Criticism over banks' compliance with the Community Reinvestment Act is starting to pick up — and that could be another sign the economy is doing the same.
An advocacy group issued a report last week criticizing New York's banks for not doing enough in low- to moderate-income neighborhoods. The Association for Neighborhood and Housing Development pointed to a reduction in multifamily lending, which fell 28% in 2010 from 2009, based on the most-recent CRA data.
But that was just half the story. In 2010, the city's banks boosted community development lending by 73% and more than doubled CRA-eligible investments.
Still, the report is just the latest sign that advocacy groups, and some lawmakers, are again looking at banking activities in disadvantaged communities.
That should put pressure on more banks to improve their CRA compliance, says Jaime Weisberg, an advocacy associate at the Association for Neighborhood and Housing Development, or ANHD.
Several city governments have intervened.
In New York, a city ordinance set to go into effect next year will require banks to publish more data about lending in low- and moderate-income areas. Cleveland, Los Angeles and Philadelphia have approved similar measures.
New York's ordinance "has a lot of potential to really raise the bar," Weisberg says. "We're really hopeful it brings a new level of transparency here."
The ANHD was a leading backer of New York's Responsible Banking Act, which the New York Bankers Association opposed. City council overrode Mayor Mike Bloomberg's veto of the measure. Council Speaker is Christine Quinn once worked at ANHD.
Banks in other cities are also facing pressure. A group of activists last month called on the Office of the Comptroller of the Currency to give Wells Fargo (WFC) a failing grade on its CRA exam, citing the San Francisco company's lending practices in minority communities and a payday loan-like product it sells.
In New York, ANHD assessed banks on several factors, including branch count in low-income communities, CRA-qualified investment, and lending in areas such as multifamily and small business.
Regarding the decline in multifamily activity, Weisberg says lending for apartment buildings, especially in economically depressed areas, is an essential part of a bank's social responsibility. "We emphasize multifamily lending because it's so prevalent in New York," she says.
Community banks received a fair share of scrutiny in the report, which examined eight smaller institutions including the $17.3 billion-asset Astoria Financial (AF) and the $645 million-asset Carver Bancorp (CARV).
Carver has been "consistently dedicated to serving the financial needs of low- and moderate-income communities," Blondel Pinnock, the president of Carver's community development unit, said in a statement. Brian Edwards, an executive vice president at Astoria, noted that the thrift had received an outstanding CRA rating in each of its last seven exams.
The report is getting some attention, though some industry observers say its results show that banks, especially smaller institutions, are making commitments to New York's low- and moderate-income communities.
"We've seen tremendous commercial development in places like East Harlem and the South Bronx where you'd never think you'd see a Target or a Home Depot," says Warren Traiger, a lawyer at BuckleySandler who advises banks on Community Reinvestment Act compliance.
Lending in low-income communities "is on the upswing," says Mike Smith, the president and chief executive of the New York Bankers Association. "There can be no doubt about the banking industry's commitment."
The ANHD, which will issue a report on 2011 data early next year, attempted to compare lending in disadvantaged parts of New York to the deposit bases of the city's biggest banks. Their critique was that loans to low- to moderate-income New Yorkers equated to just 1.4% of the $590 billion in total deposits housed at the city's 23-biggest banks.
"I'm not sure [counting] total deposits is the appropriate way to determine if banks are doing a sufficient job," Traiger says. "Deposits can come from anywhere."