November 19, 2018
Reforming the Community Reinvestment Act Regulatory Framework
Docket ID OCC-2018-0008
To Whom it May Concern:
The undersigned groups maintain that the Community Reinvestment Act (CRA) has been one of the most valuable laws for increasing access to capital and credit for low- and moderate-income (LMI) communities. Any CRA reform effort needs to tread carefully and build upon CRA’s success. When Senator Proxmire and other lawmakers were crafting CRA in 1977, their focus was on redlining in LMI communities and communities of color. As envisioned by the CRA statute, the antidote to redlining was CRA exams scrutinizing lending on a local level.
We agree that CRA needs an update. The agencies must expand assessment areas (geographical areas on CRA exams), require the inclusion of mortgage company affiliates on CRA exams, include communities of color on CRA exams, improve data, and increase opportunities for public input. In contrast, the OCC’s proposals would undermine CRA’s pillars of public input and local accountability and would thus result in significant declines in CRA-related loans, investments, and services. NCRC estimates that the OCC’s dilution of assessment areas and local accountability would result in a dramatic loss in home and small business lending over a five year time period that would range from $52 to $105 billion.
Assessment Areas Must be Expanded
CRA exams currently reach conclusions about bank performance in assessment areas or geographical areas encompassing bank branches. For banks that make the great majority of their loans through branch networks, assessment areas are effective in rating them. However for other banks that use the internet or other non-branch means to make large numbers of loans, current assessment area definitions must change (ANPR Question 13). Assessment areas can include geographical areas such as states, metropolitan areas, or rural counties where banks do not have branches but have significant volumes of loans or other business activity. Some OCC exams including the Bank of the Internet designate assessment areas in this manner. Inexplicitly, the ANPR does not build upon this precedent. Instead, it discusses how lending and other activities outside of areas with bank branches can be considered in “the aggregate.” An “aggregate” consideration of activities outside of branch networks would not evaluate the activities in local areas and would fail to determine how responsive the activities were to local needs.
Estimates from studies conducted by Federal Reserve economists suggest that lending in LMI census tracts would be 10 to 20 percent lower when assessment areas are eliminated from exams or reduced in importance. Any change in CRA must therefore retain assessment areas.
Automatic Inclusion of Affiliates on CRA Exams
CRA exams allow banks to either include or exclude their mortgage company affiliates on CRA exams. The natural tendency is for affiliates to be included on evaluations if they are lending to LMI borrowers and neighborhoods and to be excluded from exams if they are not. The optional inclusion of affiliates must be replaced with automatic inclusion.
People and Communities of Color Must be Considered on CRA Exams
In response to ANPR Questions 16 and 17, evaluations of lending to people and communities of color would further satisfy the original intent of the CRA legislation. During the 1977 hearings on CRA, Senator Proxmire stated, “banks will take their deposits from a community and instead of reinvesting them in that community, they will actually or figuratively draw a red line on a map around the areas of their city, sometimes in the inner city, sometimes in the older neighborhoods, sometimes ethnic and sometimes black, but often encompassing a great area of their neighborhood.”
Before the last changes to the CRA regulation in 1995, CRA exams analyzed lending to minorities as part of the fair lending section, which could be readily revived. In addition, the agencies could develop a list of underserved census tracts based on data analysis showing low levels of loans per capita. A substantial number of these tracts would likely be predominantly minority. Lending, investment, and services in these tracts then could be evaluated by CRA exams.
CRA Ratings Must be Made More Rigorous
During the past several years, more than 98 percent of banks have passed their CRA exams. If the pass rate was not this high, CRA would be even more effective in motivating increases in loans, investments, and services to LMI communities. One way to improve rigor is if the overall ratings were accompanied by a publicly released point score. For example, an Outstanding rating could be achieved if a bank had a score of 90 to 100, while a Satisfactory rating could be achieved if a bank had a score of 70 to 90. This point scale would reveal more gradations in performance. For example, a Satisfactory rating accompanied by a score of 70 is just barely passing while a Satisfactory rating accompanied by a score of 89 is essentially a High Satisfactory rating.
Data Must be Improved on CRA Exams
The small business loan part of the lending test is not as rigorous as the home lending section because the small business data is not as detailed. Therefore, small business data must be improved to include more categories rather than only lending to businesses above and below $1 million in revenue. Likewise, the community development (CD) parts of the exam must be improved with annual CD data for census tracts and counties. In addition, banks must be penalized via lower ratings if their CD activity finances displacement of LMI people such as low-income tenants from multifamily housing.
Community Benefits Agreements and Conditional Approvals Considered on CRA Exams
We appreciate that the OCC’s June 2018 memo instructs CRA examiners to determine whether banks are meeting the goals in CRA plans required in conditional merger approvals. Any conditional merger approval, however, must include a bona fide plan that focuses lending, investment, and service on LMI borrowers and communities. CRA examiners must also assess bank compliance with community benefit agreements (CBAs) that are negotiated with community groups and include clear goals. In addition, a passing CRA rating must not become a safe harbor providing expedited merger approvals. Bank performance may have changed since the last CRA exam, necessitating analysis of whether the merger will confer public benefits.
The OCC’s One Ratio Concept would Diminish Assessment Areas and Public Input
The one ratio would consist of the dollar amount of a bank’s CRA activities (loans, investments, and services to LMI borrowers and communities) divided by the bank’s assets. The ratio is supposed to reflect CRA effort compared to a bank’s capacity and would influence a bank’s CRA rating. While the one ratio may have a simplistic allure, it would interfere with the ability of examiners to ensure that banks are meeting their statutory responsibilities. The statute states that banks “have continuing and affirmative obligations to help meet the credit needs of the local communities in which they are chartered.” The key word is local.
One ratio cannot tell an examiner, a bank, or a member of the public how responsive a bank is to its various assessment areas. In contrast, current CRA exams scrutinize the extent to which a bank makes loans, investments, and services to LMI people and communities in its assessment areas. Also, an exam focused on the one ratio would not be able to effectively consider community group comments regarding banks’ records on meeting local needs (Question 11 of the ANPR).
Weighting cannot overcome the flaws of a one ratio. For instance, an investment of $1 million in a distressed community can be weighted by a factor of two, meaning it will count for $2 million in the numerator of the ratio (see Question 10 of the ANPR). Consider how complicated and subjective it would be to do this weighting for banks, particularly those which serve several states. Also, generous and frequent weighting (multiplying loans and investments by 2 or more) could easily result in half or less the dollar amount of loans and investments.
Analysis of Branches and Services Must Remain on CRA Exams
In response to ANPR Question 27, branches must remain on CRA exams because they are critical for helping LMI people obtain loans. Academic research has revealed that home and small business lending increases in LMI neighborhoods with bank branches. In contrast, when branches close, lending decreases for several years, especially small business lending.
The OCC Must not Broaden CRA Away from the Focus on Credit Needs of LMI People and Communities
Industry trade associations have advocated broadening CRA consideration for activities such as infrastructure improvements and financial education for middle- and upper-income people and communities. However, diverting attention away from LMI communities is contrary to Senator Proxmire’s intention that CRA rectify redlining and increase access to credit for underserved populations. Redlining and market imperfections unfortunately continue to afflict LMI communities. Therefore, dilution of attention to LMI communities will significantly decrease lending in them.
The ANPR discusses the possibilities of expanding the range of activities considered by CRA such as digital literacy or internships. However, consideration for activities that do not directly combat redlining and/or lack of access to banking will result in a regulation that frustrates the purpose of CRA to revitalize credit starved communities.
If home and small business lending to LMI people and communities were no longer considered as hinted at in ANPR Question 21, this would violate the intent of Senator Proxmire who was concerned that the agencies were not assessing whether banks were meeting credit needs. In addition, consumer lending meets important needs such as buying vehicles in areas lacking transit. CRA exams must consider consumer lending and ensure that it is responsible and does not violate consumer protection law. Finally, the OCC in Question 23 asks whether Small Business Administration (SBA) standards should be used in evaluating the financing of small businesses. The SBA standards include businesses with several millions of dollars in revenue and would divert CRA exams from their focus on assessing whether banks are meeting the needs of the smallest businesses.
Asset Thresholds for CRA Exams: Reform Must not Reduce Requirements for Any Category of Banks
Eliminating the Intermediate Small Bank (ISB) category as some advocate means that the ISB banks would just have a retail test which does not consider their community development financing.  NCRC estimates that ISBs finance about $3 billion annually in CD projects or about the same amount of annual funding as the Community Development Block Grant (CDBG) program. If the CD test is eliminated for ISB banks, their CD financing would plummet. We also oppose any other changes to asset categories that would eliminate the service test and analysis of branching.
Bolstering the effectiveness of CRA would entail increasing opportunities for public input, improving data on CRA exams, mandating the inclusion of affiliates, evaluating bank financing to people and communities of color, and expanding assessment areas. In contrast, the OCC proposes reforms that would result in less lending, investing, and services in LMI communities. These changes include the one ratio, diverting attention from LMI communities, and broadening consideration of activities that are not related to meeting credit and community development needs.
Over the last several months, the OCC has made unilateral changes to CRA that stretch out CRA exams for large banks and weaken fair lending and merger reviews of all banks. The OCC must rescind these changes and align any future changes to the CRA regulation and examination procedures with the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC).  
We are submitting this letter on behalf of the underserved organizations. If you have any questions, please contact Jesse Van Tol, CEO or Josh Silver, Senior Advisor at NCRC, on 202-628-8866.
 NCRC Forecast: Weakening the Community Reinvestment Act Would Reduce Lending by Hundreds of Billions of Dollars, September 2018, https://ncrc.org/ncrc-forecast-weakening-the-community-reinvestment-act-would-reduce-lending-by-hundreds-of-billions-of-dollars/
 See Bank of the Internet’s CRA exam, https://www.occ.gov/static/cra/craeval/nov16/716456.pdf
 Office of the Comptroller of the Currency, Reforming the Community Reinvestment Act Regulatory Framework Advance Notice of Proposed Rulemaking (ANPR), Federal Register, Vol. 83, No. 172, Wednesday, September 5, 2018, Proposed Rules p. 45057, https://www.regulations.gov/document?D=OCC-2018-0008-0001
 Lei Ding and Leonard Nakamura, Don’t Know What You Got Till It’s Gone: The Effect of the Community Reinvestment Act on Mortgage Lending in the Philadelphia Market, Federal Reserve Bank of Philadelphia, Working Paper 17-15, June 2017, https://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2017/wp17-15.pdf
 Congressional Record, June 6, 1977, p. 17630.
 Examples of people of color analyzed by CRA exams include; Federal Reserve Bank of Richmond, CRA Exam of Signet Bank, January 1996, pgs. 18-20, https://www.federalreserve.gov/dcca/cra/1996/460024.pdf and Office of Thrift Supervision CRA Exam of CenFed Bank, November 1995, p. 9, https://www.occ.gov/static/cra/craeval/OTS/CRAE_01788_19951127_60.pdf
 CRA exams today have a point score range of 1 to 24 that is not intuitive, and the points are not publicly released.
 OCC, Description: Supervisory Policy and Processes for Community Reinvestment Act Performance Evaluations, OCC Bulletin 2018-17, June 2018, https://www.occ.gov/news-issuances/bulletins/2018/bulletin-2018-17.html
 Office of the Comptroller of the Currency (OCC), Advance Notice of Proposed Rulemaking (ANPR), Federal Register, Vol. 83, No. 172, Wednesday, September 5, 2018, https://www.gpo.gov/fdsys/pkg/FR-2018-09-05/pdf/2018-19169.pdf, pgs. 45056 and 45057.
 Section 802(a)(3) of the CRA statute.
 For a literature review of the impact of branches and assessment areas, see Josh Silver, The Importance of CRA Assessment Areas and Bank Branches, NCRC, June 2018, https://ncrc.org/the-importance-of-cra-assessment-areas-and-bank-branches/
 Hoai-Luu Q. Nguyen, Do Bank Branches Still Matter? The Effect of Closings on Local Economic Outcomes, December 2014, http://economics.mit.edu/files/10143
 Rachel Witkowski, Will CRA Finally Get its Makeover, American Banker, March 9
 American Bankers Association, CRA Modernization, Meeting Community Needs and Increasing Transparency, December 2017, p. 2, https://www.aba.com/Advocacy/Documents/CRA-WhitePaper2017.pdf#_ga=2.192150499.839944790.1512674294-422164602.1512674294
 ANPR, page 45057-45058.
 Congressional Record – Senate, January 24, 1977, p. 1958.
 U. S. Small Business Administration Table of Small Business Size Standards Matched to North American Industry Classification System Codes. Version 2017. Available online at https://www.sba.gov/sites/default/files/2018-07/NAICS%202017%20Table%20of%20Size%20Standards.pdf.
 American Bankers Association, Second Published Request for Comments Under the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (February 13, 2015), p. 7, https://www.regulations.gov/document?D=FFIEC-2014-0001-0077
 NCRC, Intermediate Small Banks, the Forgotten but Significant Resource for Affordable Housing and Community Development, https://ncrc.org/intermediate-small-banks-forgotten-significant-resource-affordable-housing-community-development/
 OCC Bulletin 2018-17, June 15, 2018, https://www.occ.gov/news-issuances/bulletins/2018/bulletin-2018-17.html
 OCC Bulletin 2018-23, August 15, 2018, https://www.occ.gov/news-issuances/bulletins/2018/bulletin-2018-23.html
 OCC, Impact of CRA Ratings on Licensing Applications, November 2017, https://www.occ.gov/publications/publications-by-type/other-publications-reports/ppms/ppm-6300-2.pdf