In anticipation of the reform proposals to the Community Reinvestment Act (CRA) expected this week, I am continuing the review of performance measures on CRA exams. The most recent blog looked at performance measures on the lending test. This one will scrutinize performance measures on the investment and service test.
“We are already seeing an unusual level of discord among the regulators,” said Jesse Van Tol, chief executive of the National Community Reinvestment Coalition, a fair-lending advocacy group. “I think there is a significant risk that the whole effort will backfire, unless a more careful and consensus-driven approach is taken.”
In 1977, Congress enacted the Community Reinvestment Act (CRA) and required federal bank agencies to assess the record of banks in meeting needs for credit and banking services in communities in which banks are chartered. The federal bank agencies responded by creating CRA examinations that assessed banks’ performance in geographical areas containing bank branches and …
A newly revealed suggestion to revamp a basic concept in the Community Reinvestment Act could undermine long-standing attempts to minimize redlining and improve needed investment in minority and low-income communities.
Many of Treasury’s recommendations for modernizing the Community Reinvestment Act would help financial institutions, not low-income communities.
Let’s discuss the specifics of what modernization could look like, since the Treasury report chose not to.
Critics argue that Community Reinvestment Act standards need to be more transparent, but creating more objective measures would require regulators to favor some types of loans over other
Fair-lending enforcement would not happen in earnest until years after the Fair Housing Act, not until the Community Reinvestment Act of 1977 required financial institutions go on record about what they considered their market area. The law intentionally created a conundrum for any institution that was redlining: How could it accept deposits from customers to whom it was unwilling to lend?
Bank regulators have not even proposed a plan yet for overhauling the Community Reinvestment Act, but stakeholders likely to weigh in on the plan are already establishing battle lines.
Here’s what the Treasury Department’s changes would do, and wouldn’t, toward solving four major problems we have outlined in our investigation.
The report “addressed what we have for a long time talked about with assessment areas. We think that is a step in the right direction,” said John Taylor, President and CEO of NCRC. But Taylor wanted to make sure that regulators do not lose sight of the importance of branch locations if they expand the assessments to other areas.
Trump administration kicks off reassessment of 1977 law that has ‘not kept pace’ with changes in banking
The Treasury’s recommendations come as federal bank regulators have indicated they will soon release a proposal to reform Community Reinvestment Act policy.
Check out NCRC’s Jesse Van Tol on NPR discussing CRA reform.