September 17, 2019
The Honorable Jerome H. Powell
Chairman, Federal Reserve Board of Governors
20th Street and Constitution Avenue, NW
Washington, DC 20551
The Honorable Joseph Otting
Comptroller of the Currency
400 7th Street, SW
Washington, DC 20219
The Honorable Jelena McWilliams
Chairman, Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Dear Chairman Powell, Chairman McWilliams, and Comptroller Otting:
We, the undersigned organizations, are offering our thoughts regarding major areas of Community Reinvestment Act (CRA) reform now because we understand that a Notice of Proposed Rulemaking (NPR) could be issued as soon as the end of September or in October. The CRA is a vital law that has leveraged trillions of dollars of loans and investments in low- and moderate-income (LMI) neighborhoods because its examination and review process features public accountability and transparency. One major reason for CRA’s success is that it has fostered collaborations among banks, community organizations, and public sector agencies that have developed lending and investing programs and products.
Like you, however, we believe that CRA needs an update to take into account changes in the banking industry and to improve data and evaluation methods. At the same time, it is vitally important to proceed carefully and to refrain from enacting reforms that would undercut CRA’s effectiveness.
The one ratio must not become the determinative measure
Some of us have attended recent meetings convened by the Office of the Comptroller of the Currency (OCC) and have also reviewed the OCC brochure, Community Reinvestment Act (CRA): Opportunity for Modernization. The one ratio described in the brochure is of great concern to us. The ratio will compare “historical CRA activity compared with domestic deposits” and will contribute to a “presumptive rating.” The ratio will be calculated for each of the bank’s assessment areas and for the overall bank’s performance.
As we have stated in our comment letters regarding the Advance Notice of Proposed Rulemaking (ANPR), if a metric of this nature is determinative of the CRA rating either at the assessment area or overall, it will likely distort CRA activity in a way that is not responsive to local needs. In order to boost the numerator of the ratio, banks will likely favor large dollar community development activity or purchases of mortgage backed securities (MBS). In response to these concerns, the OCC said in the meetings that it will limit any transaction to 10 percent of total CRA activity; this limit is supposed to guard against over-reliance on large deals or secondary market activities. However, these limitations still leave room for heavy use of large deals or secondary market activities since activities approaching 10 percent of CRA activity still translate into a large dollar amount for a loan or an investment. In addition, a bank can fulfill its CRA responsibilities by a number of large deals at 9 percent each of total CRA activity. We remain concerned that small transactions meeting local needs such as microloans for very small businesses or mortgages for LMI borrowers, particularly in lower cost areas of the country, will receive less attention from banks.
The one ratio also has the potential to interfere with sound business practices. If empirical benchmarks for passing ratings are set too high during economic downturns, banks could feel pressured to seek large deals when smaller loans or other financial assistance could better support communities and avoid over-leveraging banks. Different agency heads under various administrations could also adjust ratios that promote particular policies but do not take local credit needs into account. CRA examination regimes have never involved establishing certain ratios corresponding to certain ratings because reducing evaluations into one or a few ratios does not allow banks flexibility to meet needs commensurate with their capacity and business models. Since exams now use a number of criteria, a bank can compensate for lackluster performance on one criterion with better performance on another criterion. A one ratio reduces flexibility of this nature and constrains activity by favoring larger deals. Concerns over possible credit allocation and constraining activity prompted Senator Proxmire, the architect of CRA, to remove a ratio similar to the one ratio from the original draft of the CRA statute.
A one ratio approach will make CRA exams less transparent and will deter public input. If the one ratio replaces existing metrics such as percent of loans to LMI borrowers or communities, it will be harder for community organizations and members of the public to understand which needs banks are responding to and which ones they are neglecting. A one ratio expressed as a percentage does not inform the reader of an exam of basic information such as the number and percent of home or small business loans or how many branches or deposit accounts a bank is offering to LMI people and communities. Lacking this information, a member of the public cannot intelligently comment on a bank’s performance in his or her area or cannot compare an examiner’s analysis of publicly available loan data to his or her own. A major purpose of the law, public input on a bank’s responsiveness to needs is thwarted by a one ratio approach that replaces the current performance measures.
The OCC says performance context analysis would still be used in a metric-based system, but it would be difficult to figure out how this analysis could be executed. Lacking information on the mix of retail and community development activities, an examiner or member of the public could not use performance context analysis to judge how responsive to community needs the activity mix is or whether the bank is fully using its capacity or business model to respond to the needs.
Assessment areas must retain areas with branches and include others with significant business activity
We are pleased that the OCC and the other agencies are contemplating changes to assessment areas on CRA exams that also preserve areas with branches as assessment areas. Research has shown that branches increase safe and sound home mortgage lending and small business lending to LMI borrowers and communities. While retaining areas with branches, the OCC has proposed establishing assessment areas for geographical areas from which banks are gathering significant amounts of deposits via the internet and other non-branch means. This is a positive proposal since it will capture additional geographical areas in which banks are conducting significant business activities and in which banks’ CRA performance should be assessed.
We also suggest that the agencies consider adding geographical areas in which banks are making significant amounts of retail loans but are not gathering deposits to ensure that banks with different business models and product mixes are being assessed in geographical areas in which they are offering high volumes of products. The agencies should also carefully consider any thresholds such as percent of deposits or loans for designating assessment areas so that they capture the great majority of a bank’s business activity. Reforms to assessment areas should also increase emphasis on small metropolitan areas, rural counties, Native American reservations, and economically distressed areas.
Clarifying activities that count with a non-exhaustive list with a focus on LMI people and communities
We appreciate that the agencies seek to clarify the activities that count on CRA exams so that confusion and uncertainty do not deter the financing of innovative and responsive community development activities. Development of a list of specific activities is desirable but it must not be an exclusive list that prevents the financing of new activities that are responsive to unforeseen or new community needs.
We are pleased that the Comptroller stated that the focus must remain on LMI borrowers and communities. Consideration of activities in LMI communities should promote integration and economic diversity but should not finance displacement of LMI households or very small businesses in gentrifying neighborhoods.
The threshold for the definition of a small business should not be raised to $5 million in revenues from the current threshold of $1 million. Since the vast majority of small businesses have revenues under $1 million, raising the threshold by that extent will likely divert lending activity away from small businesses that need it the most.
Care must be taken in developing any proposal that uses multipliers as a means to motivate increased activity. We understand that the agencies are considering multiplying the dollar amount of equity investments by a factor of two in order to motivate banks to increase their investment activity. This proposal could inadvertently reduce the number of investments since some banks may conclude they can earn the same amount of credit on a CRA exam if they reduce their investments by half. The objectives of increasing certain types of financing are better addressed through adjusting weights assigned to the various component tests.
Mergers must continue to receive rigorous scrutiny and public input
We are also concerned that one-ratio based examinations will over-simplify the complexities of CRA performance and will result in agencies rubber stamping merger approvals as long as banks hit certain one ratios and ratings. In addition to past CRA performance, agencies are required by law to consider the future impact of mergers on banks’ abilities to meet the convenience and needs of communities. A one-ratio based exam could result in agencies belittling the convenience and needs factor as long as banks pass muster with their one ratios. Likewise, public input regarding a merger’s impact on convenience and needs could also receive little agency consideration under a CRA examination regime focused on the one ratio.
The agencies need to consider carefully the comments received on the ANPR in developing a proposed rule. Most comments opposed the one ratio as a determinative measure because it would frustrate banks’ ability to meet local needs consistent with safety and soundness. At the same time, we appreciate that the agencies are seeking to increase clarity on CRA exams in response to ANPR comments. We also reiterate our view that CRA must be focused on LMI people and communities, must not expand consideration of philanthropic or other activities that do not focus on LMI people or communities, and must not result in CRA exams that exempt more banks from evaluations of community development financing or the provision of bank branches and services. We also want to remind the agencies of our recommendations for enhancing CRA that include collecting and disseminating data on community development financing, reforming CRA ratings, including affiliates on exams, and including examination of activity in underserved counties and census tracts. Finally, if the agencies cannot agree on specific changes to the regulation and have too many unanswered questions, the agencies should issue another ANPR instead of a NPR.
Thank you for your consideration. Contact Jesse Van Tol, CEO of NCRC, on 202-628-8866 if you have any questions.
National Community Reinvestment Coalition
Americans for Financial Reform
Center for Responsible Lending
Credit Builders Alliance
HomeFree USA, Inc.
Housing Assistance Council
The Leadership Conference on Civil and Human Rights
National Alliance of Community Economic Development Association (NACEDA)
National Coalition for Asian Pacific American Community Development (CAPACD)
National Community Stabilization Trust
National Consumer Law Center (on behalf of its low income clients)
National NeighborWorks Association
National Trust Community Investment Corporation
National Trust for Historic Preservation
National Urban League
The Democracy Collaborative
UnidosUS (Formerly NCLR)
Upward Mobility Initiative
Alabama Association of Community Development
Building Alabama Reinvestment
Center for Fair Housing, Inc.
Community Action Association of Alabama
Fair Housing Center of Northern Alabama
MLK Avenue Redevelopment Corporation
National Business League of Alabama
Titusville Development Corp
Urban Impact, Inc.
Arizona Housing Coalition
Behold Charities International
Chicanos Por La Causa
Junto Affordable Housing Inc.
Newtown Community Development Corporation
Prima County Community Advocate
Community Resources Technicians
Access Plus Capital
American GI Forum
Black Business Association
California Coalition for Rural Housing
California Community Economic Development Association
California Housing Partnership
California Resources and Training
California Reinvestment Coalition
CDC Small Business Finance
Center for Urban Economics and Design Chicana Latina Foundation
Central Valley Urban Institute
City of Livingston
Council of Asian Americans Business Associations (CAABA)
Democracy at Work Institute
El Concilio of San Mateo County
Fathers and Families of San Joaquin
Housing Coalition Educators
Inland Empire Latino Coalition
Law Foundation of Silicon Valley
Montebello Housing Development Corporation
Mutual Housing California
The National Cultural Center of the Native Americans
Neighborhood Housing Services of the Inland Empire
Northern Californian Community Loan Fund
Peoples’ Self-Help Housing
Robert Zdenek Associates- Connecting Communities
Rural Community Assistance Corporation
San Francisco African American Chamber of Commerce
Small Business Majority
Tenderloin Neighborhood Development Corporation (TNDC)
The Central Valley Urban Institute
The Greenlining Institute
UCI Paul Merage School of Business
Vermont Slauson Economic Development Corporation
Douglas County Housing Partnership
First Nations Oweesta Corporation
Mi Casa Resource Center
Concerned Black Clergy Council of Waterbury
Connecticut Citizen Action Group
Hartford Community Loan Fund
Neighborhood Housing Services of Waterbury
Women’s Institute for Housing & Economic Development
Yale University Program for Recovery and Community Health
Be Ready Community Development Corporation
Central Baptist Community Development Corporation
Delaware Community Reinvestment Action Council, Inc.
Edgemoor Revitalization Cooperative, Inc.
Ellendale Community Civic Improvement Association
Habitat for Humanity of New Castle County
Housing Alliance Delaware
National Council on Agricultural Life & Labor Research Fund, Inc. (NCALL)
Nehemiah Gateway Community Development Corp.
Neighborhood House, Inc.
University of Delaware
District of Columbia
African Diaspora Directorate
Advocates for Elder Justice, Hilda & Charles Mason Charitable Foundation, Inc.
Anacostia Economic Development Corporation
Central American Resource Center (CARECEN)
Latino Economic Development Center
Laura Zam Enterprises
National Association of American Veterans, Inc.
Network for Developing Conscious Communities
Partners for Livable Communities
Affordable Homeownership Foundation Inc.
Allapattah Collaborative CDC
Bright Community Trust
CDC of Tampa
Clearwater Neighborhood Housing Services Incorporated
Community Fund of North Miami-Dade
Community Reinvestment Alliance of South Florida
Consolidated Credit Solutions, Inc.
Debt Management Credit Counseling
FL Alliance of Community Development Corporations
Florida Housing Coalition
Fusilier Realty Group
Future Leaders Community Development Corporation
Global Acquisitions & Investments
Haitian American Community Development Corporation
Home Ownership Resource Center of Lee County, Inc.
Housing and Education Alliance
Lee County Housing Development Corp.
Metro North Community Development Corp.
Miami Beach CDC
Neighborhood Housing Services of South Florida
Neighborhood Renaissance, Inc.
New Urban Development
Real Estate Education And Community Housing Inc.
REVA Development Corporation
Social Venture Partners – Miami
Solita’s House Inc.
South Florida CLT
St. Petersburg Neighborhood Housing Services, Inc. (dba Neighborhood Home Solutions)
Struggle for Miami’s Affordable and Sustainable Housing, Inc.
Trinity Empowerment Consortium
We Help Communties “2” Develop Corporation
Wealth Watchers Inc.
CCCS of the Savannah Area, Inc.
Community Outreach Training Center, Inc.
D&E, The Power Group
Georgia Advancing Communities Together, Inc.
H.O.P.E. Through Divine Intervention
Housing Justice League
JCVision and Associates, Inc.
National Housing Counseling Agency
Southwest Georgia United Empowerment Zone, Inc.
Council for Native Hawaiian Advancement
Hawai’i Alliance for Community-Based Economic Development
Hawaiian Community Assets
Chicago Community Loan Fund
Chicago Urban League
Economic Growth Corp.
Heartland Alliance for Human Needs and Human Rights
Housing Action Illinois
Institute of Cultural Affairs [ICA]-USA
NHS of Chicago
Northwest Side Housing Center
Oak Park Regional Housing Center
Partners in Community Building, Inc.
Spanish Coalition for Housing
Universal Housing Solutions CDC
Community Investment Fund of Indiana
Fay Biccard Glick Neighborhood Center at Crooked Creek
Gary Economic Development Corporation
Homestead Consulting Services
HOPE of Evansville, Inc.
Irvington Development Organization
John Boner Neighborhood Centers
Mapleton Fall Creek Development Corporation
Martindale Brightwood Community Development Corporation
Northwest Indiana Reinvestment Alliance
NSP Consultants, LLC
Pathfinder Services, Inc.
Westside Community Development Corporation
River Cities Development Services
Scott County Housing Council
Louisville Affordable Housing Trust
Louisville Urban League
Urban Coalition of Appraisal Professionals
Foundation for Louisiana
Greater New Orleans Housing Alliance
Kingsley House Inc.
Multi-Cultural Development Center
Neighborhood Development Foundation
New Day Homeowner Services
People’s Organization of Social Equality
Treme Market Branch
UMOJA Institute of African American Culture Trade and Economic Development Inc.
Community Service Network Inc.
Dorchester Bay Economic Development Corporation
Fair Housing Center of Greater Boston
Fenway Community Development Corporation
Lawrence CommunityWorks, Inc.
Local Enterprise Assistance Fund (LEAF)
Mass. Association of Community Development Corp. (MACDC)
Massachusetts Communities Action Network
Massachusetts Affordable Housing Alliance
NeighborWorks Southern Mass
Oak Hill CDC
Revitalize Community Development Corporation
727 Mgt. LLC
Baltimore Community Lending, Inc.
Baltimore Neighborhoods, Inc.
Coppin Heights CDC
Greater Baltimore Community Housing Resource Board
Heritage United Church of Christ
Housing Options & Planning Enterprises, Inc.
Maryland Consumer Rights Coalition
Neighborhood Housing Services of Baltimore
People for Change Coalition
Southeast Community Development Corporation
The Historic Marble Hill Community Association
Coastal Enterprises, Inc.
Genesis Community Loan Fund
Quattrucci & Company
Bridging Communities, INC.
Building Families First Community Organization
Building Movement Project/Detroit People’s Platform
Community Economic Development Association of Michigan
Detroit Homeownership Center CDC
Detroit Non-Profit Housing
Fair Housing Center of Metropolitan Detroit
Financial Justice Coalition
Housing Resources, Inc.
Metro Community Development, Inc.
Michigan Community Action
Michigan Community Reinvestment Coalition
Mid Michigan Community Action Agency
Neighborhood Legal Services Michigan
Neighborhood Service Organization (NSO)
New Development Corporation
New Hope Community Development
Southwest Economic Solutions
U SNAP BAC NON PROFIT HOUSING
Asian Economic Development Association
Community Reinvestment Fund, USA
Dayton’s Bluff Neighborhood Housing Services
Jewish Community Action
Metropolitan Consortium of Community Developers
Mid-Minnesota Legal Aid
Voices for Racial Justice
Breakthrough Community Services, Inc.
CFORM-Covenant Community Development Corporation
Golden Triangle Housing Services
Housing Education and Economic Development
Mississippi Housing Partnership
Community Property Ventures
Consumers Council of Missouri
Forward Through Ferguson
International Institute Community Development Corporation
Metropolitan St. Louis Equal Housing and Opportunity Council
NHS of Kansas City, Inc.
Old North St. Louis Restoration Group
R.A.A.- Ready, Aim, Advocate
Useful Community Development
Washington University School of Social Work
Family Housing Advisory Services
New Hampshire Community Loan Fund
Fair Housing Council
Jersey Counseling & Housing Development, Inc.
National Housing Institute
New Jersey Association on Correction
New Jersey Citizen Action
New Jersey Community Capital
Urban League of Essex County
Southwest Neighborhood Housing Services
United South Broadway Corporation
Affordable Housing Partnership Homeownership Center
Albany Community Land Trust
Arbor Housing and Development
Association for Neighborhood and Housing Development (ANHD)
Beaulac Associates LLC
Bridge Street Development Corporation
Buffalo Niagara Community Reinvestment Coalition
Center for NYC Neighborhoods
Central lslip Civic Council
CNY Fair Housing, Inc.
Community Capital New York
Community Development Alliance of the Capital District
Community Loan Fund of the Capital Region, Inc.
Empire Justice Center
Fair Finance Watch
Human Development Services of Westchester
La Fuerza Unida, Inc.
Long Island Housing Services, Inc
New Economy Project
New York State Senator James Sanders
New York State Wide Senior Action Council
PathStone Enterprise Center
Rockland Housing Action Coalition
Rural housing Opportunities Corp.
St. Nicks Alliance
TSC Grand, Ltd.
United Tenants of Albany, Inc.
University Neighborhood Housing Program
White Wing Education Community
Nevada Legal Services
Centre for Homeownership & Economic Development Corporation
Circle of Mercy
Durham Regional Financial Center
Henderson & Company
NC Housing Coalition
New Frontier CDC
North Carolina Housing Coalition
Rebuild Durham Inc.
S J Adams Consulting
The Institute of Minority Economic Development
White Oak Foundation Inc.
Advocates for Basic Legal Equality
Akron Baptist Church
Another Chance Ohio
Antioch Baptist Church
Baptist Ministers Conference of Cincinnati
Breaking Chains Inc.
Buckeye Shaker Square Development Corp.
Burten, Bell, Carr Development, Inc.
Catholic Commission of Summit County
Central Ohio Fair Housing Association, Inc.
Charisma Community Connection
Cincinnati Change Inc
Cincinnati Community Action Agency
City of Bedford Heights
City of Cleveland Heights, Ohio
City of Cleveland- Dept. of Community Development
City of Dayton Human Relations Council
City of South Euclid
CityWide Development Corporation
Cleveland Neighborhood Progress
Collective Empowerment Group
Communities United for Action
Community Action Agency of Cincinnati-Hamilton County
Community Development Corporations Association of Greater Cincinnati
Community Development for All People
Community Housing Solutions
Detroit Shoreway Community Development Org.
Economic and Community Development Institute
Education Motivation Success, Inc.
Empowering and Strengthening Ohio’s People (ESOP)
Fair Housing Center
Fair Housing Contact Service
Fair Housing Resource Center, Inc.
Faith Community Alliance of Greater Cincinnati
Federation of Network Ministries
Friends of the African Union Chamber of Commerce
Greater Cincinnati Microenterprise Initiative (GCMI)
Greater Cleveland Reinvestment Coalition
Greater Dayton Minority Business Assistance Center
Habitat for Humanity of Greater Dayton
Hamilton County Community Reinvestment Group
Heart to Heart Family Support Center
Helping Hands Community Outreach
Home Repair Resource Center
Homes on the Hill, CDC
Jerry Sykes, Toledo City Councilman
L.A. Keyz Financial Services
Madisonville Community Urban Redevelopment Corporation
Metro West Community Development Organization
Miami Valley Fair Housing Center, Inc.
Miami Valley Urban League
Mustard Seed Development Center
Nazareth Housing Dev. Corp.
Neighborhood Housing Services of Greater Cleveland
NeigborWorks Collaborative of Ohio
Ohio CDC Association
Ohio Fair Lending
Omega Community Corporation
One South Euclid
Peter Ujvagi, Toledo City Council Member
Rebuilding Together Dayton
Slavic Village Development
Small Business Development Center at TEC
The Fair Housing Center
The Pride Through Empowerment Foundation, Inc.
Tri-County Independent Living Center
Village Capital Corporation
Working in Neighborhoods
Mvskoke Loan Fund
CASA of Oregon
Community Development Corporation of Oregon
Community Housing Fund
Grounded Solutions Network
Kate Allen Community Development Services
Radio Consulting Group, LLC
REACH Community Development
Allentown Housing Authority
Center for Family Services, Inc.
Community Action Committee of the Lehigh Valley, Inc.
Community First Fund
Community Neighbors United
Fair Housing Rights Center in Southeastern Pennsylvania
Lancaster Equity CDC
Neighborhood Housing Services of Greater Berks, Inc.
Oakland Planning and Development Corporation
Philadelphia Association of Community Development
Philadelphia Chinatown Development Corporation
Pittsburgh Community Reinvestment Group
Southwest Community Development Corporation
United Communities Southeast Philadelphia
Uptown Partners of Pittsburgh
Capital Good Fund
Church Community Housing Corporation
Housing Network of Rhode Island
HousingWorks at RWU
NeighborWorks Blackstone River Valley
Greenville County Redevelopment Authority
GROW South Dakota
Chattanooga Organized for Action
Good Neighbor Foundation-HomeOwnership Center
Lincoln Park Neighborhood Association
Memphis Urban League
New Level Community Development Corp
Tennessee Fair Housing Council
The Fifteenth Avenue Baptist CDC
You Can Make It HomeOwnership Center
BCL of Texas
Covenant Community Capital
Home Sweet Home Community Redevelopment
Humanitas Community Development Corporation
Jefferson Community Housing Development Foundation, Inc.
Our Casas Resident Council INC.
Pine Place Development, LLC
Southeast Houston CDC
Jon M. Huntsman School of Business at Utah State University
Neighborhood Nonprofit Housing Corporation
Fair Housing Project, CVOEO
Community Business Partnership
Emerging Financial Concepts
Housing Opportunities Made Equal of Virginia
Southside Community Development and Housing Corporation
Beacon Development Group
Northwest Fair Housing Alliance
Office of Rural & Farmworker Housing (ORFH)
Citizen Action of Wisconsin
Forward Community Investments
Havenwoods Economic Development Corp
Inner City Redevelopment Corp.
Metropolitan Milwaukee Fair Housing Council
Milwaukee Christian Center
Movin’ Out, Inc
NeighborWorks Green Bay
Nothing Less, Inc.
Riverworks Development Corporation
Urban Economic Development Association of Wisconsin (UEDA)
Wisconsin Partnership for Housing Development
Wisconsin Voices / African American Roundtable