The Battle to Preserve the CRA Has Begun

The battle to preserve and strengthen the CRA has officially begun. Early last week, the Office of the Comptroller of the Currency (OCC) released its long-awaited Advanced Notice of Proposed Rulemaking (ANPR), the first step in “modernizing” the Community Reinvestment Act (CRA). This would be the first major overhaul to the CRA in over 20 years and has the potential to impact how dollars and banking reach underserved communities – in good ways or bad. While updates to the CRA are certainly needed, we have serious concerns about some of the principles laid out. This is a once-in-a-lifetime opportunity to ensure that the CRA results in more access to banking, capital, and resources for underserved communities.  

The CRA is one of the most important laws we have to hold banks accountable to local communities, requiring them to lend and provide services equitably, and to reinvest in the areas where they do business. This landmark law passed in 1977 was one of many civil rights laws passed in response to discriminatory policies and practices that locked people of color out of banking, credit, housing, employment, and education. It has led to trillions of dollars reinvested nationwide, and billions each year here in New York City. It has also led to new partnerships, products, and practices that have increased access to credit, housing, and jobs for lower-income New Yorkers. But, for all of its benefits, ANHD and advocates have long recognized the need for improvements. Too many low-income, immigrant, and minority New Yorkers still lack sufficient access to loans and capital to purchase homes, improve their homes, and start and maintain businesses. Too many lack access to bank accounts and bank branches, and too many are being harassed and displaced when banks lend to unscrupulous landlords. Some of this has to do with limitations to the law, and some has to do with enforcing existing laws. Ninety-eight percent of banks pass their CRA exams in spite of these continued inequities.

The ANPR is just the first step in a long process. It lays out a set of questions and frameworks for stakeholders to respond to. Some of the questions are ones we should all be wrestling with, such as how assessment areas should be defined as more banking is being done online, as well as issues of clarity, transparency, and consistency on CRA exams. However, we have strong concerns about some of the principles laid out and urge the banking regulators to be very cautious in how they proceed.   

• Purely metrics-driven approach: The OCC seems to be proposing a “one-ratio” approach that would assess banks on their total volume of CRA dollars loaned and invested and compare it to some measure of a bank’s size. For example, a bank may have a target goal of reinvesting 10% of its deposits, or 8% of its assets. While ANHD certainly supports metrics as one measure of a bank’s performance, it cannot be the only one, and it cannot be done at a national level. Banks must be evaluated on the quantity and quality of their activities within the local communities they serve and based on the needs of these local communities, including the equitable distribution of loans and the impact of their activities, with credit for positive actions and consequences for harmful behavior. At the same time, the OCC seeks to expand the types of activities that count for CRA credit, thus inflating the total number of dollars reinvested to count towards that one metric. This includes counting more activities outside of assessment areas, expanding the universe of activities that automatically qualify for CRA credit, and quantifying non-monetary activities such as service hours. We worry they may count activities that do not directly benefit low- and moderate-income (LMI) people or communities, while at the same time de-emphasizing branches and bank products. If banks are striving for one large target goal for dollars invested, they will choose to focus on larger deals, while shying away from smaller dollar loans such as those needed by LMI people and communities, only exacerbating these disparities. Also, if more activities count towards that one number, it simply inflates the dollars invested and further reduces the incentive to address inequities and make smaller loans to underserved populations.
• Modernizing assessment areas: We agree with the OCC that banks should be assessed beyond simply where they have branches and deposit-taking ATMs to also include where they do considerable business, such as making loans or taking deposits. However, these must be full assessment areas. Expanding the geographic areas where banks can get credit without a local obligation to serve all communities equitably, simply allows them more areas where they can amass CRA credit with no incentive to equitably serve local communities, and puts harder-to-serve communities at risk of decreased investment. Banks must be assessed on all areas of CRA activity, including branches and bank products; home, small business, and multi-family lending (and consumer lending in some cases); community development loans and investments; and philanthropic grants. As it is, lower-income people, immigrants, and people of color struggle to access loans for homes and businesses. 

Also notable, questions related to race, community benefits agreements, requiring evaluation of affiliate lenders, evaluating the lending activities of limited purpose banks, and penalties for displacement or harmful behavior are all missing from the ANPR.

The regulators have a once-in-a-lifetime opportunity to increase the impact of this important law. The OCC should act in tandem with the other bank regulators at the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve Board to ensure all banks are held to the same standards. They must ensure that any changes proposed increase access to credit and economic opportunities for - and do not harm or displace - low-income, immigrants and people of color. ANHD looks forward to delving into the ANPR and submitting comments, and we encourage anyone interested to reach out to us.