In 1995, when the 40-year-old Community Reinvestment Act was last substantially revised, 14% of Americans had internet access (mostly of the dial-up variety), mobile phones were in their infancy and social media platforms, such as Facebook, were beyond most Americans’ wildest imaginations.
It is hard to recall that world today, especially as consumers have become so digitally savvy. Times have changed — and banking has changed with it. Regulators must now bring CRA into this century as well.
Fortunately, key banking regulators are turning their attention to the law and are looking to modernize it. Recently, Treasury Secretary Steven Mnuchin said he wants to make sure CRA doesn’t turn into a “check the box” program used by banks simply to satisfy regulators. And Comptroller of the Currency Joseph Otting has echoed the need for reform. They are exactly right, and their commitment to the issue is music to the ears of those who advocate for a more effective approach to CRA. Going forward, we need to ensure CRA is interpreted and implemented in a manner which caters to the needs of 21st century consumers.
Without question, the CRA serves a vital role in ensuring low- and-moderate income borrowers have access to safe and sound bank loans. However, it is time for the CRA to be reexamined to ensure it remains workable and relevant for underserved communities and the next generation of borrowers.
To accomplish this, regulators’ application of CRA must evolve by giving greater recognition digital banking efforts during CRA performance evaluations. As it stands, regulators focus predominately on physical locations and branch networks — downplaying banks’ valuable contributions in the digital banking sphere.
Yet mobile and online banking options are becoming increasingly popular among consumers of all socioeconomic backgrounds. As the Federal Deposit Insurance Corp. has noted, mobile banking is well positioned to help an estimated 67 million unbanked and underbanked people gain access to needed financial services products.
The fact is digital technology provides consumers with additional capabilities and more choices than traditional branches alone are able to provide. No longer are consumers limited in their ability to bank by hour restrictions or physical limitations, but rather they can bank whenever, wherever and however they so choose.
Many banks have altered their business strategies to create on-demand banking experiences for consumers. Nowadays, most banks offer mobile apps to customers so they can deposit a check, transfer funds or open a bank account from the palm of their hands via a smartphone. As CRA reform takes center stage, it is important regulators take into account banks’ modern business strategies and allow for the regulatory flexibility needed to fulfill them. To accomplish this, regulators should give greater recognition to digital approaches in meeting the needs of customers in evaluating a bank’s CRA performance.
CRA needs to take a more holistic view of banks’ overall ability to serve local communities and consider both digital banking efforts as well as branch networks, accounting for each banks’ business strategy. There is more than one way to peel an orange, and there is certainly more than one way to provide services to consumers, small businesses and communities, especially in the digital age.
Now is the time for regulators to make needed improvements to the decades-old law through regulatory, interpretive and supervisory alterations, which account for changes in modern technologies and consumer preferences. It is time for other improvements as well: CRA must not be allowed to bog down in technical minutiae and interpretive confusion. Clarity is needed across the board, and individual banks need to have the flexibility to meet consumers’ needs.
If CRA drifts away from the realities of modern banking, it will lose its meaning and, more importantly, its benefit to the communities that banks serve. Regulators have a powerful hand to play, and they should work with the industry to update the law to ensure it remains sustainable and relevant for at least another 40 years.