WASHINGTON — A group of 16 Democratic senators, led by Sen. Mark Warner of Virginia, are calling on banking regulators to expand the Community Reinvestment Act’s reach and to avoid proposals that undermine the law.
The May 25 letter, addressed to the heads of the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., comes as the agencies consider ways to modernize the 40-year-old law.
The senators cite the decline in minority homeownership rates, challenges minority-owned business face in getting approved for credit and changes in technology in arguing for “a strong CRA.”
The Democratic lawmakers align themselves with several recommendations from a Treasury Department report published in April, but warn against others.
“We hope that you take this opportunity to strengthen the CRA, broaden its applicability to more regions and institutions, and avoid proposals that could undermine the continuing effectiveness of the CRA,” wrote the senators, including Sherrod Brown, D-Ohio, ranking member on the Banking Committee, and Elizabeth Warren, D-Mass.
In the letter they argue that bank regulators should better account for the role that digital banking plays in serving lower income customers, as suggested in Treasury's report.
In that vein, the lawmakers note that the agencies should consider reassessing the classification of more rural communities as full-scope assessment areas, rather than limited-scope areas, which would provide for a more thorough review of their lending activities. They also recommend regulators take away the discretion banks currently have to exclude affiliates from CRA loan evaluations when the affiliates don't help their ratings.
Yet the senators advise against a Treasury suggestion that the other regulators adopt two new OCC examination policies permitting institutions to open or acquire branches when a bank has a “less than satisfactory” CRA rating in some cases and limiting how illegal or discriminatory lending practices impact a bank's CRA score.
“While we generally support expansions that benefit [low- and moderate-income] communities, we are concerned that permitting expansions for banks with ‘less than satisfactory’ ratings undermines the only formal compliance mechanism that exists under the CRA: the prospect that the banking regulators will deny those banks' expansion applications,” the senators wrote. “Furthermore, we believe that narrowing the universe of loans with respect to which a regulator evaluates a bank’s illegal or discriminatory credit practices is inconsistent with a key finding of Congress in passing the CRA: banks must demonstrate that they ‘serve the convenience and needs of the communities in which they are chartered to do business.'"
Comptroller of the Currency Joseph Otting has so far been leading the charge on revamping CRA, although it's not yet clear how or whether the three regulators will work together to reform the law. President Trump's choice to head the FDIC, Jelena McWilliams, was just confirmed to the position on Thursday, and four of seven seats on the Fed's board are currently vacant.
Otting has said he hopes the three agencies can move forward together, but he has not ruled out the possibility of the OCC moving ahead alone.