By Charlene Crowell
Amid the tinsel and garland celebrating the holiday season, two important federal financial regulators are planning how the future financial needs of low-and-moderate income (LMI) communities—including neighborhoods of color—will be met. In an effort to “modernize” the 1977 Community Reinvestment Act (CRA) on December 12 the board of the Federal Deposit Insurance Corporation (FDIC) endorsed a proposed Notice of Public Rulemaking (NPR) offered by the Office of the Comptroller of the Currency (OCC).
The rulemaking move has also triggered forceful and diverging views from a host of organizations, lawmakers, and even a member of FDIC’s board. The effects of such a financial regulatory change bring potential impacts on bank branch locations and services, as well as the types and quality of credit and investment that will be conveniently available.
From its enactment, CRA was intended to provide an enforcement provision that supported earlier civil rights laws. The law also made a federal commitment to underserved communities—both urban and rural. Even so, over the years, CRA has been contentious for deposit institutions rated for compliance, and consumers who continued to claim that access and quality financial services were in short supply.
According to OCC’s Joseph Otting, the 2019 proposal is the result of 18 months of work by staff and comments from more than 1,500 stakeholder groups with four improvements:
1. Clarifying what counts as CRA credit, requiring agencies to publish a list of qualifying activities;
2. Preserving some assessment areas and creating others to better reflect significant concentrations of deposits;
3. Assessing what portion of a bank’s retail lending is targeted to LMI consumers; and
4. Improved reporting with transparency and timeliness.
In a recent op-ed, Comptroller Otting also added a sense of urgency.
“Every month this proposal is delayed prevents billions of dollars more from helping reach communities that could benefit from greater economic opportunity. The proposal is an important step in modernizing CRA, but it is not the final one,” wrote Otting for American Banker.
But apparently the large stakeholder groups OCC consulted with has yet to include the U.S. House Financial Services Committee.
“He thinks that he has the authority to do this without having to interact with us and no matter what he thinks, we think we have a responsibility to make sure that CRA is doing what it was intended to do,” said Congresswoman Waters, chair of House Financial Services.
As Chairwoman of the House Financial Services Committee, Congresswoman Waters sought but has yet to schedule OCC’s Otting to testify before the committee. Additionally, she is one of several House Members who want the 60-day comment period doubled to 120 days to better allow public input.
According to OCC, a meeting is still being planned; but no date has yet been finalized.
Additionally, one FDIC board member, Martin Gruenberg issued a statement of opposition to the proposal during its December 12th meeting, criticizing the proposed one-ratio measurement, noting existing “credit deserts”, and the lack of consideration of a bank’s efforts to provide affordable products and services LMI consumers and those without bank accounts could access.
“[T]his is a deeply misconceived proposal,” noted Gruenberg. “It would establish a CRA evaluation framework relying on a single metric approach that would allow a bank to concentrate its CRA activity in as little as 50 percent of its assessment areas, disinvest in the other 50 percent, and still receive a satisfactory or even outstanding CRA rating.”
Similar concerns came from a coalition of civil rights, consumer protection and housing industry advocates that included the NAACP, NAACP Legal Defense and Educational Fund, Inc., National Fair Housing Alliance, The Leadership Conference on Civil and Human Rights and others.
“The proposed rules are inconsistent with the law, plain and simple,” said the leaders. “It invites a return to discrimination against communities of color and low-and-moderate income neighborhoods—a destructive, decades-old process known as redlining that the law was designed to end forever.”
“We should be holding banks—especially those rescued during the 2008 housing crash with taxpayers’ dollars—more, not less, accountable for their obligations to the law and our country,” added the leaders.
Once the proposed rule is published in the Federal Register, interested parties and organizations can file public comments. According to Grovetta Gardineer, Senior OCC Deputy Comptroller, 85% of all CRA activity is supervised by OCC and the FDIC.
“We are not trying to undermine the importance of local branches,” said Gardineer. “We’re looking to ensure access to financial services but refocus needs of LMI communities. This is really making sure that banks do more…Constructive comments help us.”
But for Nikitra Bailey, an EVP with the Center for Responsible Lending, the efforts by OCC and FDIC should be to strengthen-not-weaken CRA through modernization.
“CRA was created to undo the injustices created by the horrific practice of redlining and its modernization effort must center the people, families, and communities most harmed by it. Unfortunately, today far too many underserved LMI communities remain credit starved,” said Bailey. “The fundamental goal of any new reform must be to ensure that hardworking families, including families of color, have access to sound and affordably priced credit, safe and responsible mortgages, small dollar consumer credit, and auto loans.”
What happens over the coming months will reveal whether access to sound and affordably priced credit remains a wish or becomes a reality.
Charlene Crowell is the Center for Responsible Lending’s communications deputy director.