This is no time for CRA reform
The coronavirus pandemic hit while regulators were pushing through a controversial plan to change a long-standing rule requiring banks to reinvest in local communities.
The economic meltdown that’s occurring due the massive spread of the coronavirus — and the inescapable need for social distancing to save lives — has radically altered the situation for everyone with a stake in the Community Reinvestment Act. This 1977 law is the primary accountability test that grades banks based on their investment dollars in the communities where they take deposits.
However, the government is now focused on slowing and stopping a deadly pandemic, as well as averting a catastrophic financial collapse. Banks are managing changes to every aspect of their businesses, including how to administer federal emergency loans.
Community groups that are most knowledgeable about the CRA and how to use it to expand investments for low- and moderate-income borrowers are themselves in survival mode and focused on needs in their communities.
Before the COVID-19 pandemic started spreading across the U.S., the two agencies leading the proposed CRA reforms — the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. — agreed to extend the public comment period to April 8. But much has happened since, leaving little time and attention for the public to focus on this rule.
Despite numerous calls from the nonprofit community and the national community bank trade association, the OCC and the FDIC appear intent to move forward with their agenda and to close public comments Wednesday.
This runs counter to other actions regulators have taken recently to delay or extend rulemaking deadlines in response to the coronavirus, and even counter to actions by these agencies themselves.
The CRA guidance put out by all three federal bank regulators in response to the coronavirus pandemic includes aspects that would not be considered adequately under their proposal. They jointly offer favorable credit for banks that take relief actions such as waiving banking fees, helping access bank accounts remotely or by ATM, modifying loans and creating new loans or services that would help impacted communities.
The CRA proposal would eliminate analysis of banking products and ways to bank; and eliminate any analysis of responsiveness or innovativeness such as products built in response to the COVID-19 crisis or other disasters. Not to mention, the daily community credit and banking needs outside of any disaster.
Other agencies have acted as well. For example, the Consumer Financial Protection Bureau last month extended the comment deadline for proposed changes to a debt collection rule from May 4 to June 5. The IRS also pushed back its tax-filing deadline, showing just how critical providing relief is during this pandemic. Yet, the OCC and the FDIC appear determined to stick with their aforementioned timetable for CRA reform.
That's absurd when hospitals are overflowing, people are dying, more than 10 million filed for unemployment in the last two weeks alone, and both global and local economies are in shutdown mode.
Then again, the proposal itself is absurd. It's literally a plan to help banks do less for lower-income families, small-business owners and neighborhoods. It would also reduce resources available for nonprofit organizations that are on the frontlines of supporting their communities to help rebuild after this pandemic.
To be clear, community groups do support modernizing the CRA — just this proposed plan doesn't work. Regulators need to start over and come up with changes that bring the CRA into the 21st century, but keep it tied to underserved communities, especially as more neighborhoods will face financial disparities coming out of this crisis.
It’s already frustrating in normal times given that nearly all banks pass their CRA exams under the current rule. In these utterly abnormal times, it's ruthless and irrational. The nation's poor will bear the biggest losses from this national crisis and will need the most help to recover.
Why would regulators seek a way to help banks do less now? More important, regulators should not push ahead with rule changes and a bureaucratic schedule when all stakeholders are dealing with a crisis and can't put time into analyzing the complex policy changes. This proposal could easily be suspended and taken up after the crisis.
The coronavirus has changed everything. The OCC and the FDIC should suspend CRA rulemaking until after the crisis has passed. The agencies themselves may want to rethink the proposal in light of the new situation.
But even if they don't, the public should have more time to submit comments after this health crisis has ended. That timetable is uncertain. But it is unconscionable, tone deaf and bordering on malevolent that the agencies are pressing ahead.