WASHINGTON — As credit unions lobby to keep Congress from imposing some sort of Community Reinvestment Act (CRA) on the movement, CU Journal set out to explore just what the compliance burden might be by looking at how it currently works for banks.
The discovery: perhaps the hardest part about complying with CRA is just figuring out what you have to do to be in compliance. Indeed, because compliance on the bank side appears to be on a case-by-case basis, it's all but impossible to put together a checklist or other guidance on how to comply with CRA.
If CRA is imposed on credit unions, it is still unclear how similar - or different - their rules will be to CRA's compliance rules in place for banks. And even for banks, which have had to comply with CRA since 1977, there is no specific set of compliance regulations spelled out.
"There's nothing like that," said Josh Silver, vice president of research and policy for the National Community Reinvestment Coalition. "There are standard things but there are rooms for differences. There are standard things looked for. There is a lending test, for volume lending that makes laws on deposits not just sitting there. There is also a service test, to note the distribution of branches. And there are investment tests, which look at the number of investments, including the quality and innovation level."
One important compliance factor: banks with branches throughout communities do not have different standards for different locations, such as shorter branch hours, or services offered.
Banks are not expected to hit a certain number or percentage, either, Silver said. It's more of a performance context, compared to other institutions in the same area. "You also look at the economic condition of the community, and compare things among their peers. There are no numbers. It's just compared against its peers by demographics."
For example, Silver noted, if a bank in a specific area is making 30% lending, and another bank in the same areas is doing 20%, they will get a higher score as long as their practices are safe and secure.
According to the FDIC, there are different types of evaluations for different kinds of institutions. A FDIC representative who asked to remain anonymous agreed there is not a standard checklist for CRA compliance that he knows of.
Silver expects that if CRA is imposed on CUs, they will most likely follow the rules given to mid-sized banks. For small institutions, streamlined procedures with emphasis on lending were adopted. Large banks are evaluated under a three-part lending, service and investment test. Wholesale and limited purpose banks are evaluation under a community development test. In 2005, additional revisions were made to the CRA regulations. Intermediate small banks ($250 million to $1 billion in assets), which had been evaluated under the three-part test for large banks, are evaluated under a two-part test. The new test continues to focus on lending and adopts a new community development services component that evaluates a flexible combination of community development loans, investments and services tailored to community needs and the capacity of the bank. Each federal bank and thrift regulator is required to publish a quarterly CRA examination schedule at least 30 days before the beginning of each quarter.
But still, the regulations are not specific, and can vary based on several factors, including the size and geographic location of the institution.
1977
CRA was signed into law by President Jimmy Carter to encourage banks to help meet the credit needs of their communities, including low- and moderate-income neighborhoods, and required the Fed and other banking agencies to review banks' lending patterns.
1982
In Massachusetts, state-chartered CUs are required to comply with the state's CRA.
1989
The Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA) was signed into law by President George H. W. Bush in the wake of the savings and loan crisis. It increased public oversight of the process of issuing CRA ratings to banks by requiring the agencies to publish CRA ratings and performance evaluations.
1993
President Bill Clinton asked regulators to reform the CRA in order to make examinations more consistent, clarify performance standards, and reduce cost and compliance burden.
1994
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which repealed restrictions on interstate banking, listed the CRA ratings received by the out-of-state bank as a consideration when determining whether to allow interstate branches. A surge in bank merger and acquisition activities followed, and advocacy groups increasingly used the public comment process to protest bank applications.
1995
The CRA examination process was reformed and CRA ratings were published online. The OCC also moved to give CRA credit for loans made to help finance the environmental cleanup or redevelopment of industrial sites when it was part of an effort to revitalize the low- and moderate-income community where the site was located.
1998
A low-income proposal, which was dubbed 'CRA-Lite' by its detractors, was forwarded by NCUA Chairman Norman D'Amours but was not voted on due to opposition by the other two Board members.
1999
Gramm-Leach-Bliley Act insured any bank holding institution wishing to be re-designated as a financial holding institution by the Board of Governors of the Federal Reserve System would also have to follow CRA compliance guidelines before any merger or expansion could take effect.
2000
NCUA Board Member Yolanda Wheat introduced "Community Action Plan" (CAP) that is derided by critics as yet another "CRA for CUs"
The Wisconsin state senate rejected several banker-backed amendments to apply CRA to CUs.
With the notable exception of the National Federation of Community Development CUs, the CU community comes out united against NCUA reconsiders CRA-light proposal. The credit union movement comes out united against Wheat's CAP. NCUA adopts a watered-down CAP allowing CUs to use existing business or marketing plans to comply with the rule slated to go into effect Dec. 31, 2001.
2001
Senate Banking Committee Chairman Phil Gramm, R-Texas, vows to uphold pledge to seek to overturn CAP.
In December, NCUA Board Member Geoff Bacino placed repeal of CAP on the agenda; NCRC claims this violates the U.S. Administrative Procedures Act.
2002
NCUA repeals CAP before it ever goes into effect.
2005
OTS implemented rules allowing thrifts with more than $1 billion in assets to tweak the long standing 50-25-25 CRA ratings thresholds by continuing to meet 50% of their overall CRA rating through lending activity as always but the other 50% could be any combination of lending, investment, and services that the thrift wanted.
FDIC, the Federal Reserve, and OCC implement rules that include less restrictive definitions of "small" and "intermediate small" banks. allowing these banks to opt for examination as either a small bank or a large bank.
2007
OTS proposed revising and started to solicit public comment regarding the complete alignment of its CRA rule with the CRA rules of the other three federal banking agencies.
2009
With the election of a Democratically controlled Congress and Democratic President Obama, U.S. Rep. Barney Frank (D-MA) becomes House Financial Services Committee Chair, and in this powerful position, Frank has called for some sort of CRA to be imposed on credit unions, a bill is pending. After years of believing they were safe from CRA, many credit unionists have said this time the fight to stave off CRA may not go their way.
