The Community Reinvestment Act has, over the past four decades, spurred hundreds of billions of dollars in lending to low- and middle-income communities. But it's out of date and in need of an overhaul.
Some community advocates say the changes the administration is proposing will allow banks to meet the law’s criteria without making the types of loans that are most beneficial to the communities they serve. Worse, critics argue that discrimination against poor and communities of color by the banking industry could increase under the proposal.
The Community Reinvestment Act was passed in 1977, when bank branches were one of the few ways to measure a bank's presence in a community. It was last revised in the mid-1990s, when online banking barely existed. There are now banks that have zero physical branches, making it more difficult to measure what constitutes a community under the law.
In addition, the law rewards banks that make mortgages and small business loans in their communities but is murky about what other types of loans or activities can count as “community reinvestment.” Bankers, regulators and activists alike have all called for an overhaul.
The Trump proposal aims to broaden the definition of what constitutes a bank’s community — taking into account that online banking now exists — while broadening the types of loans and services that would qualify under CRA. Under the administration’s new proposal, banks could get credit for other types of lending to low-income customers like credit cards and personal loans — a move that would greatly benefit the largest of the country’s banks because they already dominate those lines of business.
The regulations would also give banks credit, under certain circumstances, for loans they make to build or improve facilities such as sports stadiums and hospitals. It’s the broadening of what would qualify under CRA that has community groups upset.
“We all agree there needed to be a list. The problem is what the (Office of the Comptroller of the Currency) has put on that list,” said Jesse Van Tol, CEO of the National Community Reinvestment Coalition, an umbrella group for dozens of community groups trying to get banks to do more work in low-income neighborhoods.
The overhaul of the CRA is being led by Joseph Otting, the Comptroller of the Currency and one of the primary regulators of the national banking industry. Otting had personal experience dealing with CRA due to his long career in banking before taking the comptroller job. He was CEO of OneWest Bank for five years, where Treasury Secretary Steven Mnuchin served as chairman. The Federal Deposit Insurance Corporation, or FDIC, is also on board with the OCC's plan.
“I know, and care about, these communities. My intent is to strengthen CRA, not weaken it," Otting said Wednesday. But Otting's proposed overhaul has caused one of the three national bank regulators — the Federal Reserve — to be unwilling to sign on to his proposal. It's caused a rare public divide between regulators. The public face of the Fed's reluctance has been Lael Brainard, the last remaining Fed governor appointed by President Barack Obama.
Federal Reserve Chair Jerome Powell said Wednesday that he still preferred a combined proposal on the CRA from the three agencies and added that he hoped it would happen. "We worked very hard to get on the same page as the other two agencies," he said, adding that a rule written by the three agencies would have been “the best outcome.”
Powell also said he was "comfortable" with the position that Brainard had outlined in a speech she made earlier this month that effectively laid out the Fed's issues with the OCC's proposa l. There has also been criticism of the how quickly the OCC is moving forward with its overhaul. It has set only a 60-day comment period instead of the usual 90- or 120-day period. Banking and community groups have said privately that the timeline is too short for such a substantial overhaul. Otting has publicly said he does not plan to waver from the 60-day period.
Otting took heat from congressional Democrats on Wednesday during a scheduled appearance before the House Financial Services Committee. A significant number of the senior Democrats on the committee are black, including Chairwoman Maxine Waters, and consider CRA to be a critical tool to help black and minority communities.
“CRA was, and still is, a civil rights bill,” said Rep. Gregory Meeks, D-New York. “Your proposal would undermine that."
Sweet reported from New York.