The Community Reinvestment Act proposal put out last week by the New York State Banking Department addresses bankers' concerns about vagaries in the law but could be fraught with problems of its own.

Bankers long have complained that regulators' standards for compliance with the act are vague and subjective. But the great diversity among banks makes the plan unwieldy, critics say. They also fear that it could lead to credit allocation.

The proposal, unveiled by New York Banking Commissioner Derrick Cephas, contains a quantitative system for evaluating compliance with the 1977 law.

A Different Formula

Scores would be determined largely by a bank's ratio of community investments to its insured deposits. Some types of investments would carry extra weight.

The formula contrasts with the current system, which focuses on bank's processes for Community Reinvestment Act lending. Such things as the scope of community outreach, product design, and record keeping are keys to the evaluation.

"We're hoping to move to a system of objective, quantifiable standards," said Mr. Cephas. He and others suggest the New York proposal could be a model for other state and federal regulators.

Questions About System

However, a number of bankers and observers think the formula approach could be difficult to implement and unfair to some banks. The appropriate level of investment is subjective, they say, dependent on a bank's size, strategy, and financial health.

"I would hate to see this type of more or less objective system occur," said Herbert Wayne, senior vice president and Community Reinvestment Act compliance officer at Wachovia Bank of North Carolina. "I think what it leads to is credit allocation."

Banks, he added, should not be forced "into areas of business, where they may not have expertise or desire."

Miami banking consultant Kenneth Thomas said the measurement plan is not yet specific enough for him to evaluate whether it will work. But he said it is indeed possible for a quantitative system to be effective.

"I think that's the direction we have to move in to get away from the inherent and significant subjectivity in the system."

The New York regulators suggest their plan will appeal to bankers once they become familiar with it. "The department believes that a bank compliance officer should be able to perform a CRA self-assessment and reach a reasonable conclusion as to how the bank examiner will evaluate the bank's CRA record," the proposal says.

The Money Store, a leading lender to working-class America, is promoting a loan purchase program that it says will help banks comply with the act.

The Union, N.J., company is planning to buy fixed-rate second mortgages, a product that blue-collar families often request but that many banks are reluctant to hold. The banks prefer adjustables, which limit exposure to rate swings.

Under the Money Store program, participating banks will close the loans in their own names and then sell them to the consumer finance company, along with the servicing rights. Participating banks typically will retain the up-front "points," often 2% of the loan amount.

Anthony R. Medici, president of the Money Store, said he expects 30 to 40 banks to be active in the program by the end of the year.

Mr. Medici and others said that fixed-rate second mortgages were natural products for Community Reinvestment Act programs. The 15-year loans are said to appeal to consumers intimidated by home equity lines of credit -- open-ended loans with adjustable rates.

"Blue-collar workers are so concerned about controlling their payments that they usually favor fixed rates," said David Olson, a financial services consultant based in Columbia, Md.

The Money Store operates more than 100 offices in 32 states. It repackages its second mortgages as securities and sells them off.

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