Advisers to Fed: Don't Wait For Congress on CRA Reform

WASHINGTON - Regulators should plow ahead with reform of Community Reinvestment Act rules without waiting to see if Congress changes the law, a government advisory group said Wednesday.

The Federal Reserve's Consumer Advisory Council met Wednesday to consider the fate of CRA and a number of other regulations.

Elizabeth G. Flores, senior vice president at Laredo National Bank, Laredo, Tex., said the council's CRA subcommittee voted unanimously to urge the Fed to finish the reform.

"That was a definite thumbs-up from everyone," Ms. Flores said.

Meanwhile, a senior Fed official told the council that the central bank recommended Wednesday that Congress change mortgage disclosure laws to allow consumers to waive their right to rescind second mortgages within three days of closing.

Griffith L. Garwood, the Fed's director of consumer and community affairs, said the change would reduce the regulatory burden on banks. It could even help consumers who want to close on their loans faster.

Fed Gov. Lawrence B. Lindsey said the central bank is not advocating a wholesale change. "This is a very, very limited circumstance," he said.

In contrast, House Banking Committee member Bill McCollum, R-Fla., has introduced a bill to eliminate the three-day window altogether.

The council, which advises the Fed on consumer issues, also said bankers and community activists should help train examiners on the proposed revisions to CRA rules.

The involvement will ensure that examiners apply the proposed CRA revisions more consistently, and will give line-level examiners a better understanding of how banks operate, said Julia M. Seward, vice president at Signet Bank, Richmond, Va.

Also, consumer and banking groups should be allowed to comment on the examiner guidelines before they go into effect, said Katharine W. McKee, transition director here for the Center for Community Self-Help.

"That is something that should be seriously considered," she said during the meeting, which four Fed governors and about 30 industry and consumer advocates attended.

Bankers and community activists said they need more details on the proposed revisions, which would replace a 12-part test with a three-pronged one focusing on lending, investment, and service.

The group split on whether banks with superior CRA ratings should be exempt from community group protests.

"We would lose a lot by any kind of exemption or safe harbor," warned John Taylor, president of the National Community Reinvestment Coalition. He said every situation at each bank is different and must be addressed independently.

But, bankers said they need an incentive. "There needs to be a clear reason for why banks are spending the money they are spending," said David C. Flynn, regulatory risk manager at National City Corp.

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