As Trump touts economy, CRA reform looms large

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WASHINGTON — After a State of the Union speech in which President Trump described a “blue-collar boom,” Republican lawmakers focused on banking issues hailed the president's economic record while Democrats used the occasion to criticize a pending plan to reform the Community Reinvestment Act.

In December, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. unveiled a proposal to overhaul the decades-old CRA, but the proposed framework has sparked sharp divisions between Republicans laudable of the regulators' approach and Democrats who worry it would undermine the anti-redlining law.

“We need to do more on the Community Reinvestment Act and it should not be gutted,” Rep. Carolyn Maloney, D-N.Y., a senior member of the House Financial Services Committee, said after the president's address Tuesday.

While Trump did not specifically mention financial policies, he kicked off his third State of the Union with a focus on “America’s great economic success,” noting that his administration has rolled back several of the Obama administration's regulatory policies.

“From the instant I took office, I moved rapidly to revive the United States economy — slashing a record number of job-killing regulations, enacting historic and record-setting tax cuts and fighting for fair and reciprocal trade agreements,” Trump said in his third State of the Union speech.

Senate Banking Committee members John Kennedy, R-La., and Martha McSally, R-Ariz., both said after the address that they approved of Trump’s speech, and Rep. David Kustoff, R-Tenn., who sits on the Financial Services panel, said Trump “hit the nail right on the head.”

“To think about the record-low unemployment that we've seen — almost three-and-a-half percent now — not only across the nation, but in Tennessee, my employers all across the district tell me … they're making more money [now] than they made in a long time, maybe even ever,” he said.

But some Democrats still see problem areas in the economy, and amplified their concerns about the CRA plan.

“We bailed out Wall Street, but we have not bailed out Main Street,” said Rep. Al Lawson, D-Fla., a member of the Financial Services Committee.

Members of both parties and other stakeholders have agreed that the CRA should be brought into the 21st century to account for the rise of online and mobile banking, but the proposal spearheaded by Comptroller of the Currency Joseph Otting has had mixed reviews.

The plan would update CRA assessment boundaries to award banks credit for activities outside their branch network, but critics worry about a dilution of CRA resources in low- and moderate-income communities. They warn that a new proposed scoring methodology could incentivize banks to focus on high-end CRA projects instead of smaller investments that they say are more in line with the spirit of the law.

Notably, the Federal Reserve has not signed on to the OCC’s proposal. Fed Gov. Lael Brainard said last month that she objected to the proposal to combine several aspects of CRA evaluation into a single, final score and to use the dollar value of CRA projects — as opposed to just volume — to grade performance.

Sen. Chris Van Hollen, D-Md., who sits on the Banking Committee, said he thought the Fed was right not to join in with the OCC and the FDIC on the proposal.

“We can improve the Community Reinvestment Act. I think there are things we can do to make sure it better meets its purpose," but "I am worried that the actions they're taking are actually making it easier for banks not to meet their responsibilities to invest in lower-income communities,” he said.

Some prominent Democrats on the House Financial Services Committee did not attend Tuesday's speech in the wake of the House's impeachment of the president. The Senate is widely expected to vote to acquit Trump.

House Financial Services Committee Chair Maxine Waters, D-Calif., wrote on Twitter that attending the speech would not be consistent with her “fight and struggle against this dishonorable president” following his impeachment in December.

Three other Democrats — Reps. Al Green of Texas, Alexandria Ocasio-Cortez of New York and Ayanna Pressley of Massachusetts — announced before the speech that they would boycott the address.

Otting testified in front of the House committee last week on his CRA proposal, but was met with sharp criticism from the Democratic members, who decried the lack of consensus among stakeholders and argued that Otting had disregarded the civil rights history attached to the CRA.

“Unfortunately, the OCC has put out a rule that runs contrary to the purpose of CRA and would lead to widespread bank disinvestment from low- to moderate-income communities across the country,” Waters said in prepared remarks at the Jan. 29 hearing.

Rep. Brad Sherman, D-Calif., agreed that Otting failed to sell the full House Financial Services committee on his proposal last week.

“It's rare that you can come up with a proposal that can aggravate both the American Bankers Association and Maxine Waters at the same time,” he said. “That takes skill and innovation.”

But the committee’s Republicans saw the proposal differently.

“The current CRA regulations are outdated and technologically ineffective — it is an analog approach to a digital world,” Rep. Patrick McHenry. R-N.C., the committee's ranking member, told Otting during the hearing. “That needs to change; your proposal moves us in the right direction.”

Kustoff agreed that CRA should be updated to fit the modern world’s banking needs.

“I've heard from a number of community banks in west Tennessee about how onerous a burden it is, and I think it is time to look at redoing and revising CRA,” he said. “You talk to anybody under a certain age, they don't go to banks anymore. They all do their banking on the phone. Ten years ago, 15 years ago, and certainly when the CRA was adopted, that would have been unimaginable.”

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CRA Regulatory relief Regulatory reform Economy Donald Trump Maxine Waters Patrick McHenry OCC House Financial Services Committee