Latest CRA reform proposal draws fire as well as praise from bankers.

WASHINGTON - Banking trade groups gave mixed reviews Monday to a planned revision of the Community Reinvestment Act, saying that despite improvements, it would impose onerous reporting requirements and give too much discretion to regulators.

The proposal, which won initial approval in separate meetings by the Federal Reserve Board and the Federal Deposit Insurance Corp., is a scaled-back version of a plan put forth last year. The agencies will seek public comment for 45 days.

The FDIC's board members expressed strong support for the proposed regulations. "We've lowered the burden on the industry and put the burden on ourselves where it should be," said Comptroller of the Currency Eugene A. Ludwig, who sits on the FDIC board.

But Fed officials and banking representatives took issue with a provision requiring banks to disclose the race and gender of small business borrowers.

"What does it prove?" asked James D. McLaughlin, director of agency relations for the American Bankers Association. "What it does is it mixes race and gender with CRA, which never once mentions race or gender."

Besides the hassle and cost associated with increased reporting, Mr. McLaughlin said these reports will "give a distorted picture of where loans are being made," because banks only make up a portion of the lending in any particular market.

Fed Governor John P. LaWare complained that the rules require banks to report too much data. "It is just piling on more statistical information that truly I cannot see the usefulness of," he said.

The revised proposal increases the importance of lending for CRA ratings.

It gives the agencies more power to enforce the act, and requires most institutions to list the number and amount of loans to minority- and female-run businesses and farms. (A complete list of provisions will appear in Wednesday's American Banker).

While changes are still possible, participants said they expect few, if any, alterations. If the plan stands as proposed today, final changes to CRA could be in place by yearend. The new reporting requirements would kick in next July.

New CRA exams would not occur until at least July 1996 as the agencies will all have to retrain their examiners.

The new rules also give examiners a wider variety of tools to measure CRA performance. That means examiners will have much more latitude, a prospect that provoked a negative reaction from bankers as well as consumer activists.

"We're back to giving bank examiners total discretion when it comes to evaluating bank service to lower-income and minority consumers," said Michelle Meier, counsel for government affairs for Consumers Union. "This has been a major problem in the past.

"Consumers Union is extremely disappointed in the proposed rules," she added.

While satisfied with the rewrite overall, Joe Belew, president of the Consumer Bankers Association, also said he is worried about the amount of discretion being handed examiners.

"It is going to require a much more sophisticated examination force," he said. "That's the danger. Let's make sure the examiners understand the process."

The Greenlining Coalition, an advocate group in San Francisco, had "guarded praise" for the proposal, according to general counsel Robert Gnaizda.

"There are no amount of words that can compensate for the Federal Reserve's general hostility," Mr. Gnaizda said.

Independent Bankers Association of America executive vice president Kenneth A. Guenther praised the plan as an "excellent effort" by the agencies to balance the needs of bankers and the communities they serve.

The IBAA plans to support the reform effort because it streamlines CRA exams for banks with less than $250 million of assets. although Mr. Guenther did argue for lifting that limit to $500 million.

He also questioned the regulators, statutory authority for introducing new reporting requirements and enforcement actions.

Right now, regulators may use a poor CRA rating to block a bank,s expansion plans.

But the agencies, enforcement powers would be greatly enhanced under the new rules. An examiner could enforce CRA compliance with formal enforcement actions.

Mr. McLaughlin of the ABA predicted a lawsuit if this section of the regulation remains. "We don't think they have the authority to impose penalties for low CRA ratings," he said.

Bert Ely, a banking consultant in Alexandria, Va., blasted the proposal, saying it smacks of credit allocation.

"I think that this a regulation that makes a bad law much worse," Mr. Ely said. "There are some really fundamental problems in here for banks."

The regulators were less divided in their assessment of the proposal, although several central bank governors expressed reservations.

Fed Governor Lawrence D. Lindsey said at the meeting that he is "substantially more confident" about the new proposal.

But Mr. Lindsey said he is concerned about the provision requiring race and gender disclosure.

This proposal changes 20 years of Fed policy and it may be better left to Congress to decide, he said.

The FDIC board, which includes Mr. Ludwig, acting Office of Thrift Supervision director Jonathan L. Fiechter, and acting FDIC chairman Andrew C. Hove voted unanimously to place it out for public comment.

Mr. Hove, who introduced the proposed rule, said it maintains the basic intent of the original December 1993 proposal to move from subjective to objective criteria.

"However, this proposal is more flexible, more realistic and, we think, more workable then the one initially proposed," Mr. Hove said.

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