Toward a More Modern CRA

Regulators and industry groups ramp up discussions.

By Bill Poquette, Editor-in-Chief

In late August last year, the Office of the Comptroller of the Currency released an Advance Notice of Proposed Rulemaking seeking comment on the best ways to modernize the Community Reinvestment Act. A couple of months later, Comptroller Joseph M. Otting was quoted as saying revising the CRA was the No. 1 reason he was lured to Washington from his post as CEO of OneWest Bank in sunny Southern California.

Bankers’ trade groups cheered him on. Both the American Bankers Association and the Independent Community Bankers of America welcomed the OCC’s efforts. And they have continued to advocate for constructive change, citing lack of transparency and inconsistent examinations, among other things.

The ANPR’s 75-day comment period ended Nov. 20, having drawn nearly 1,500 comments. The OCC has been quiet on the study, but the results have been shared with other regulators. In fact, they were the subject of a recent speech by Gov. Lael Brainard of the Federal Reserve Board recently at a National Community Reinvestment Coalition conference.

At the center of many if not most discussions about potential reform lies a dilemma that was clearly defined by Brainard: “Branches are the places that provide the personal face-to-face assistance valued by many consumers and business customers,” she said. Technology has much to offer by way of convenience and customer experience, but it is often a complement to rather than a replacement for bank branches, she noted.

“For this reason and to be true to the original intent of the law, I believe that CRA evaluations should retain a focus on the credit needs of the local communities banks serve as indicated by their physical presence in those areas, but not be limited to where they have a physical presence.”

As part of this approach, a bank would get CRA consideration for community development activities in a more expansive area, Brainard suggested. “By creating separate assessment areas for retail and community development activities, we believe that banks would continue to place their community at the center of their retail lending and service activities while participating in meaningful community development opportunities that may have greater impact due to their broader reach.”

Support is growing for CRA reform, with the subject broached almost weekly in the financial press and regulators’ public appearances. A couple of days after Brainard’s NCRC speech, FDIC Chairman Jelena McWilliams brought it up while speaking at the National Diversity Coalition Town Hall. According to an American Banker report, she listed three priorities in revamping CRA: clarity on what qualifies for CRA credit, how to assess emerging digital banks and making sure that CRA investments go to the exact entity in most need of credit.

The campaign by regulators and the banking industry is getting in gear, but it won’t be totally smooth going. In a recent ABA Update, Rob Nichols, the association’s president and CEO, defined the role bankers must play after some 300 of them responded to the OCC’s ANPR:

“That kind of engagement will be needed again in 2019 when we expect the banking agencies to jointly issue a proposed rule,” he said. “This is a once-in-a-lifetime opportunity to move CRA into the future, but it will face substantial headwinds from those who fear (wrongly) that modernization will reduce banks’ commitment to their communities.”

Bill Poquette is Editor-in-Chief, BankNews,

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