WASHINGTON — Regulators on Monday took the first step in a broad review and update of Community Reinvestment Act regulations.
Speaking at the first of four public hearings planned on the topic, Federal Deposit Insurance Corp. Vice Chairman Martin Gruenberg said a comprehensive review of the law has never been "more relevant." He cited the tough credit conditions facing low- and moderate-income families and the dramatic changes to the financial services industry in recent years.
Other regulators said CRA reforms are urgent given the recent passage of the financial overhaul.
"The financial reform legislation that the president is about to sign into law will obviously bring additional significant changes to the nation's banking system. All of these changes suggest that now really is a good time to re-examine our CRA regulations," said John Dugan, comptroller of the currency.
The rest of the hearings will be held across the country by mid-August. They are expected to raise issues on a broad range of topics including community development needs, the rules' proper geographic scope, the quality of CRA ratings, access to banking services and more. CRA regulations were revised in 2005 and have not been thoroughly reviewed since 1995.
Federal Reserve Board Gov. Elizabeth Duke said a key priority going forward is for financial institutions to meet the credit needs of their entire communities. Yet she stressed the importance of the CRA maintaining its hallmark flexibility, which has allowed it to remain relevant as economic conditions have changed.
"We do not know how the economy and the financial system will change in the coming decade, but given the experience of the past few years, it is safe to assume the change will be rapid," Duke said. "Considerable creativity and flexibility will be thus necessary to ensure that the CRA continues to serve as an effective means to promote community development and otherwise encourage the provision of financial services to lower-income households and communities."
Witnesses at the hearing said that the challenges facing the CRA have vastly changed since its enactment more than three decades ago.
Barry Zigas, director of housing policy at the Consumer Federation of America, said the big problem confronting communities at that time was "too little credit." Today, he said, it's "too much credit with too little CRA."
Wade Henderson, the president and chief executive of the Leadership Conference on Civil Rights, stressed to regulators that the CRA should be applied more broadly, or otherwise it's "limited artificially" to a world that does not exist any longer.
For example, he cited electronic banking services as placing significant hardships on low-income families and reinforcing a structural inequality.
Another issue raised by witnesses and regulators was whether banks should be required to include their affiliates, especially their mortgage affiliates, as part of their CRA assessments.
CRA advocates argue that banks are able to shield discriminatory practices because current regulations do not require CRA-eligible banks to report on the lending practices of their depository, credit and mortgage affiliates.
"Banks should no longer have the option of shielding," Henderson said.
Witnesses also argued that CRA examinations are too restrictive to specific geographical areas that include a bank's headquarters or branches.