Today, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) released a notice of proposed rulemaking (NPRM) for changes to the Community Reinvestment Act (CRA). While the National Community Reinvestment Coalition (NCRC) is currently analyzing the NPRM, preliminary assessments are concerning.
Jesse Van Tol, CEO of NCRC, made the following statement:
“The OCC and the FDIC chose to move forward with CRA reform without unified support from all three bank regulatory agencies. This failure to act in coordination with the Federal Reserve is a formula for confusion, inconsistency, frustration in the banking industry and competitive inequities for lenders. That’s not a good outcome for a reform effort that was supposed to create greater clarity for lenders and stronger results for low- and moderate-income communities that depend on them. With few exceptions, the OCC, FDIC and Federal Reserve have maintained substantially identical regulations since the law was enacted in 1977. The lack of regulatory consensus now will undoubtedly invite further debate, and reversal by future regulators or Congress.
“Along with the banking industry, we and our members across the nation share the desire to modernize CRA. We also want the rules strengthened so banks do a better job meeting the credit needs of the communities where they take deposits. That’s the whole point of the law. However, the Trump Administration seems determined to radically overhaul and water down the compliance system by introducing a numerical measure of performance that has been widely criticized, by bankers as well as community advocates, as overly simplistic. The vast majority of previous industry and public comments were against the OCC’s ‘one ratio’ idea, and yet the agency substantially stuck with it, putting a metric at the center of the rating and presumption of compliance. So what’s the point of asking for comments?
“The ratio would measure the overall value of a bank’s CRA activities against the value of its deposits. This will encourage banks to seek the largest CRA financing deals, regardless of whether the deals make the most sense for local community needs. That’s why many banks as well as community-based organizations oppose the ratio being the primary determining factor on CRA exams. While the proposal looks at assessment area performance, it sets up a scenario where a bank could run up the dollar volume in 50% of its assessment areas, and still pass.
“The FDIC seems to have gotten a carve-out for community banks. In other words, many FDIC-regulated banks will be able to opt out of the new evaluation system and keep their CRA exams the way they are now. This further confuses the regulatory landscape, the exact opposite outcome of what new rules were supposed to achieve.
“Discrimination in lending is still widespread and devastating for families and their communities. And yet 98% of banks pass their CRA exams. Taking steps to weaken the rules makes no sense. New rules should add clarity to the compliance process for banks, as well as reflect changes in how people interact with banks and how banks do business. But most critically, new rules should help low- and moderate-income borrowers in the communities that are most in need of CRA-based lending. None of those imperatives mean the law or the rules regulators set up to enforce it should be weakened.”
Reporters, note: NCRC is still reviewing the details of the proposed rule changes and will have more to say next week.