually into underserved areas. When it works properly, CRA creates a virtuous cycle: banks fulfill their community obligations while communities receive needed investment capital.
When it doesn't work - as with the current branchless banking loophole - entire metropolitan areas lose access to billions in potential community development resources.
The Bottom Line
As Dean Stockford notes in the podcast, this isn't just about regulatory compliance - it's about preventing a "complete PR nightmare" for banks that fail to engage proactively with CRA's future direction.
Dr. Thomas's decades of experience offer both warning and hope: done right, CRA modernization can be simple and effective. Done wrong, it creates legal challenges and operational chaos that benefit no one.
For banking professionals, the message is clear: the comment period ending August 18th represents a crucial opportunity to influence CRA's future. As Dr. Thomas demonstrates, sometimes the best solutions are also the simplest ones.
