Compliance officers are discovering a new problem as they begin enforcing revised community reinvestment rules: Boards of directors no longer appear interested in the regulation.
Directors' indifference is leaving some Community Reinvestment Act efforts rudderless, while others struggle to maintain funding.
The problem is not yet widespread. But bankers and consultants said it appears to be growing worse.
"It's really hard to get the board to pay attention," said Charles Grice, executive director of the San Francisco-based Community Reinvestment Institute. Compliance officers "are saying that it's harder to do their job because of the new regulation, and they're almost needing a bad exam to grab the board's attention."
Hundreds of banks have hired the institute to train employees on the new CRA rules, which took effect Jan. 1 for banks with less than $250 million of assets. Mr. Grice said a survey of compliance officers found that more than half of small banks' boards had either dissolved their CRA committees or not convened them this year.
The new rules no longer require top managers to play a role in CRA planning. That makes it tougher for compliance officers to keep the board interested in their efforts. Directors need to follow the bank's experience under the new rules, keep tabs on exam grades and lending data reports, and discuss new products or long-term goals.
"There's no way, no how, that a bank can have an effective CRA compliance program without the board of directors being involved," said Donna Wilson Castor, director of community affairs at the Dime Savings Bank in New York City.
An officer's first move should be to tell the directors about how the change from process-based rules to the current performance-driven regulations is going, said Janet Harnaga, CRA officer at City and Suburban Bank, Yonkers, N.Y.
Ms. Harnaga said many bankers are finding that the new rules - despite being advertised by the agencies as a major reduction in burden - still require acres of paperwork. But many board members don't realize that, she said.
This difference in perception can cause headaches for compliance officers, who have to explain why it took so long to prepare for an exam and why compliance costs are over budget.
"You have to educate them," said Ms. Harnaga.
Officers should get the board's input and approval before unveiling a new CRA loan product, Mr. Grice said. This forces directors to stay in tune with the bank's CRA efforts, he said.
Under the old CRA rules, banks had to create a CRA committee and show an examiner the minutes of board meetings where reinvestment topics were discussed.
The board is not mentioned in the new regulations. Ms. Harnaga said her department has cut back its meetings with the board from monthly to quarterly. However, special meetings are held to discuss exams.
