The National Community Reinvestment Coalition (NCRC) on Wednesday issued its first detailed analysis of recently proposed interagency rules to modernize enforcement of the Community Reinvestment Act (CRA).
The reforms proposed in early May would make valuable changes to the architecture of the examinations process for rating banks’ success or failure at fulfilling their obligations under CRA. But NCRC’s analysis identifies several areas where the proposal falls short and should be amended. Highlights from NCRC’s analysis of the Notice of Proposed Rulemaking (NPR) include:
- Improvements to Exams Process: Though the agencies did not adopt NCRC’s recommendation to add a fifth overall rating category, it did create a new point system in the exam’s five sub-tests that will reveal more distinctions in bank performance. The NPR also detailed a more rigorous retail lending test, a new statistical-model approach to benchmarking performance, and plans to finally begin assessing the performance of banks based on where they actually lend money rather than only where they have physical branch networks.
- Expansion Into New Lending Streams: The NPR proposed to bring automobile lending into the CRA assessment process, a valuable expansion of the government’s ability to see how lenders serve the full-spectrum needs of low- and moderate-income (LMI) communities.
- Missed Opportunities on Merger Reviews: The agencies proposed no changes to how they consider CRA performance when reviewing merger applications, arguing instead that improving the CRA exams process will translate into more stringent merger reviews. NCRC urges the agencies to also better implement existing “convenience and needs” legal standards for mergers and require would-be merger partners to issue concrete plans for boosting lending, investment and services to traditionally undeserved communities.
- Needlessly Reducing Oversight of Nearly 1,000 Banks: The NPR proposed to raise asset thresholds for “small” and “intermediate small” (ISB) banks, to $600 million and $2 billion respectively. These changes would reclassify 779 banks that are currently ISBs as small banks, meaning they would no longer have community development finance responsibilities. Another 217 banks currently classed as “large” would become ISBs, meaning they would no longer have a service test requiring them to pay attention to the branching and service provision in LMI communities.
- Failure to Incorporate Explicit Consideration of Race: CRA was designed to address racial inequality but written to skirt explicit consideration of race, as former Sen. William Proxmire probably understood his legislative project would not win enough votes in 1977 if it included such provisions. The agencies have latitude to fix this blind spot, but have opted not to: The NPR proposed to gather and organize the race data that would be required to bring this dimension into formal exams, but not to actually use it in rating bank performance. They should reconsider this choice, especially in light of clear proposals from NCRC and Relman Colfax PLLC for incorporating race into exams without violating the Constitution and related existing legal standards.
These highlights only scratch the surface of NCRC’s first analysis of the complex and expansive proposed rules. Our detailed examination of the proposal also dives into the NPR’s successes and shortfalls on a wide range of issues, including how rural-area banking service should be weighed in exams and the proposal’s shortcomings on abusive lending products.