How to Update the Community Reinvestment Act

CRA

Today, the three primary bank regulators are holding a meeting in Los Angeles, focused on identifying regulations that are outdated, unnecessary, or unduly burdensome. The meeting is being held as part of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA). Bank regulators are looking to balance regulatory burden with their duty to ensure the safety and soundness of the financial system.

The invited panelists on the first three sessions at the meeting are bankers. The fourth session includes representatives from community-based organizations who will speak about updating regulations like the Community Reinvestment Act (CRA).

Community panelists are expected to speak about issues including:

  1. Updating regulations to respond to new technologies and practices;
  2. Transparency with bank CRA plans;Public benefit (or lack thereof) as a result of bank mergers;
  3. Fair housing and credit issues; and
  4. Grade inflation with CRA exams, with 96% of banks receiving a “satisfactory” or higher rating since the inception of the CRA, according to the Congressional Research Service.

Kevin Stein, associate director at the California Reinvestment Coalition, one of the community speakers, explains:

“This may be one of the few times when we agree with the bankers in the room- at least on a few points. The CRA is outdated, doesn’t reflect current bank practices, and fails to protect consumers and communities. As an example, CIT Bank accepts $14 billion in deposits from around the US (via the Internet), but gets away with only reinvesting that money into communities near its Salt Lake City headquarters. CIT’s proposed merger with OneWest Bank also raises questions about public benefit with bank mergers, regulator transparency, and serving community credit needs.

Regulators should update the CRA to address Internet deposits and their corresponding assessment areas, improve CRA exams to also account for harmful banking practices (for example by giving banks negative CRA credit), and should increase transparency into bank CRA plans and bank mergers so the public can provide meaningful input.”

Sandy Jolley, a reverse mortgage consumer advocate who has worked with senior homeowners and their families harmed by reverse mortgages, is attending the event and adds: “I’m interested to see how regulators discuss harmful products and practices (like reverse mortgages) in the context of measuring whether or not banks are meeting community credit needs.”

Sasha Werblin, economic equity director with the Greenlining Institute, also a panelist, explains: “Regulators must develop better methods for involving the public in analyzing how banks serve consumers. One immediate way to do this is for regulators to hold public hearings before every significant bank merger. Hearings would ensure that regulators and the public have a dialogue about how banks operate for the public benefit, community credit needs, and banking practices that help — and hurt — consumers.

Edmundo Hidalgo, president and CEO of Chicanos Por La Causa, a panelist on the consumer panel, comments on the impact when banks leave communities: “As banks have left, our communities have been flooded with high-cost “alternatives” that are far more expensive and risky for consumers. Regulators should start by focusing on the extent to which banks are culpable for the expansion of fringe lenders like payday lenders, whether through their abandoning low-income communities, or in some cases, providing cheap financing to companies who extend high-cost, dangerous credit products like car title or payday loans.”

Additional Context:

In September, the three bank regulators (FDIC, OCC, Federal Reserve) asked for public comment on proposed changes to the Interagnecy Questions and Answers Regarding Community Reinvestment. The California Reinvestment Coalition provided suggested improvements, CRC’s full letter can be viewed here.

A July 2014 report from the Congressional Research Service cites some of the long-standing concerns community advocates have had with the CRA, including grade inflation because regulators look to a bank’s peers instead of looking at a community’s needs when judging a bank’s CRA record. Report: The Effectiveness of the Community Reinvestment Act

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