(October 2018) More than four decades after Congress passed laws to address the pernicious practice of redlining, the impact of discriminatory lending is still clearly visible in the wealth gap between white and nonwhite families. Persistent racial disparities in lending contribute to lower homeownership rates that affect family net worth and housing wealth.
According to the most recent Survey of Consumer Finances by the Federal Reserve Board of Governors, the median net worth of white families rose to $171,000 in 2016 while the median net worth of black families was $17,600 and the median net worth of Hispanic families was $20,700. The mean net housing wealth for white households was $215,800 and $94,400 for black households.
Congress passed the Community Reinvestment Act of 1977 (CRA) to encourage banks to meet the credit needs of the communities where they take deposits. CRA regulations have only been updated three times, most recently in 2005. Since that time, the growth of online banking has changed the financial sector and broadened services beyond brick and mortar branches, leading many stakeholders from across the political spectrum to propose new ways to modernize the Act.
However, making significant changes is quite difficult, not just because stakeholders fear that opening up the CRA could affect provisions on which they depend, but also due to the need for three separate agencies to work together: the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve Board. So-called interagency rulemaking is notoriously difficult.
Recently, the OCC decided to forge ahead on its own with an Advanced Notice of Proposed Rulemaking (ANPR). An ANPR is essentially the opening salvo in a rulemaking process: it asks open-ended questions for stakeholders, the answers to which inform the drafting of a proposed rule. The proposed rule will have to involve the other agencies as well. Once there is a proposed rule, there is another opportunity for public comment – but the most effective time to weigh in is during the ANPR process, as rules are often quite “baked” by the time they are in the proposed rule stage.
The OCC ANPR provides a key opportunity for NCST’s partners and buyers to weigh in and shape the direction of the CRA’s future. While some aspects of the ANPR reflect efforts consistent with the current regulatory zeitgeist to reduce regulatory burden on regulated institutions, there are also updates that could help CRA work better for communities and intermediaries serving those communities.
Here is a brief summary of the issues on which the OCC seeks public input:
- Modifying and streamlining existing performance tests by increasing the use of metrics or replacing the existing tests with alternative evaluation methods
- Creating a metric-based performance measurement system with ‘macro’ benchmarks aligned with the four rating categories and ‘micro’ components for each of those benchmarks (e.g. qualifying lending, investments and services)
- These components would then be aggregated together into one indicator of performance
- This has been called the “one ratio” à total dollar value of a bank’s CRA-qualified activities / bank’s total assets
- Redefining ‘communities’ and assessment areas so that banks continue to receive credit for qualifying activities within branch & deposit-taking ATM geographies but can also get credit for other activities such as:
- Serving Low & Moderate Income (LMI) areas, outside of existing assessment areas, that are tied to the bank’s business operations (e.g. nonbank affiliate offices or loan production offices)
- Providing activities in targeted areas that have historically been excluded from consideration (e.g. remote rural areas or Indian country)
- Expanding CRA-qualifying activities to include a greater range of activities supporting community and economic development and setting clear standards for CRA qualification in addition to reviewing its current consideration of:
- Low-cost education loans to low-income borrowers
- Activities by non-minority-owned banks with minority-or-women-owned banks or low-income credit unions
- Certain small business loans and small business credit in LMI areas
- Large banks’ use of innovative or flexible lending practices to address the needs of LMI borrowers or geographies
- Modernizing the existing framework to facilitate regular tracking, monitoring, and comparison of CRA performance among banks
The deadline for responding to the ANPR through the comment process is Monday, November 19, 2018. NCST is participating in several CRA conversations and working groups, and we would like to hear from all of our buyers on how the ideas in this ANPR would affect your work. In the following weeks, we will be contacting you via email or phone to ask for your input on the following questions, among others:
- Approximately what percentage of your capital comes from financial institutions currently subject to the CRA? What percentage comes from financial institutions not currently subject to the CRA?
- How much lending (in dollar amounts) do you currently receive from institutions subject to the CRA for acquisition and rehabilitation of single family homes?
- Have you ever been denied a loan by a financial institution that received an “Outstanding” or “Satisfactory” rating in its last Performance Evaluation?
- What aspects of the CRA, if changed, would improve or reduce your access to capital?
We also encourage all of you to respond directly to the OCC. You’re encouraged to submit comments through:
- Federal eRulemaking Portal:
- Regulations.gov – Enter “Docket ID OCC-2018-0008” in the Search box and click “Search.” Click on “Comment Now” to submit public comments. Click on the “Help” tab on the Regulations.gov home page to get information on using Regulations.gov, including instructions for submitting public comments.
- firstname.lastname@example.org – Please use the subject – “Reforming the Community Reinvestment Act Regulatory Framework” to facilitate the organization and distribution of the comments.