CRA plan could be breakthrough for credit-starved tribes

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Tribal leaders have long struggled to attract the financing they need from large banks in order to reverse chronic poverty and housing shortages on Native American reservations.

They have for the most part leaned on government grants and subsidized loans from smaller, rural institutions nearby to fund projects for housing, schools and other infrastructure. But a proposal from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. in December would give banks credit under the Community Reinvestment Act for lending they do in Indian Country even if these lands sit far outside of their designated assessment areas.

The change would provide the kind of incentive tribes have coveted to attract attention from big banks and, they hope, spur economic growth on reservations.

“I expect there will be a jump in lending,” said Dante Desiderio, executive director of the Native American Finance Officers Association, which advocates for tribal economies. “It gives the banks a lot of reassurance, and the incentive is there to get a fair chance at getting projects funded.”

The proposal is part of an effort from federal banking regulators to revamp the CRA, a tool community groups in low-income neighborhoods have used to steer more lending for economic development. Reaction so far has been mixed among lawmakers, industry groups and community advocates alike who are beginning to pressure the agencies to give them more time to determine what impact the 239-page proposal could have.

Comptroller of the Currency Joseph Otting included a visit to several pueblos in Albuquerque, N.M., last summer as part of his tour to hear from different communities that would be impacted by CRA reform. He told tribal leaders at the time that upcoming proposals to change these rules would give their lands a chance to be included in the discussion for the first time.

“The proposal would encourage banks to provide more capital, investment, and lending in Indian Country,” Otting said in a statement Tuesday. “Current regulations have neglected these communities far too long, and it is critical to make these changes now to encourage banks to do more in these communities and other rural and distressed areas, just as banks have spent trillions in CRA investments elsewhere since the law was enacted.”

The need is great. The Housing and Urban Development Department’s most recent estimate showed that 68,000 housing units were needed across Indian Country to alleviate overcrowding and replace older homes that had fallen into disrepair. The reservations can also be so remote that in some cases, tribe members would have to travel as many as 88 miles to a bank, according to a recent study from the University of Arizona.

Lenders averaged 1.9 loans per 1,000 Native American reservation residents per year between 2013 and 2015, compared with 22.3 loans per 1,000 residents across the entire U.S., according to recent findings from the Housing Assistance Council, which studies rural housing issues.

In addition to providing banks credit under the CRA for lending in Indian Country, the OCC and FDIC proposal would also go further than current regulations by clarifying a list of what business activities would qualify for credit, which could be updated to take aim at spurring new investments as needed.

The proposal would also give extra credit to CRA scores for banks that lend in these areas. However, regulators are still considering whether to establish a minimum floor for activities before a bonus is applied to prevent lenders from spreading out low-dollar-figure activity in these areas to boost their scores.

Desiderio stopped short of saying he expected a large uptick in new loans from banks off the reservation right away. There are still hurdles advocates and tribal leaders must navigate to further coax more business from lenders, like smoothing out complicated land ownership laws and intertwining state and federal bureaucracies.

Importantly, the proposal would appear to give CRA credit to banks for providing funds to some community development financial institutions, or CDFIs, which are a lifeblood for financing in Indian Country. The Native CDFI Network, which advocates for these businesses and has asked for more incentive to let banks invest with them, is reviewing the proposal and expected to ask for some clarifications in an upcoming comment letter.

“There are some things that are promising and some things we’d like to see some additional clarity on,” said Jackson Brossy, a member of the Navajo Nation and executive director for the Native CDFI Network, who attended the OCC tour in August. Brossy declined to name specific items they would want clarification on as they work on drafting their comment letter and continue going through the proposal.

Still, NAFOA said in a bulletin to its members after the OCC and FDIC proposal was released that the rule changes would be “historic” for giving them a seat at a table they’ve long sought.

“We are pleased to see the agencies listened to us on that,” Desiderio said.

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CRA Community banking Mortgages CDFIs Joseph Otting OCC FDIC