Office of Thrift Supervision Director Ellen Seidman made a case Thursday for hauling enforcement of the Community Reinvestment Act into the Internet age.

In a speech in Newport, R.I., Ms. Seidman questioned how geography-based CRA exams can suffice when financial institutions are offering services by mail, over the Internet, through insurance agents, or via affinity groups.

"The regulation's definition of an institution's assessment area is based on the idea of a community we have worked with since 1977," she said. "One obvious question is whether it is time to expand the traditional notion of community."

Currently, compliance with the CRA is based on lending, investment, and service to low- and moderate-income borrowers near an institution's branches or deposit-taking ATMs.

Ms. Seidman suggested several options.

Assessment areas could be redefined to focus on the location of an institution's customers rather than its branches.

"It is certainly an alternative worth exploring, particularly as more institutions are being chartered as a means of servicing pre-existing customers of a credit union or an affiliated financial services provider, such as a brokerage or insurance company," she said.

Of the four bank and thrift agencies, the OTS faces the toughest questions regarding CRA enforcement as nonbanks continue to charter thrifts and credit unions convert to mutual savings banks.

Ms. Seidman also suggested allowing more institutions to satisfy CRA requirements with community development lending, investment, and services outside their assessment area. Currently, only wholesale and limited- purpose institutions adequately serving their assessment areas may gain CRA credit for actions outside their home markets.

But both these moves would require time-consuming changes in CRA regulations, so Ms. Seidman urged institutions to take another look at the strategic plan option.

The option allows a bank or thrift to customize its CRA exam. However, the institution must consult with its community, post and accept public comments on the plan for 30 days, and get it approved by regulators. A strategic plan must have annual, measurable goals.

Few institutions are using strategic plans. "The option is perceived as more work than it is worth," Ms. Seidman said. But for institutions with nontraditional business strategies, a strategic plan provides more flexibility and more certainty in the exam process, she said.

In her speech to the CRA and Fair Lending Colloquium, Ms. Seidman also tried to set the record straight on how much CRA commitment the OTS is demanding of companies chartering thrifts, such as State Farm Mutual Automobile Insurance Co.

"There is a misconception that State Farm's thrift's CRA performance will be limited to the metropolitan statistical area surrounding its Bloomington, Ill., headquarters," she said. "That is emphatically not the case."

The CRA mandates that State Farm comply in only that one metropolitan statistical area, she said, but the company's proposed performance and the OTS' intended enforcement are much broader.

"OTS will evaluate this institution's performance as it grows and expands to other states and regions," she said. "All of this will happen even if there is still only one main office assessment area.

"What is more, State Farm knows this and has demonstrated its capacity to satisfactorily meet these expectations."

Ms. Seidman also said regulators must change CRA rules so institutions no longer receive credit for merely selling qualified loans to each other. While loan purchases can earn legitimate CRA credit, the practice is being abused, she said.

"This incentive can lead to the purchase and sale of the same loans over and over again," she said. "The agencies must find ways to discourage the churning of loans."

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