Banking and Finance Law Daily Community Reinvestment Act should be modernized, but main principles of the law should remain untouched
Tuesday, November 27, 2018

Community Reinvestment Act should be modernized, but main principles of the law should remain untouched

By Lauren Bikoff, MLS

The New York State Department of Financial Services (NYDFS), Consumer Bankers Association, and Bank Policy Institute have submitted comment letters to the Office of the Comptroller of the Currency in response to its advance notice of proposed rulemaking (ANPR), which solicited ideas for building a new regulatory framework to modernize the Community Reinvestment Act. All three comment letters agree that the CRA needs to be modernized, but stress that the long-standing principles of the CRA should remain untouched.

According to the OCC, the changes would:

  • encourage more lending, investment, and other activity where the assistance is most needed;
  • evaluate banks’ CRA activities more consistently;
  • clarify what activities qualify for CRA consideration; and
  • promote more timely and transparent CRA evaluations (see Banking and Finance Law Daily, Aug. 28, 2018).

NYDFS. Comments from Maria T. Vullo, NYDFS Superintendent, concentrated on four main points, as follows:

  • Metrics-based framework. Vullo noted that the ANPR invited comments on expanding the use of metrics in CRA performance evaluations. The NYDFS strongly disagrees with this approach, because "community reinvestment principles cannot be relegated to a mathematical formula." While metrics can be a factor, "they should not be a determinant that creates wrong incentives or undermines the CRA."
  • Communities and assessment areas. NYDFS agrees that the definition of assessment areas could be updated to reflect the effect that online and mobile technology has had on access to and the delivery of banking services. "However, any revisions to the regulations should not alter the CRA's intentional focus on local communities and should not, directly or indirectly, lead to low or moderate income communities within banks' footprints becoming even more underserved."
  • CRA-qualifying activities. NYDFS agrees that revised regulations could provide greater clarity on CRA-qualifying activities. "However, any updates to the regulations should ensure that the CRA remains focused on providing access to equitable and affordable financial products and services for the communities in which banks operate," Vullo wrote.
  • Bank branches. Although banking is increasingly moving to online and mobile platforms, branches remain critically important. According to the comment letter, NYDFS "aggressively supports continued branching in communities across New York State, and this has led to the continued opening of new branches by state-chartered banks. The CRA regulations should not be modified to encourage the closing of bank branches."

CBA. In its comment letter, the CBA noted that it supports the goals of CRA and believes banks have an affirmative obligation to help meet the credit needs of their communities, including low- and moderate-income areas. However, the CRA is over 40 years old, and "the framework of the current regulations is over two decades old. Since then, banking has been undergoing a rapid transformation. With that in mind, we are advocating reforms; but we do so with the understanding we do not want to see CRA lose its overall effectiveness. Indeed, the purpose of reforms should be to enhance the effectiveness of CRA and ensures its continued value to the communities banks serve, including low- and moderate-income areas."

The CBA recommended that the CRA regulations should try to achieve the following goals:

  • provide more clarity and certainty in CRA-eligible activities;
  • address digital transformation and the changing preferences of consumers;
  • permit more flexibility to invest where there is need; and
  • provide optionality for different models and strategies.

BPI. In its comment letter, the BPI recommended 13 principles that should guide the OCC in crafting regulations. BPI’s principles for CRA reform emphasize that:

  • It should be based on an assessment methodology that is objective and measurable, and furthers the goals of simplification, transparency, and certainty.
  • The CRA framework should accommodate the variety of bank business models, capabilities, and opportunities, as well as changing economic conditions.
  • The CRA should include an evaluation method for banks whose business is not clustered in geographies circumscribed by its branches.
  • The evaluation regime should be based on the language and purpose of the statute.

BPI’s comment letter also included a range of specific recommendations to put these principles into action, such as steps the OCC and other banking agencies could take to alleviate the problem of concentration of CRA activities in certain metropolitan areas, ways to clarify the types of activities for which a bank may receive CRA credit; and ways to improve the timely issuance of performance evaluations.

Companies: Consumer Bankers Association; Bank Policy Institute

MainStory: TopStory BankingOperations CommunityDevelopment ConsumerCredit NewYorkNews

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