Regulation BB - Explained
What is Regulation BB?
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What is Regulation BB?
Regulation BB was created to effectuate portions of the Community Reinvestment Act (CRA). As such, it is a banking regulation that requires covered banks to publicly disclose the communities they serve and the type of loan or credit products they will offer to that community. The primary purpose of Regulation BB is to encourage covered banks to extend credit to all segments of society. This means not discriminating against potentially higher-risk groups with lower credit ratings. It also requires public posting of any statement by the bank concerning their compliance with the CRA.
How Does Regulation BB Work?
Regulation BB subjects federally chartered banks to standards for uniform lending practices within their communities. In addition to lending requirements, covered Banks are required to publicly state their policies on how they comply with the CRA.
- Note: The CRA does not put limits on interest rates that are based upon the perceived level of default risk. It primarily targets the identification of geographic areas where services are denied - regardless of the terms of the loan.
This regulation is a response to the practice of redlining districts where the bank will not make loans. This is a common form of discrimination by not lending to individuals living or carrying on business within areas populated by individuals in a lower socio-economic class. This has the effect of discriminating against low-income minority groups. Regulation BB is enforced by federal regulators, such as the Federal Reserve Bank and the Consumer Financial Protection Bureau.