Don't stand in the way of CRA reform
Now is not the time to slow Community Reinvestment Act modernization.
Meaningful help is on the way to low- and moderate-income neighborhoods and underserved communities nationwide since the Federal Reserve Board began its rulemaking process in September, and the Office of the Comptroller of the Currency finalized its CRA rule in May.
A sober comparison of the Federal Reserve’s advance proposal and the OCC’s final rule show significant overlap. Both actions share the common purpose of making the CRA framework more transparent and objective while encouraging more lending, investment and services where needed most.
Also by initiating its rulemaking, the Federal Reserve acknowledges what we all have known for too long — it is far past time to update and strengthen the CRA regulatory framework put in place in 1977 and later updated in 1995. What had been status quo for 25 years has failed to address the most important indicators of socioeconomic justice.
Under the prior CRA regime, the wealth gaps among rich and poor and majority and minority populations have increased. During that same period minority homeownership has remained virtually unchanged with African American homeownership receding to 1968 levels.
Banks have shuttered thousands of branches, disproportionately affecting poor, minority and rural areas. Where current CRA rules have failed some communities, it has ignored others entirely, including Native Americans, people with disabilities and family farmers. All of this has occurred under rules last updated more than a generation ago.
One of the most significant problems under the 1995 CRA reform was that banks’ community reinvestment activity was only evaluated where banks had physical headquarters or branches.
Moreover, examiners only looked at a sample of these assessment areas for big banks that conduct the majority of CRA activity around the country. Combine that with three decades of branch closings in rural and poor areas, and the incentive to serve these communities completely disappeared, resulting in CRA deserts across the country.
Under the previous rules, stakeholders and banks had no transparent, objective way to know what activities qualify for CRA consideration. Ninety-four percent of the commenters on the OCC’s advance notice of proposed rulemaking agreed that the CRA framework lacked transparency, consistency and fairness.
In 43 years, regulators have never even provided a list of what counts for CRA credit. Investments that qualify in one area do not qualify in another, and actions that may have qualified one year may not qualify the next. When considering nearly $500 billion in credit and investments, such regulatory uncertainty is unacceptable.
The OCC rule is a sincere attempt to fix these issues and make CRA work better for everyone. And it was improved based on the thousands of comments we received. It shares many features of the Federal Reserve’s advance proposal because the OCC, the Fed and the Federal Deposit Insurance Corp. worked closely together for months prior to our joint proposal with the FDIC in last December.
Still, certain groups and policymakers are attacking the OCC rule because of who proposed it, and would rather reverse benefits and improvements made by the rule than acknowledge this administration’s work to benefit minority and underserved people and areas. The House passed a resolution to vacate the rule along party lines in June. The Senate may take it up soon.
Overturning the OCC’s rule through the Congressional Review Act, however, would throw the baby out with the bath water. It would take away new and increased benefits for Native Americans, small businesses, farmers and people with disabilities.
It would remove regulatory certainty provided by the objective criteria and an illustrative list of what counts for CRA credit. It would take back changes that refocus bank CRA activities on low- and moderate-income areas. It would eliminate support for larger banks to partner with smaller minority-owned banks. And it would remove incentives for banks to serve areas where they take deposits outside of their headquarters and physical branch networks.
In addition to rolling back many benefits, using the Congressional Review Act to nullify the rule would prevent me or any future Comptroller from implementing a substantially similar rule such as that proposed by the Federal Reserve.
The action would essentially block OCC’s ability from making CRA rules stronger for communities and people who rely on the banks that conduct the majority of CRA activity.
Rather than undoing the OCC rule, policymakers and stakeholders should judge the new rule based on its results. If results disappoint, push for policy changes.
But don’t entrench a failed status quo because you don’t agree withwho is making the changes to the rule. I look forward to seeing the comments on the Fed’s ANPR for potential opportunities to continuously improve the OCC rule.
That is, unless Congress takes away that ability.