Cheat sheet: 5 pressure points in CRA reform debate

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Cheat sheet: 5 pressure points in CRA reform debate


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WASHINGTON — The Office of the Comptroller of the Currency is asking the public dozens of questions about how banks should be graded on their lending to communities in need.

The answers that bankers, consumer groups and others provide in response to the “advance notice of proposed rulemaking” could ultimately help regulators settle on a plan finally for revamping Community Reinvestment Act policy. The document is divided into five sections that are key topic areas for reform discussions.

Stakeholders of all stripes agree the 40-year-old law, meant to encourage banks to lend in low- and moderate-income communities and prevent discrimination, needs an update.

But how to modernize the CRA has long triggered intense debate and disagreement among all the parties as banks favor expanding CRA assessment areas and consumer groups worry that a broad expansion would simply make it easier for banks to score high CRA grades.

Comptroller of the Currency Joseph Otting “has said he wants to improve CRA, and if he does so in ways that increase lending and investments to low- and moderate-income communities, we will be the first to applaud it,” Jesse Van Tol, chief executive of the National Community Reinvestment Coalition, said in a statement. “But I have very serious concerns about the ideas contained in the ANPR. As always, the devil is in the details.”

The OCC’s questions are detailed and cover a wide range of aspects dealing with CRA requirements, ranging from which types of areas and loans should get CRA credit to revamping how banks are graded. The following is a summary of the 31 questions.

Effectiveness of the current CRA regulatory framework

The first six questions the OCC poses are largely about whether the current CRA regulations are easy to understand, clear and fair. This is an area where many parties agree that the system needs at least an update.

“For years, outdated rules, a lack of transparency and inconsistent examinations have limited the effectiveness of the CRA,” Rob Nichols, president and CEO of the American Bankers Association, said in a statement. “The current framework is holding back investment in communities the law is intended to serve, while failing to account for significant innovations in the banking sector, including the opportunities presented by mobile technologies.”

Consumer groups are open to changes but are far more cautious in that they want any changes to be directed to lending for communities in need.

“Any changes to CRA should retain a focus on community participation, identification of local needs, and promote community benefit agreements with banks,” Elba Schildcrout, director of community wealth at East LA Community Corp., said in a statement.

Among the questions offered to the public in this section is whether the current CRA framework meets two goals of the law: helping banks serve the convenience of their entire communities and encouraging lending and other services in low- and moderate-income neighborhoods.

The OCC also asks which parts of the existing CRA requirements regulators should keep if it moves forward on changes.

Changing how banks are measured under CRA

In the second section, the OCC poses a handful of questions on how regulators should grade banks for CRA if the agencies adopt a more metrics-based approach, such as looking at the dollar value of community development lending against a bank’s total assets.

The OCC is asking the public what benchmarks should be used in such an assessment and how to include other factors like a bank’s business model, branch structures and community involvement in the calculation.

“I’m open to people’s thoughts through this process . . . but I do believe that if we can get to something that would be measurable, I think that would be a successful conclusion in my mind,” Comptroller of the Currency Joseph Otting said during an Aug. 28 call with reporters.

The agency also asks how to apply different weights for certain activities qualifying for CRA credit in a metric-based approach. “For example, should a $1 loan product count as $1 in the aggregate, while a $1 CD equity investment count as $2 in the aggregate?”

Another question was whether additional weight should be given for community development activities that are not quantified by dollar value. “For example, a bank could calculate the value of 1,000 hours of volunteer work by multiplying it by an average labor rate and then include that number in the aggregate total value of its CRA activity.”



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