Introduction: Last year, President Trump issued an executive order mandating that federal agencies regulate the financial industry consistent with core principles including empowering consumers to make informed financial decisions and build wealth. In June, the Treasury Department responded to this executive order by publishing the first of a series of reports on the financial industry entitled, “A Financial System that Creates Opportunities – Banks and Credit Unions.”
The report announced the Administration’s intent to reform the Community Reinvestment Act (CRA). It stated that “Treasury plans to review several aspects of the CRA framework, assessing the need for: improvement in how banks’ CRA investments are measured to improve their benefit to communities; changes in the way CRA geographic assessment areas are defined; and improvement in the regulatory review and rating assessment process.”
NCRC and our member organizations and allies signed onto this letter recommend:
Expansion of CRA to Non-Banks: We are pleased that Counselor to the Treasury Secretary Craig Phillips has stated that it is “illogical” that CRA was not applied to credit unions. In addition, NCRC believes that CRA-like obligations need to be extended broadly throughout the financial industry and applied to mortgage companies, credit unions, investment banks, and others. Precedent for expanding CRA include Massachusetts’s CRA law applied to mortgage banks and credit unions.
Assessment Areas: Although several banks still primarily lend through their branch networks, a number of banks are expanding their lending beyond branches. In addition, some financial technology companies (fintechs) that lend and offer services via the internet have applied for bank charters. The CRA regulation defines assessment areas on CRA exams as geographical areas where a bank’s branches are located. This needs to change to include also geographical areas where banks make substantial numbers of loans via non-branch means such as by loan officers or brokers.
Intermediate Small Banks: Intermediate small banks (ISBs) are banks with assets between $313 million and $1.26 billion in assets. ISBs have two tests on their CRA exam: a retail lending test and a community development (CD) test. The CD test examines the number and responsiveness of loans and investments for affordable housing, economic development, and community facilities. Bank trade associations want to increase the asset threshold for determining when a bank becomes an ISB bank. In other words, their proposals would allow more banks that are currently ISB banks to qualify as small banks that only have a retail lending test but no CD test on their CRA exam. NCRC has calculated that ISB banks make more than $3 billion in CD loans and investments annually. Qualifying some or most ISB banks as small banks can dramatically decrease this level of CD financing since they would no longer have a CD test.
Exam Delays: Bank trade associations have complained that exam delays can result in some banks saddled with outdated exams that do not reflect current performance. NCRC found that of the 100 largest banks, two thirds of them had their exams in the last two or three years. The one third of exams that are older tend to be exams of the largest banks. In some instances, their fair lending review took longer because the agencies found that they had committed discrimination or other illegal activity. These fair lending reviews involve complex issues that take considerable time to investigate and resolve. NCRC recommends that the agencies increase staff and resources for fair lending reviews. Also, in instances in which fair lending reviews are complex, the CRA exam can be publicly released before the fair lending reviews are completed. The agencies can then retroactively downgrade banks if the fair lending reviews reveal discrimination or illegal activity.
Standardizing Exam Methodology and Format: The three bank agencies often use different performance measures and ratios on CRA exams. NCRC suggests making these measures as uniform as possible. In addition, NCRC recommends that community groups have a role in training CRA examiners.
Definition of Community Development: The American Bankers Association (ABA) wrote a letter to Treasury asking that CRA regulations broaden the definition of community development so that community development activities such as financial education can benefit the broader community including middle- and upper-income communities in addition to low- and moderate-income communities. NCRC disagrees and maintains that community development must remain focused on low- and moderate-income communities that have and continue to experience redlining and disparities in access to credit.
Merger Application Processing: The Treasury Department mentions that the merger application process time can be lengthy. Periodically, bank trade associations recommend that merger application time periods be reduced for banks with Outstanding ratings. NCRC opposes further reductions in merger application time periods, which have been reduced already in the last couple of years. Even banks with Outstanding ratings can exhibit uneven CRA performance across several states and/or have fair lending issues. Resolving uneven CRA and fair lending performance is a complex process that requires sufficient time in merger application proceedings.
 See pages 64 and 65 of the Treasury report.
 These threshold levels were changed by the regulatory agencies on December 21 of last year. See https://www.federalreserve.gov/newsevents/pressreleases/bcreg20171221a.htm