Are regulators close to consensus on CRA reform?

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WASHINGTON — Regulatory efforts to revamp the 40-year-old Community Reinvestment Act have picked up steam, with two more bank regulators floating their own ideas for reforms, indicating a joint proposal could be in the works.

Federal Deposit Insurance Corp. Chairman Jelena McWilliams and Fed Gov. Lael Brainard in separate speeches last week gave their initial thoughts on how to clarify and update the CRA, which grades banks on their loans to the communities they serve. The comments marked the first time these two agencies have spoken out on specific CRA reforms since Comptroller of the Currency Joseph Otting gathered public input on changes to the law last year without action from the other two agencies.

Now that the FDIC and Fed are publicly weighing in, observers said they are beginning to see consistent themes — such as having a more tailored, clear measurement for banks — that could lead to interagency agreement on changes to a law that has long been fraught with controversy, making it difficult to amend.

“There’s a real opportunity for momentum here. What we are hearing from the agencies is not inconsistent with one another, which gives us a path towards a proposal,” said Steven Sugarman, senior adviser and chief counsel at the National Diversity Coalition.

The coalition was visiting federal regulators in Washington last week and hosted an event where McWilliams went off script to speak about CRA, publicly revealing her priorities for amending the law for the first time. She said her top priorities are to clarify what activities qualify for CRA credit, to assess the role of digital banks, given that CRA was written before online banking, and to ensure that CRA investments go to entities in most need of credit.

“I think we can have a positive outcome on both sides of the equation" if these issues are addressed in reforms, McWilliams said at Thursday's event.

Just two days earlier, Brainard made similar points while offering more specifics. She suggested, for example, separating assessment areas for retail and community development activities and further tailoring assessments based on bank size.

“By creating separate assessment areas for retail and community development activities, we believe that banks would continue to place their community at the center of their retail lending,” Brainard said in remarks at a conference hosted by the National Community Reinvestment Coalition.

At the same time, banks would “service activities while participating in meaningful community development opportunities that may have greater impact due to their broader reach,” she added.

The speeches suggest the potential for future attention to the issue after Otting's advance notice of proposed rulemaking, published last August.

“There is a common theme across the banking agencies ... and that is finding a way to better recognize and promote impactful, higher-quality community development activities,” said Chris Lewis, a director at Promontory Financial Group, who worked at the OCC during the last significant reforms to CRA in the mid-1990s.

For nearly two decades, regulators have attempted to reform the CRA, but larger efforts were thwarted by strong disagreement over what constitutes a community in need and how much CRA credit should be given to banks based on investment type. These debates have already been refueled since the OCC gathered roughly 1,500 comments on its ANPR in November.

Regulators at all three agencies said they have gone through the comments submitted during the OCC’s notice of proposed rulemaking and were in early talks about potential reforms.

“The comptroller appreciates the thoughtful comments and engagement by his regulatory colleagues and is encouraged by ongoing and robust discussions of how to promote Community Reinvestment Act lending, investments, and activity where it is needed most and to ensure the CRA regulatory process is well understood, transparent, and works effectively for everyone,” said OCC spokesman Bryan Hubbard, in response to the speeches made by Brainard and McWilliams. “He looks forward to discussing all of the ideas with fellow regulators as we work together toward proposing improvements to the current CRA framework.”

Still, the push to change the CRA could be complicated by personal ties to the law among top regulators. Otting oversaw CRA compliance as a banker at U.S. Bank and then negotiating with community groups to meet CRA concerns when his bank, OneWest Bank, was sold to CIT Group in 2015.

McWilliams brings a different perspective on the law as an immigrant who was unbanked when she came to America, lived in underserved communities and later served as a consumer protection rule writer at the Federal Reserve.

“Frankly [CRA is] one of those issues that both people tend to get very personally involved with ... and I want you to know that I don’t take the issue lightly,” McWilliams said before the diversity coalition. “I have had an opportunity to live work, function and call home many of the communities that the CRA is trying to address and I will proceed with those thoughts as we look at how to revise the framework.”

These personal ties could either fuel regulators' efforts to finish reforms before their terms expire or tie up the process due to passionate opinions, sources said.

“I think there’s personal convictions that have been a hindrance to the process so far,” said Jesse Van Tol, chief executive of the NCRC, referring to Otting's past experiences.

The comptroller, who has so far taken the lead among regulators in pursuing CRA reforms, initially floated some controversial ideas in the notice of proposed rulemaking released over the summer, such as a single metric for grading banks, that received pushback from bankers and consumer groups alike. The idea has so far not been publicly embraced by the other agencies.

“It’s hard to tell whether or not the speeches” from the Fed and FDIC “means it’s more likely the regulators will work together,” Van Tol said, noting that Brainard’s plan had more “consensus” from various groups.

“There are key issues that will dictate whether or not the OCC feels comfortable going with a consensus-driven approach as opposed to something more dramatic,” he added. “It’s a complicated issue and I think there’s not uniformity of opinions ... which makes it much more likely the reform that comes out of this will be an evolution of CRA, not a wholesale revision.”

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CRA Policymaking Financial regulations Consumer lending Jelena McWilliams Lael Brainard Joseph Otting OCC FDIC Federal Reserve
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