Proposed Major Changes to CRA Cause for Concern

16 Dec 2019 7:58 PM | Deleted user


Last week, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) issued a Notice of Proposed Rulemaking (NPR) proposing substantial revisions to the examination process in ways that do not all appear to align with the intent of the Act. CRA was established to address a legacy of redlining and divestment in low- and moderate-income (LMI) communities. However, the proposed changes raise concerns about how it will affect CRA’s charge to affirmatively meet the community needs for credit and services in LMI communities.

There are some key core issues at of critical concern, based on an initial review of the NPR. We ask that our members who are concerned about these regulations continue to check our website for further details be prepared to comment not only with regulators, but with members of Congress as well!

  • The NPR would dilute benefits for LMI communities by broadening CRA-eligible activities (including infrastructure - roads and stadiums could count)
  • It would significantly dilute focus of bank activities on LMI consumers and communities
  • It limits consideration of bank branches more than under the current CRA service test. Banks may respond by closing more branches in LMI communities
  • Retail lending analysis would count for much less under the new proposed exams, which could exacerbate banking deserts
More specifically, the NPR changes are broken down into the following three key areas:

What Counts:

  • The NPR would broaden what bank activities are CRA-qualifying
    • The definition of community development is currently: affordable housing for LMI households, economic development for businesses under $1 million in revenue, community facilities and the revitalization/stabilization of LMI communities. The NPR deletes economic development and revitalization/stabilization from the definition
    • The NPR also added a new criterion: infrastructure. This can include roads, bridges, or hospitals, but it does not appear those even have to even be based in LMI communities. This dilutes the impact of targeting LMI community investment
    • Key bank services, such as deposit accounts, are no longer considered qualified activities. There is significant concern that proliferation of check-cashing, payday lending and other subprime services will only be exacerbated by further driving banking deserts if this is finalized
    • While framed as an anti-gentrification move, the NPR excludes the consideration of middle- and upper- income lending in LMI communities. This economic integration, if properly applied, with an eye for preventing displacement, is the kind that can help revitalize divested LMI communities
    • Instead of focusing on LMI impact, the NPR would count financial education for all income levels, when research shows LMI communities are disproportionately under- or un-banked
    • Community development services now allows for all volunteer activities, which is a departure from the current definition that is a service related to providing financial products for LMI individuals

Where it Counts

  • Assessment areas are updated in ways that aim to account for the proliferation of internet-based banks, but there is much that is still vague/unknown about how the regs would assign deposits collected via the internet to branches.
  • The NPR notes that there is an allowance for credit for qualifying activities conducted outside of bank assessment areas. We will be looking into this as we have concerns about how this will impact investment in small non-profits

How it Counts

There remain significant concerns in how the one ratio test may result in

  • A reduction in valuing retail branches in LMI communities
  • the potential to encourage an over-reliance on the largest and easiest deals at the expense of small dollar, business and home mortgage lending in LMI communities and a reduction in partnerships with small non-profits who make significant local impact in LMI communities
  • the lack of differentiation for asset classes, meaning state or regional banks are being compared to the largest banks on performance

Following the NPR release several civil rights/fair housing/consumer groups listed below issued a letter linked here:  Americans for Financial Reform Education Fund, Center for Responsible Lending, NAACP, NAACP Legal Defense and Educational Fund, Inc., National Association of Real Estate Brokers, National Coalition for Asian Pacific Americans Community Development, National Community Reinvestment Coalition, National Fair Housing Alliance, The Leadership Conference on Civil and Human Rights, and UnidosUS.

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