Treasury Outlines Path for Community Reinvestment Law Update

By Evan Weinberger

A Community Reinvestment Act revamp should expand the types of lending used to calculate a bank’s performance, as well as more certainty in the examination process, the Treasury Department said April 3.

The long-awaited report from the Treasury Department on ways to update the 40-year-old law meant to increase lending in low- to middle-income areas also calls for modernizing the assessment areas where banks’ lending activities are graded beyond the current definition used by regulators and increased standardization in the evaluations so the public can better compare banks’ performance.

The Treasury Department said its goal was to outline ways to make the CRA more applicable to a world with national banks that cross state boundaries. Other banks rely on mobile banking and financial technology offerings to reach customers without a significant physical branch network, making it difficult to determine their CRA compliance.

“Our recommendations will improve the effectiveness of CRA by enhancing the assessment and examination process, enhancing the ability of banks to deliver services in the communities they serve while considering technological advances in the financial industry,” Treasury Secretary Steven Mnuchin said in a statement.

The Treasury report comes as the three regulators responsible for overseeing the CRA — the Office of the Comptroller of the Currency, the Federal Reserve, and the Federal Deposit Insurance Corp. — begin an ambitious revision of the CRA, which came into effect in 1977 and has not seen a significant change since 1996.

The CRA calls for the OCC, the Fed, and the FDIC periodically measure how much lending is done by the banks they oversee inside geographical assessment areas based on their branch and ATM locations. If banks are found not to do enough of such lending, regulators can stop some business activities or hold up branch expansions and mergers. But it hasn’t been updated for nearly two decades.

The law was a response to redlining, which involves either a failure to lend or discriminatory pricing on financial products offered to people in neighborhoods based on racial or ethnic grounds or other considerations. The Federal Housing Administration began the practice in the 1930s, and banks continued it.

Comptroller of the Currency Joseph Otting outlined the path his agency plans to take in a March 28 public appearance.

The Treasury Department’s report highlighted the need to bring the CRA up to date, said Bryan Hubbard, an OCC spokesman.

The report also affirmed “the direction of federal banking regulators’ work” on a first pass at a proposal aimed at improving how CRA is implemented to better achieve its original purpose of encouraging banks to meet the credit needs of their communities, Hubbard said in a statement.

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