Congress enacted the Community Reinvestment Act in 1977 to ensure banks continued serving the financial needs of their communities. Through CRA and other projects, banks are now investing more than a $100 billion each year into low- and moderate-income neighborhoods.
Banks believe in their CRA projects and are proud of the work they do. In fact, about 95% of banks currently pass their CRA examinations. Many people look at that and ask, “Why do banks want to change it?”
The answer is simple. Banks want to make CRA better to ensure investments and loans go where they are most needed. Since the law was passed some four decades ago, it has only been formally modernized once — in the mid-1990s, back when Amazon only sold books and renting a movie from Blockbuster was a weekend staple.
Times have changed drastically since then, but banks’ belief in meeting the credit needs of their communities has not. Bringing CRA into the 21st century is necessary to ensure investment dollars are put to work where communities need them most.
The Office of the Comptroller of the Currency took the first step in modernizing CRA with its recent advance notice of proposed rulemaking and the other bank regulatory agencies have expressed interest in joining the effort. We have also been encouraged by community and consumer groups’ recognition that reform is needed.
Consumer Bankers Association members support the principles of CRA and are eager to work with regulators and community groups to modernize CRA. While CBA will address the questions posed by the OCC surrounding metrics and assessment areas, our comments also will demonstrate our desire is not to loosen regulations or spend less. Just the opposite, in fact. Modernizing CRA will allow banks to expand investment and lending opportunities in communities, just as the law originally intended.
As one member of our Community Reinvestment Committee put it, “Banks are using CRA to help families impacted by disasters, corporate layoffs and homelessness. The modernization effort should encourage and expand projects like those.”
Another member, echoing the sentiment, said she did not want CRA to stop at an arbitrary street intersection drawn by statute. She wanted to see CRA projects at work across her city, county and state. And, just because CRA recognizes traditional banking activities, the work she and her colleagues do together building homes with nonprofit groups on the weekend for those in need should not be minimized because a law has failed to keep up with the times.
Those bankers were not alone. We have heard countless similar stories about why CRA modernization is so important and it speaks volumes about how bankers are approaching this effort. The end result should provide more certainty about what qualifies, make it easier to get CRA consideration for activities than it is now, and the focus should remain on the bank’s communities — with a recognition that consumers are increasingly expecting a more digital banking experience.
To successfully modernize CRA, we believe regulators should consider four core priorities: transformation, clarity, optionality and timeliness.
First, CRA was signed into law in 1977 and only updated once in the mid-1990s. Those updates reflect how banks operated two decades ago, before the digital transformation and well before smartphones. When was the last time you deposited a check? Did you go into a bank or use your smartphone? Modernization efforts should take into account this transformation in both technology and customer preference.
Second, there is too much ambiguity in CRA compliance. Different examiners and different agencies interpret the same rules differently. Terms like “innovative,” “responsive,” or “flexible,” for example, often require examiners to make subjective determinations on a case-by-case basis. Offering clarity will allow more banks to reach for “Outstanding” ratings.
While clarity is needed, CRA modernization should also avoid an overly strict one-size-fits-all framework. Rules should take into consideration different banks’ unique business strategies, just as they consider the unique needs of each community.
Finally, performance evaluations should be completed and returned to the bank in a timely manner. Having a regulator begin a CRA exam before the bank has received its rating on the previous exam just doesn’t make sense.
Across the country, banks invest heavily in local communities. Modernizing the Community Reinvestment Act will ensure our investments have a greater impact and reach more people and communities in need.
