Democrats seek assurance regulators won't weaken CRA

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WASHINGTON — Bank regulators have not yet even published their long-awaited draft on reforming the Community Reinvestment Act and Democratic lawmakers are already worried that the plan will weaken the original intent of the law.

A day after House Democrats pleaded for the heads of the Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., and the Federal Reserve to get in sync on their revamp of the decades-old CRA, Senate Democrats on Thursday said they were worried that the agencies’ plans will reduce access to credit.

“Studies show that without the Community Reinvestment Act, the homeownership rate in our country, and especially for Latinos and African-Americans would be much lower,” said Sen. Catherine Cortez Masto, D-Nev., at the Banking Committee hearing with leaders from the Federal Deposit Insurance Corp., Federal Reserve and National Credit Union Administration. “How would proposed changes to the CRA close the racial, ethnic homeownership gap?”

Sen. Bob Menendez, D-N.J., said he was concerned that regulators would enable certain banks to opt in to the new CRA framework, rather than have it apply to everyone.

“I would hope that as you decide how to move forward on potential changes to the CRA, you’ll take the heart the need to strengthen the CRA so that more Americans benefit from this important civil rights law,” he said.

The hearing came as the Office of the Comptroller of the Currency and FDIC are expected to issue a CRA reform proposal within days, without support from the Fed.

For the second time in two days, an oversight hearing with the regulators did not include Comptroller of the Currency Joseph Otting, who has spearheaded the CRA effort.

“Mr. Otting had a conflict today,” said Sen. Sherrod Brown, D-Ohio, the committee's ranking member. “He is expected to announce changes to the Community Reinvestment Act shortly, changes that the civil rights community and others are very concerned about. I share those concerns, and I expect that we will have him up before this committee to talk about this proposal and other activities at the OCC soon.”

Cortez Masto pressed FDIC Chairman Jelena McWilliams at the hearing to ensure that changes to the CRA can help close racial and ethnic homeownership gap.

In response, McWilliams urged lawmakers to be open to the benefits of a revised CRA.

“The act frankly can be revised to do more for those communities and it can do a whole lot more for rural communities, for small businesses, small farms, family farms, Indian country,” McWilliams said. “The act has not been updated since 1995 and all I’m asking from folks is that, be open-minded to see when these proposal changes come through. Give us feedback if there is something that you’re concerned about that’s not in the proposal, let us know.”

She added that she hopes an updated CRA proposal will help low-income communities get access to credit.

“My personal intent is to strengthen it and make sure that the things that were not existent in 1995, but that do actually help low- and moderate-income and minority communities, get enhanced credit under the CRA and are accounted for appropriately,” McWilliams said.

The hearing came as regulators have also been working to tailor regulations on the banking industry and implement a regulatory relief bill, known as S 2155, which was signed into law in 2018. Yet some Democrats who did not support the bill have warned that it puts the U.S. financial system at risk.

Brown lamented that the regulators have also eased some regulations on foreign banks, which he said was not required by S 2155.

“The chair of the Federal Reserve, Chairman Powell, promised [that] the bill did not require getting rid of rules for foreign megabanks,” Brown said. “Your agencies then loosened the rules on foreign banks, anyways, including on bad actors like Deutsche Bank, which is by all indications President Trump’s ATM.”

Randal Quarles, the Fed's vice chairman of supervision, told Brown that regulations for foreign and domestic banks aren’t identical.

“There are some material differences between the two frameworks for domestic and foreign banks, although again, in accordance with the law, we have tried to ensure that … we do take national treatment into account with respect to those frameworks,” Quarles said.

Republicans, on the other hand, encouraged the regulators to continue to implement regulatory changes.

“I encourage you to continue exploring additional opportunities to tailor rules,” said Senate Banking Committee Chairman Mike Crapo, who spearheaded the passage of S 2155.

But some regulatory developments drew skepticism from Republicans.

Big banks have been largely critical of the Fed’s plan to launch a real-time payments system, known as FedNow, which could compete with a private-sector real-time payments system.

Sen. Thom Tillis, R-N.C., pressed Quarles to commit to “flat pricing” with FedNow.

“The private sector has made a commitment in writing to have flat pricing,” Tillis said. “If the Fed is concerned with discriminatory pricing, pricing that would disadvantage smaller banks, why has the Fed refused to make this same commitment to flat pricing for the FedNow platform?”

Quarles, who was the lone dissenter on the Fed board for launching FedNow, said it’s still too early to know how the service will be priced.

“The Federal Reserve, in connection with standing up operations for the payments system, is required by law to recover our costs and I think as the proposal evolves … we’ll have a better sense of exactly what would be required in order to recover all of those costs,” Quarles said. “At that time, we’ll be able to evaluate what the pricing will be.”

Meanwhile, Sen. John Kennedy, R-La., disagreed with McWilliams over the regulation of industrial loan companies.

McWilliams has signaled the FDIC may be more open to ILC charter applications, while Kennedy is pushing a bill that would ban nonfinancial firms from controlling ILCs. At the hearing, McWilliams, who admitted she has not read the text of Kennedy’s bill, said she believes the FDIC has the necessary authority to regulate ILCs.

“From the perspective of the depository institution, the ILC is regulated the same way as a bank,” McWilliams said. “In fact, when Congress gave us authorities to approve deposit insurance for ILCs, it gave us the same statutory standard as it did to banks.”

But Kennedy said it is not an even playing field.

“I disagree with you on that,” Kennedy said. “I don’t think they’re regulated the same. And I just don’t understand why everybody is not treated the same.”

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