Setting the record straight on CRA reform
Applying an outdated regulatory framework for the Community Reinvestment Act — written for the way customers banked in the 1970s, '80s and '90s — creates unnecessary restrictions and burdens on what banks can do to benefit communities in need of help.
Communities, banks and the customers they serve deserve better. Clarity is needed about which bank activities, in which communities, should receive CRA consideration from regulators.
To this end, the OCC issued an advance notice of proposed rulemaking in August. The ANPR did not make any regulatory proposals. Instead, it presented 31 questions on a variety of issues and options that could reform the CRA framework, including one that asked stakeholders to tell us what issues we may have missed. The OCC solicited input from all stakeholders — on all sides of the debate — regarding any and all ideas and opinions about how regulators might strengthen and enhance the CRA framework.
Most important, the purpose of the OCC’s ANPR was to spark a robust and important public discussion about how, with all stakeholders working together, we could encourage more CRA activities in communities that need them most. As Comptroller of the Currency Joseph M. Otting said in issuing the ANPR, “It is time for a national discussion on how we can make the CRA work better.” This important discussion is long overdue. The OCC took a necessary step and challenged the status quo simply by soliciting any and all opinions from stakeholders for and against reforming the CRA framework.
I am generally pleased with the discussion underway and the progress so far. The OCC received approximately 1,500 comment letters with varied opinions and insights that otherwise would not have been available to regulators. In the comments about the ANPR, there was broad agreement that evaluating assessment areas only where banks have their main offices, branches and deposit-taking ATMs is difficult to reconcile with banking in the 21st century.
Many commenters also cited the need for regulators to address the conundrum in many rural distressed areas (including Native American territories), which do not get enough CRA investment today because too few banks operate there. The distressed communities that CRA activities currently fail to reach, so-called CRA deserts, could and would benefit from bank regulators identifying and implementing ways to make our CRA regulations less cumbersome and complex.
Most commenters also agreed that regulators need to provide a transparent way of knowing what counts for CRA consideration and what does not. Bankers and their community development partners should know in advance whether investments or services worth millions of dollars would qualify for CRA consideration.
Unfortunately, certain stakeholders have not contributed positively to the public discussion. Instead, some opted to distort facts by inaccurately portraying the purpose and content of the ANPR. They incorrectly claimed that the ANPR made regulatory proposals, when it did not. They asserted the ANPR would lead to the loss of billions of dollars in bank CRA activities, when this is not true. Quite to the contrary of such false claims, the ANPR sought suggestions for how the CRA framework might be reformed to increase lending, investment and banking services in low- and moderate-income communities and to make CRA evaluation more objective and transparent.
Fortunately, while these misleading claims hindered the constructive public dialogue about CRA reforms, it has not derailed this important discussion. Good progress has been made. Since November, the OCC has reviewed and analyzed the varying views expressed in the comment letters from community groups, academics, bankers, industry groups, regulators and the public. There is clear agreement on this: the CRA has proven over four decades to be a powerful tool for community revitalization and has encouraged trillions of dollars in lending, investment and other banking activities in low- and moderate-income communities across our nation. Commenters also generally agreed that the time has come for all stakeholders to work together to update and strengthen the CRA regulatory framework.
The time is ripe to enhance the regulations implementing the CRA. When enacted in 1977, it was a simply worded law intended to stop “redlining” by requiring banks to meet the credit needs of communities where they are chartered to do business and receive deposits. From the start, the CRA had an important objective of expanding access to financial services in areas that were not being well served. Bank performance in achieving these goals was made public for all to see and to create incentives for optimal performance.
Today, the CRA’s goals remain critically important. However, in the 42 years since its enactment, the regulations and policies that implement the law have not kept pace with changes in how consumers and businesses bank and how banks deliver their services. These regulations require examiners to evaluate banks according to their assessment areas, as defined by where banks have their headquarters, branches and deposit-taking ATMs. While this approach requires regulators to evaluate the delivery of financial services through bank branches, the regulations do not allow us to assess bank activities outside of those areas, including,for example, online and other non-branch-based services provided by today’s banks. Continuing to use such outdated CRA rules has resulted in the inconsistent application of policies and outcomes that vary from bank to bank and region to region.
The task now before us is to develop a proposed rule that will clarify what counts for CRA, where it counts, how much it counts and how to count it. That rule must address the weaknesses in the CRA framework and provide greater certainty for everyone — regulators, banks, community development practitioners and community groups — to ensure the CRA continues to benefit and transform distressed communities today and for future generations.
The OCC is eager to work with the other federal banking regulators to jointly develop and issue a proposed rule this summer. While the Federal Reserve and the Federal Deposit Insurance Corp. did not join the OCC in August in issuing the ANPR, the document reflected their input and the valuable insights provided by their staffs. In addition, FDIC Chairman Jelena McWilliams, Federal Reserve Board Chairman Jerome Powell, Fed Vice Chairman for Supervision Randal Quarles and Fed Gov. Lael Brainard have all indicated that we need to modernize and strengthen the CRA regulatory framework and expressed their interest in working together to achieve this important goal.
When a reform proposal is ready, it will be released for public review as a notice of proposed rulemaking — and once again — stakeholders on all sides will be invited to comment before any reforms are finalized. It will continue to be a transparent process, and one that takes the time to consider constructive and honest public comment and discussion.
During my 35-year career, I have seen firsthand the good CRA can do by encouraging banks to transform foreclosed condominiums into badly needed affordable rentals, finance purchases for low- and moderate-income, first-time homebuyers, and promote public welfare investments to bring community development, economic vitality and jobs to distressed communities. I know much more can be done by making our CRA implementation framework more objective, transparent, consistent and easy to understand. By modernizing CRA regulations, we will strengthen and enhance the CRA and ensure that it fulfills its original, statutory purpose of encouraging banks to serve their communities.