WASHINGTON Banks could potentially get more Community Reinvestment Act credit for small-dollar lending and non-branch banking services, among other activities, under proposed changes to how examiners enforce the law.
Three regulators on Monday unveiled a second round of targeted reforms as part of an ongoing effort to bring CRA exams more in line with modern banking. Just like the first set of changes last year, which focused on community development activities outside a bank's assessment area, the new proposal appears to opt for incremental reforms in CRA policy rather than the wholesale changes favored by consumer groups.
The new guidance, which would institute changes to the agencies' "Question and Answers" document used to interpret CRA enforcement procedures, would attempt to increase banks' opportunities to get CRA credit for small-dollar loan programs. (Banks and consumer advocates have 60 days to comment on the proposal.)
Such credit is already available as part of the CRA exam's lending test. But under the proposed revision, small-dollar lending could garner additional consideration as one of a number of "innovative or flexible lending practices."
"Including small dollar loan programs as an example of an innovative or flexible lending practice acknowledges that banks may employ outreach initiatives in conjunction with financial literacy education or offer linked savings programs to improve the success of affiliated lending programs in meeting the credit needs of their communities," said the proposal, which was issued by the Federal Deposit Insurance Corp., Federal Reserve Board and Office of the Comptroller of the Currency.
"The agencies believe that ensuring proper consideration for such initiatives as innovative or flexible lending practices is consistent with the goals of the regulations because they facilitate institutions' abilities to meet the credit needs of their communities," the regulators said.
Among the first set of reforms finalized last year, regulators attempted to make CRA credit available for community development activities a bank does within its broader regional area even if it falls outside the physical branch network, which is the traditional boundary used to assess CRA activities. Those targeted changes came after the agencies had launched an effort to gather public feedback on areas of CRA policy ripe for an update, including public hearings held in 2010.
Earlier this year, regulators stressed that the 2013 revisions were not the end of their efforts to revamp CRA enforcement.
"The agencies are continuing to evaluate other CRA-related concerns and we are considering additional improvements," Comptroller of the Currency Thomas Curry said at a speech in March to the National Community Reinvestment Coalition.
But while the regulators have been lauded for assessing their own policy and considering changes, groups such as the NCRC have pushed the agencies for broader reforms, such as expanding banks' formal CRA assessment boundaries beyond their branch networks.
"It is very disappointing that the Q&A does not address a critical issue: the definition of a CRA assessment area," John Taylor, NCRC's chief executive, said in November when the first set of changes were finalized.
Other changes outlined in the new proposal would include a clarification of how economic development activities can be recognized as part of a bank's broader assessment of community development work. The proposal would also provide consideration for lending to low- or moderate-income borrowers that utilizes "alternative credit histories."
"The agencies believe that considering alternative credit histories to supplement conventional underwriting practices may provide an opportunity for some additional creditworthy low- or moderate-income individuals to gain access to credit," the proposal said.
The proposal would also seek to provide credit for financing of projects that expand the use of renewable energy or energy-efficient technologies in the community. For example, such projects could reduce energy costs for affordable housing units, and therefore make housing more affordable.
The new guidance would also include activities that improve communications infrastructure such as broadband access among those getting CRA credit for helping to "revitalize or stabilize underserved nonmetropolitan" areas.