Office of Thrift Supervision Director Ellen Seidman called Wednesday for an overhaul of the Community Reinvestment Act, saying the regulation may put too much emphasis on lending.

Regulators should let small banks and thrifts satisfy CRA obligations by investing in development projects and providing services to their communities, Ms. Seidman said at a fair-lending conference at Cleveland State University.

She said focusing on lending for these institutions is unfair because megabanks, with their national marketing clout and technological advantages, are able to offer lower loan rates than those of community banks and thrifts.

"Although OTS examiners consider factors such as extreme price competition from very large institutions as part of their CRA evaluations, the regulation can encourage and reward the creativity of institutions challenged by such factors better than it does now," she said. "Perhaps lending is too heavily weighted."

This is the second time in four months that Ms. Seidman has urged regulators to overhaul the CRA rules, but it is the first time she suggested de-emphasizing lending as part of the reform.

Regulators last revamped CRA in 1995, with the goal of focusing on performance over paperwork. To meet this goal, regulators adopted rules for small banks that look almost exclusively at the amount of loans made to their communities.

Robert R. Davis, director of government relations at America's Community Bankers, agreed that the current rules put too much emphasis on lending.

"We fully support the rebalancing of CRA," Mr. Davis said. "There needs to be flexibility in the regulatory process to recognize the full dimension of community support provided by community-based institutions."

Community activists, however, blasted her proposal.

"I am appalled that a leader of a regulatory agency and one appointed by this administration would make such a statement," said John E. Taylor, president of the National Community Reinvestment Coalition. "It evidences a lack of understanding of the need for banks in rural areas and niche banks to make capital available."

Activists may reconsider their support for retaining the thrift charter as part of any financial reform bill if Ms. Seidman does not modify her position on CRA, Mr. Taylor said.

Ms. Seidman also previewed fair-lending exam rules that the OTS and banking agencies plan to revise soon. A key component of the new procedures is guidance on scoping, a procedure used before an exam to determine where regulators should focus their review. For instance, she said a lender that uses overages to compensate brokers is likely to be examined for pricing discrimination.

The guidance also will direct examiners to check whether management has policies to monitor for lending bias, and it describes how to conduct loan file analyses.

Ms. Seidman provided few details on the procedures, which will take effect early next year.

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