WASHINGTON – Key lawmakers expressed support yesterday for a bill to bring credit unions and other financial services providers under the Community Reinvestment Act, as a growing number of CRA advocates built their case for expansion of the 1977 law.
"The truth about CRA is it encourages prime lending," said Eddie Bernice Johnson, D-Texas, co-sponsor of the bill to extend CRA, during a hearing before the House Financial Services Committee. "It also penalize banks and savings and loans who participate in predatory lending."
Democrats who control the House were clear in their support for the bill, which would make several major changes to the CRA. The changes would extend data collection on the measurement of services to low-income people to also include the measurement of services to racial minorities and women. It would measure deposits, as well as loans, as the current law does. The changes would also require regulators to hold public hearings for those institutions who have failing CRA grades on plans to improve their ratings.
"The time has come to expand and modernize the reach of CRA to all financial institutions," said Rep. Andre Carson, D-Ind. "We need to modernize CRA by expanding its reach and making it more effective."
Rep. Louis Gutierrez, D-Ill., the chairman of the Financial Services Subcommittee on Financial Institutions and one of 54 co-sponsors of the CRA bill, said he hopes to keep the bill separate from a variety of other proposals before the committee, including regulatory reform and creation of a consumer financial protection agency, because he fears if it is combined in an omnibus bill it could water down the proposed reforms.
Republican lawmakers spoke out against CRA, with some asserting that CRA and other government mandates to lend to the poor helped cause the financial crisis. "Does CRA require a bank to make loans that are less creditworthy than what the bank is making elsewhere?" asked Rep. Ed Royce, R-Calif. He said similar government mandates required Fannie Mae and Freddie Mac to purchase $1.7 trillion of subprime loans that helped cause the failure of those two government sponsored enterprises.
"CRA is a costly and redundant anachronism that has contributed to our financial meltdown. It’s time to repeal CRA," said Rep. Jed Hensarling, R-Texas.
The law was enacted to address regulatory findings that banks and thrifts were engaging in so-called redlining, or purposely ignoring poor segments of their markets, and it requires those institutions to make concerted efforts to provide services in low-income communities. For years, credit unions have been able to fend off attempts to bring them under the law by arguing that the credit union mission is geared specifically towards those kinds of communities. To bolster their case they use data collected under the Home Mortgage Disclosure Act, or HMDA, to show that credit unions approve a far higher rate of home loans to all segments than do banks and thrifts.
Credit union representatives where not invited to testify at yesterday’s hearing but both CUNA and NAFCU sent letters to the committee leaders expressing their opposition. "HMDA data clearly indicates that credit unions are outperforming banks and thrifts in terms of loan and price spreads as well as service to these particular segments of the population," said Dan Berger, chief lobbyist for NAFCU, of the law aimed at boosting service to low- and moderate-income communities. "From a credit union perspective," said CUNA President Dan Mica in his letter, "this bill is at best unnecessary and possibly harmful to credit unions and their members."
Several experts testified in favor of expanding CRA to credit unions and other groups.
"CRA should apply to all activities of bank holding companies and financial services holding companies, as well as lenders that participate in federal credit enhancement programs such as those of the Federal Housing Administration, USDA, Veterans Affairs Department, Small Business Administration, and the Government Sponsored Enterprises," said Benson Roberts, senior vice president for the non-profit Local Initiatives Support Corporation. He said entities who benefit from government agencies like these should "share an affirmative obligation to help meet the needs of low- and moderate-income people and communities."
Steven Antonakes, Massachusetts Commissioner of Banking, said the Bay State’s CRA, which is specially tailored to recognize field of membership and other limitations on credit unions, has been successful in producing a variety of initiatives by banks and credit unions in needy communities. Massachusetts is also the first state to extend CRA to mortgage companies, he noted. "This is further evidence of how deeply Massachusetts believes CRA is part of the answer to the current economic difficulties and not part of the problem," said Antonakes.
The endorsement of the Massachusetts Banking Commissioner was seen as important because that is the home state of Financial Services Committee Chairman Barney Frank, himself a long-time suporter of CRA.
Several other witnesses also testified in favor of expanding CRA to credit unions and other groups, including representatives from the National Association of Affordable Housing Lenders, the American Bankers Association and the National Community Reinvestment Coalition, which issued a report last week critical of credit unions meeting the needs of the underserved.
John Taylor, executive director of the Community Reinvestment Coalition, told The Credit Union Journal he believes credit unions should be volunteering to come under the law. "This is what they were created for. It’s good public policy," he said.
