OCC was right to finalize CRA rule on its own
This week marked a major milestone in financial regulation after the comptroller of the currency significantly revamped the Community Reinvestment Act, a 1977 law that requires financial institutions to meet the credit needs of their communities but has barely been updated since its enactment.
Despite disagreements over the final rule, to anyone paying attention, it had become extremely clear the CRA’s objectives of helping low- and moderate-income (LMI) communities had become stifled by outdated regulations, which failed to keep pace with technology and the transformation of how banks deliver services.
With the coronavirus pandemic and its multiple adverse impacts on many communities, CRA modernization could not have come at a better time.
Coronavirus quarantines have shaken up the economy and there’s an expected a fluctuation in the general market of services. Many small businesses are in need of financing and resources. With these uncertainties, LMI neighborhoods need the innovation encouraged by the new CRA regulations now more than ever.
But updating this critically important law did not happen overnight. The Office of the Comptroller of the Currency spent many years of consideration and meetings among regulators, industry members, community-based organizations and others to adopt a more modern CRA that better achieves the law’s worthy objectives.
There are four key areas of the newly revised CRA:
It clarifies and expands what qualifies for CRA credit as well as expanding where CRA activity counts.
It also provided an objective method to measure CRA activity, and revises data collection, recordkeeping and reporting.
These changes will improve the ability of community-based organizations to advocate for their communities, and hold the less-engaged financial institutions accountable for meeting their CRA obligations.
The economic impact of the coronavirus pandemic has disproportionately affected LMI communities and people of color. This modernized CRA comes at a time when African Americans have the lowest percent of homeownership and other minority communities, such as Latinos, have been most affected by the economic fluctuations. An additional $100 billion investment will certainly help people and neighborhoods in need.
With the updated CRA regulations in place, it will reduce the accountability issues that have hampered the efforts of community-based organizations, and result in more creative and effective solutions for lending and the needed investments to help LMI communities. The modernized CRA regulations bring flexibility while remaining true to the law’s original intent to benefit underserved communities.
While some community groups disagree with the OCC’s final version, it should instead be seen as a first step in the right direction to getting CRA up to speed. This is a law that hasn’t been significantly changed since the 1990s, before online banking and without consideration of a pandemic that would cripple the well-being of neighborhoods. It’s critical we do something now, instead of continuing to do nothing.
Hopefully the move by the OCC to take the lead on this issue will spur other federal bank regulators to take similar steps forward to better achieve the CRA’s goals.