WASHINGTON - A federal rule issued Thursday detailing how banks and community groups must report their Community Reinvestment Act agreements is best summed up as the regulation that pleased no one.

Despite an effort from bank and thrift regulators to quiet critics, the so-called CRA "sunshine" rule was immediately blasted by banking industry associations, consumer groups, and its champion, Senate Banking Committee Chairman Phil Gramm. "It will be a bear to deal with," said Joe Belew, president of the Consumer Bankers Association.

The rule was required by last year's financial reform law, and was part of a compromise to ensure Sen. Gramm's support. The Texas Republican had complained that community groups were using the threat of merger protest on CRA grounds as a means of extorting donations or credit from banks.

The law requires banks and community groups to disclose the terms of CRA-related agreements involving loans of more than $50,000 or grants of at least $10,000. Banks must file annual reports on these agreements, and each year community groups must detail how they spent the money.

A proposal attempting to implement the measure was released in May by the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve Board. After receiving more than 200 comments this summer, regulators made significant revisions to address industry and community group concerns.

Critics dislike it for different reasons. Banking and community groups complained that the new rule is too broad and puts them under burdensome restrictions, while Sen. Gramm said it leaves too many loopholes, is too narrow, and is inconsistent with congressional intent.

"The rule's requirements are still overly broad and will impose significant paperwork, regulatory, and cost burdens on banks that far outweigh any possible benefits," said Robert R. Davis, managing director for government relations with America's Community Bankers. "Community banks, especially small and midsize banks, will be forced to spend considerable resources complying with the disclosure, reporting, and recordkeeping requirements associated with CRA-related agreements."

Community groups agreed, and said the rule would discourage banks from working with any development organizations.

"Anytime anybody does any CRA lending, they will have to file a report," said John Taylor, president and chief executive officer of the National Community Reinvestment Coalition. "This will cut down on conversations about CRA, and secondly, it will discourage banks from having too many relationships with too many groups."

Mr. Taylor vowed that his group would contest the rule in court.

Sen. Gramm argued that the rule provides a loophole by which banks and development groups can avoid the sunshine provisions simply by deleting certain references in their CRA announcements.

"The sunshine provisions approved by Congress were based on a simple premise: If a law promotes the giving of money for a public benefit, there must be accountability," Sen. Gramm said. "The regulations issued today will keep citizens in the dark about the benefits purportedly bestowed in their behalf."

The rule clarifies what kinds of agreements between banks and community groups have to be disclosed and how long groups have to document any relationship.

The rule is triggered by any statement from a community group made about a bank's CRA performance to the institution, its affiliate, or its regulator, provided that it has received a loan or grant from the bank above the law's thresholds.

In addition, the rule imposes time limits. It is triggered only if a loan or payment to a community group is made within three years after any written contact from the groups with bank officials, or any written or oral contact with an institution's regulators. The time limit drops down to one year if the lending occurs after any oral communication between a community group and an institution.

Loans or grants do not have to be reported, however, unless regulators determine that a community group's input had a "material impact" on the bank's CRA performance.

Banks and affiliates may meet disclosure requirements by furnishing their regulators with a list of all community groups that made contact during a quarter within 60 days of the end of that quarter. Regulators can then request further information on any individual contact.


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