Banking regulators, completing a broad reform of community reinvestment rules, have dropped a controversial plan to require race and gender reporting for small business loans.
The scuttling of the plan is one of several changes that are expected to please bankers - and anger housing activists - when regulators unveil the final Community Reinvestment Act reform package today.
Many bankers have railed against collection of race and gender data on small business loans since the banking agencies first proposed the idea in September.
The industry argues the data serve no useful purpose and are expensive to collect. Community activists, however, say they can't monitor a bank's small business lending without the data.
In place of the data, regulators plan to require banks with more than $250 million of assets to report the geographic distribution of their small business lending. Bankers must publicly report by census tract the number of small business loans of less than $100,000, the number between $100,000 and $250,000, and the number between $250,000 and $1 million.
The Federal Reserve Board also will propose eliminating a restriction that prevents banks from collecting race and gender data on small business borrowers. The change, however, will not allow banks to use the race and gender data in their underwriting decision-making process.
Several large banks have complained that the Fed restriction prevents them from determining if they are properly serving minority business communities.
The replacement proposal attempts to please both sides, reducing the burden on banks while giving community activists their first look at the industry's small business lending record.
Comptroller Eugene A. Ludwig has supported small business data collection since regulators began overhauling the rules in 1993. But Fed Governor Lawrence B. Lindsey and others have questioned what purpose the new data would serve.
The banking agencies also have expanded the number of institutions eligible for a streamlined examination procedure. Banks with less than $250 million in assets will qualify, provided the total assets of the holding company is less than $1 billion.
The regulators originally limited the streamlined exam to banks and holding companies with less than $250 million in combined assets.
Regulators also clarified the "assessment context," the method that supervisory agencies use to assess the credit needs of communities.
The new proposal clarifies that the agencies need not prepare formal, written analyses of each community's lending needs. Rather, the regulators will judge a bank's lending against its size, financial condition, local demographics, and the economic conditions in the community.
Regulators said the public misperceived their intention, noting that it would be impossible to analyze each bank's community.
In the proposal, wholesale banks also remain subject to a special test that looks at the number and size of loans to the community. But regulators have amended the test. The plan now allows banks to concentrate as much of their development work outside their community as they want, provided their local community's needs are already being met.
Regulators also nixed a plan to use enforcement powers to compel CRA compliance. The Justice Department ruled late last year that the agencies can't use their powers that way.
The rest of the proposal generally resembles the 1994 revisions. The plan retains a three-pronged test to evaluate compliance with the reinvestment law, focusing on lending, investments in the community, and service to the neighborhood.
The three-part test replaces the 12 assessment factors that regulators currently review. The 12 factors include community outreach and paperwork- intensive activities.
Regulators did make a small change to the lending test. They now will look for loan originations, rather than the number of loans on the books.
The revisions also keep a strategic plan option, which allows institutions to design their own CRA compliance plans with the community's input.
The agencies also retained the scoring system that required banks to receive at least a "low satisfactory," the middle grade on the five-point lending test, to receive an overall rating of satisfactory. But the agencies dropped as moot a requirement that lending make up 50% of the overall score.
