Office of Thrift Supervision Director Ellen S. Seidman said that the CRA should be updated to reflect changes in the way financial services are delivered.

The 1977 law bases an institution's degree of compliance on whether it is making loans to low- and moderate-income people in the areas surrounding its branches. But Ms. Seidman said a growing number of firms are lending nationwide over the Internet and telephone, and through the mail.

To give such institutions more flexibility, Ms. Seidman said, more should use CRA's strategic plan option, which lets them design their own way of satisfying the law's three criteria: lending, service, and investment. Institutions must submit the plan to community groups for comment and get the regulators' approval.

Very few institutions have developed strategic plans, Ms. Seidman said, because that option is perceived as time-consuming and a threat to an institution's privacy. Only three thrifts have submitted strategic plans to the OTS for approval, and one, Household Federal Savings Bank in Chicago, has been approved, an OTS spokesman said.

"For institutions with unusual business strategies, the strategic plan provides flexibility because it allows institutions to tailor the criteria used in their evaluation to their business strategies," Ms. Seidman said in a speech at a Consumer Bankers Association conference.

She played down the weight that public comments would have on the agency's review of a plan.

Debby Kasemeyer, vice president and CRA officer at Northern Trust Co. in Chicago, a state-chartered bank and the first in the country to win approval of a strategic plan, called the process "very reasonable." The bank's strategic plan was approved by the Federal Reserve Board in 1997, and last year the company received an "outstanding" rating.

Ms. Kasemeyer said the plan allowed the bank, which makes loans but does not have an extensive branch network, because it focuses on trust operations, to concentrate more heavily on community investment rather than lending.

Ms. Seidman also said that less credit should be given for low- and moderate-income loans that one institution buys from another than for loans they originate. And she said that community banks should be allowed more creativity in compliance.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.