The Illinois Department of Financial and Professional Regulation (“IDFPR”) has issued a notice of proposed rules to implement the newly passed Illinois Community Reinvestment Act (“ILCRA”), aimed at serving the credit needs of low- and moderate-income communities and individuals. The proposal includes a separate set of rules applicable to state-chartered banks, non-depository mortgage lenders, and credit unions. Each set of proposed rules address topics that include, among other things, performance tests and ratings by institution size or business model, assessment area delineation, data collection and reporting, and examination procedures. The IDFPR is soliciting comments from interested stakeholders through March 16, 2023 and will be holding three public hearings related to the rules.
The proposal outlines CRA responsibilities and performance evaluation measures for banks and would subject them to a CRA examination by the IDFPR, in addition to their federal CRA examinations. The rules themselves, however, are essentially the same as under the federal CRA.
Under the ILCRA, non-depository mortgage lenders and credit unions are subject to CRA requirements. As described in the proposal, credit unions and non-depository mortgage lenders would be subject to a CRA evaluation based on a testing framework that looks similar to the current federal CRA framework, meaning that the IDFPR will examine these institutions under tests that look similar to the current federal CRA tests depending on their operations and asset sizes.
The proposal’s requirements for Illinois-chartered credit unions look comparable to those for banks under the current federal CRA and the proposal. Akin to banks, credit unions would have CRA responsibilities in delineated assessment areas, which are communities based on where credit unions have their main offices, branches, and deposit-taking ATMs. These responsibilities take the form of lending, investment, and service tests based on asset size thresholds and then add resultant evaluation elections depending on asset size. Additionally, the proposal provides an alternative evaluation framework for wholesale and limited purpose credit unions, involving a community development test, and strategic plan evaluation option. The lending test includes home mortgage, small business, and small farm loans, though it also adds potential consumer loans, such as motor vehicle, credit card, home equity, other secured, and other unsecured loans, depending on the credit union’s loan portfolio. Credit unions would also have data collection, reporting, and disclosure requirements, though those requirements are reduced for small credit unions.
Non-depository Mortgage Lenders
Under the proposal, non-depository mortgage lenders licensed pursuant to the Residential Mortgage License Act of 1987 which made 50 or more HMDA-reportable home mortgage loans in the previous calendar year will have CRA responsibilities. There are a number of key aspects of the proposal specific to mortgage lenders that differ from the rules for credit unions and banks:
- In contrast to banks or credit unions, CRA activities would be assessed state-wide, not based on delineated assessment areas.
- The proposal outlines that mortgage lenders would be subject to lending and service tests, but not an investment test. Instead, the proposal states that a mortgage lender that warrants a satisfactory rating can be considered for an outstanding rating based on its level of qualified investments and community development loans, which is essentially the traditional CRA investment test.
- Importantly, and in contrast to the lending test evaluations of banks or credit unions, mortgage lender performance criteria for the lending test explicitly includes not only the portfolio of loans’ geographic distribution, borrower characteristics, and innovative or flexible lending practices, but also (i) loss mitigation efforts, (ii) fair lending performance, and (iii) contribution to the loss of affordable housing units. These are new areas not contained in the federal CRA, either.
- Finally, mortgage lenders will also have data collection and reporting requirements, which would include “additional data fields beyond what is required under HMDA.” These data fields are not specified in the proposal.
The proposed regulations implementing ILCRA, as applicable to Illinois-chartered banks, largely mirror the federal CRA regulations applicable to state-chartered institutions. But those federal CRA regulations are on the precipice of a major overhaul. As proposed by the interagency Notice of Proposed Rulemaking to the federal CRA, where a bank will have CRA responsibilities, the substance of those responsibilities, the measurement of those responsibilities, and the record keeping and reporting of those responsibilities are slated for significant change under a completely new framework. Whether those changes will be finalized as currently proposed by the three prudential banking regulators remains to be seen, but the fact that the IDFPR’s suggested framework for bank compliance with the ILCRA is based on a likely soon-to-be outdated set of regulations is surprising. The proposal does note that the ILCRA regulations are intended to follow the federal standards. Accordingly, there could be a revision in the works sooner-than-later should the federal CRA regulations change contemporaneously with or soon after the ILCRA regulations are finalized.
Compliance with the ILCRA as proposed would be relatively easy to plan for and implement because it generally applies the current and 28-year-old federal CRA regulations to Illinois banks, non-depository mortgage lenders, and credit unions, as relevant to the type of financial institution. However, these Illinois financial institutions would be wise to monitor the federal CRA modernization efforts with an eye to the future. As the ILCRA proposal comment window is open, affected stakeholders should consider voicing any concerns with their future CRA responsibilities.