By Chris Bruce
The Treasury Department is getting plenty of advice on how best to revamp the Community Reinvestment Act as it prepares to release a highly anticipated set of recommendations early this year.
Below are some of what the financial services industry wants most from the revamp of the 1977 law on serving the credit needs of low- and moderate-income communities.
Above all else, stakeholders want more clarity and transparency on how banks invest in their communities for CRA purposes, Kipp Kranbuhl, the Treasury Department’s deputy assistant secretary for small business and community development, told an American Bar Association meeting in January.
The American Bankers Association noted in a December set of recommendations that banks devote time and resources to community development initiatives only to learn perhaps years later that they won’t receive CRA credit from the regulators. The group urged Treasury to establish a process in which banks could ask in advance whether particular efforts would be eligible for CRA credit.
Bankers have made clear that they want to make the decision on what constitutes a geographic assessment area. According to the ABA, a bank, not an examiner, “should define its assessment area based on the market that it can reasonably serve.”
The Independent Community Bankers of America echoed that call in its letter to Treasury, saying that approach would be more consistent with existing CRA rules that say “a bank shall delineate” its assessment areas. “Assessment areas should be identified and delineated by community banks rather than the agencies so that community banks can plan accordingly,” the ICBA told the Treasury Department.
There’s also plenty of feedback on how regulators — including the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. — conduct CRA exams and how that might change. Banks sometimes face a long lag time between when they’re examined for CRA performance and when they learn how they did, said Warren Traiger senior counsel with Buckley Sandler in New York. That needs to change, he told Bloomberg Law.
“Sometimes a bank can be subject to a new CRA exam before the old exam is published,” Traiger said. “It’s not very helpful to get 2016 exam results in 2018.”
The focus on the need for timely and useful information from regulators is one where there’s at least some consensus emerging already across policy lines. For example, although the ABA wants information about CRA examination procedures to be accessible, so does the National Community Reinvestment Coalition and other consumer advocates.
“We agree with the ABA that any guidance or formal or informal examination procedures must be publicly available,” the NCRC said in a recent letter to Treasury.
CRA ratings can be deciding factors for banks seeking regulators’ approval for acquisitions, branches, or new activities. In its letter, the NCRC said CRA ratings and performance on applications “must remain a powerful incentive for banks to abide by their community reinvestment obligations.”
“Merging with another institution or opening a branch is a privilege, not a right, and only banks abiding by their community reinvestment obligations should be accorded those privileges,” the NCRC said.
The ABA said the lowest CRA rating, unsatisfactory, shouldn’t be “a de facto bar” for banks seeking those approvals.
The OCC already has taken action on ratings. In October, an agency bulletin said OCC examiners won’t automatically downgrade a bank’s CRA ratings based on alleged lending practices that don’t directly implicate the CRA. That move, which was welcomed by financial institutions, also is prompting calls for the Fed and the FDIC to do the same.
“We’re seeing cases where people are having their CRA ratings downgraded for things that have nothing to do with the original intent of CRA,” said Oliver Ireland, a partner with Morrison & Foerster in Washington who represents financial institutions. “You can be lending money hand over fist into your community and get knocked out of the market for acquisitions or new branches pretty easily. It would be nice to see something similar from the Fed and the FDIC.”
The FDIC didn’t respond to a question about whether it might follow the OCC’s lead. A Fed spokeswoman said the Fed “has not taken similar actions and has announced no plans to do so.”
Traiger said he expects most changes to be accomplished by regulation. But some proposals, such as the possible expansion of CRA coverage to include fintech companies or credit unions, would require a change to the statute, he told Bloomberg Law.
“That would have to be done by Congress, but there’s not much of an expectation that Congress will open up the CRA to make those kinds of changes,” he said.
Federal Financial Analytics Inc., a Washington financial services consulting firm, says a broader approach is needed to make the CRA more of a positive force in community lending. Federally backed lending programs by the Small Business Administration and others can play complimentary role to CRA efforts, the firm said on its Economic Equality blog.
Nonetheless, banks are winners if the Treasury-proposed framework moves ahead. The compliance migraine caused by CRA, the firm said, “will go down to a dull ache.”
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