The OCC Seeks Changes to the Community Reinvestment Act

Last week, the Office of the Comptroller of the Currency (OCC) issued an advance notice of proposed rulemaking (ANPR) seeking public input on how to modernize the Community Reinvestment Act (CRA). Those who are interested can submit comments to the Federal Register starting on Wednesday, September 5.

The OCC is specifically seeking comments that:

• Encourage increased lending and services to people and in areas that need it most, including in low- and moderate-income areas.
• Clarify and expand the types of activities eligible for CRA consideration.
• Revisit how assessment areas are delineated and used.
• Establish metric-based thresholds for CRA ratings.
• Make bank CRA performance more transparent.
• Improve the timeliness of regulatory decisions related to CRA.
• Reduce the cost and burden related to evaluating performance under the CRA.

In an op-ed for American Banker, Joseph Otting, the head of the OCC, argues, “CRA regulations have failed to keep up with the evolution of how bank services are delivered, most significantly as a result of interstate branching and the digitization of service. Another drawback of the current approach is the fact that performance evaluations take too long, lack transparency and suffer from subjectivity that causes inconsistency from bank to bank.”

Although banks have generally voiced their support for the ANPR, they have also emphasized that any changes to the CRA should be done jointly by the OCC, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC).

In addition, the ANPR has been met with pushback from consumer groups. “If banks win their battle to effectively reduce or eliminate the requirement that they invest in specific, historically underserved communities, then they could comply with the law by investing more in some places while doing nothing in others,” warns the chief executive of the National Community Reinvestment Coalition, Jesse Van Tol. The CRA “was passed in 1977 to end this practice of ‘redlining,’ by requiring banks to lend money in the communities where they are chartered to do business or receive deposits.”

Bank redlining has taken an unprecedented toll on the ability of low and middle-income families to access credit. Redlining occurs when banks intentionally charge higher rates or deny credit to low and middle-income borrowers, for example, in inner-city neighborhoods. Instead of evaluating a borrower’s creditworthiness individually, the bank simply rejects outright all applications within certain zones. Coupled with credit rationing, the process by which a bank does not fulfill all the credit needs of a borrower, many people are unable to access the credit they need. In its 2013 Report on Economic Well-Being of U.S. Households, the Federal Reserve Board found that 15% of the U.S. population did not apply for credit due to the feeling that it would be denied, and 33% of those that did apply for credit were denied or offered less credit than requested.

The CRA stems from a Congressional attempt to end redlining and improve credit access for low and middle-income families. Under the CRA, banks would need to expand credit offerings to underserved populations. Unfortunately, the current CRA provides little incentive to expand credit and few punishment methods for those that ignore it. In fact, any improvements in credit access to underserved populations may be attributed to the financial incentives instead of CRA regulation. Despite federal legislation, banks continue to abandon low- and middle-income neighborhoods at an alarming rate. A white paper by the U.S. Postal Service that explored offering short-term, small-dollar loans noted that since late 2008, 93% of bank branch closures occurred in zip codes with a median income below the national average.