While the wheels of government slowed down for summer vacations, NCRC was busy organizing for what we anticipate will be a major battle over the Community Reinvestment Act (CRA). The 1977 law requires banks meet the credit needs of low- and moderate-income communities.
This summer, NCRC and our members met with the leaders of all three CRA regulatory agencies on CRA modernization. We shared our concerns and conveyed the urgency of strengthening CRA. We also stressed that our #TreasureCRA campaign was far bigger than the numbers in the room. We represent the views of 500+ community organizations.
In good news, the regulators appeared sensitive to our concern that beginning a comment period for CRA rule changes while people are on August vacation would not leave enough time for public engagement. They are considering releasing the Advanced Notice of Proposed Rulemaking (ANPR) at the end if this month and extending the comment period to 75 days.
The regulators were also interested in developing a new CRA hotline to clarify for banks which loans and investments qualify for CRA credit.
We weren’t the only ones focused on CRA this summer. Over the past 80 days the Office of the Comptroller of the Currency, one of the banking regulatory agencies, met with 1,050 community advocates (including NCRC members), banks, and other stakeholders soliciting ideas for CRA reform.
The OCC also announced a pathway for fintechs to become chartered like national banks and made small improvements to the CRA grading system. These actions sent mixed signals about what to expect from the full CRA rule-making process.
We’re concerned fintech charters will not be open to public comment like the current charter application process for traditional banks. The OCC did not detail how they will review and regulate compliance with financial inclusion promises. They also said little about fair lending.
“Coming out of the financial meltdown, we just learned how important it is to have a uniform financial framework that covers all financial institutions,” said Jesse Van Tol, CEO of the National Community Reinvestment Coalition. “This announcement grants fintechs the extraordinary benefits of a national bank charter, including exemption from state interest rate caps. I am concerned that without clear guidance, this industry will spur a race to the bottom across the banking industry.”
Now for the bad news.
Subtle changes to CRA rules could cost working-class communities billions of dollars.
For example, the regulators showed interest in adopting a “one ratio” to measure a bank’s community obligations. The one ratio is all a bank’s CRA activities divided by the bank’s assets. The idea is that this ratio summarizes if a lender’s financial commitment adequately reflect the lenders’ size and the scale of its business in that community. Regulators believe a single ratio injects more certainty and clarity into CRA exams.
We don’t agree. A single ratio would ignore local needs and instead boil down CRA compliance to an aggregate based on all of a bank’s CRA lending. Banks could meet the needs of some communities but not others, or over-perform in some places while doing nothing in others. That would be a huge step backwards. We can’t allow banks to cherry-pick where they lend – and where they don’t lend at all. We won’t allow banks to ignore the credit needs of our most distressed and vulnerable communities. Read more on the one ratio.
Regulators also wanted to know what to do about global banks cutting branches and adopting electronic delivery of their services. We emphasized that communities without financial literacy or access to broadband services need the services and relationships developed at physical branches. Digital banking will not be enough to provide financial access in all low- to moderate- income neighborhoods.
We will continue to share updates as the meetings continue. In the meantime, you can find more background at NCRC’s #TreasureCRA campaign hub. Please urge your colleagues and local allies to join the movement to modernize and strengthen the law. Use the hashtag in social media – #TreasureCRA – and share this link: ncrc.org/treasurecra/.
This is the beginning of the biggest fight in decades for fairness in America’s housing and finance laws. Stay tuned.