Federal Regulators Look to Update CRA

Federal Regulators Look to Update CRA
Randy Dennis

Randy Dennis has been a consultant to bankers so long that he’s considered “a legend” at the Federal Reserve Bank of St. Louis, and the Community Reinvestment Act has been on Dennis’ radar his entire career.

“When I started consulting in 1977, one of the first things I did was draft CRA statements,” Dennis, of DD&F Consulting Group in Little Rock, said last week.

The CRA is part of the Housing & Community Development Act of 1977. For four decades federal regulators have used it to make sure banks are meeting the needs of the communities they claim to serve — including low- and moderate-income neighborhoods.

But banking has changed, including a dramatic consolidation of the industry, and federal bank regulators have put out the word that the way the CRA is enforced is likely to change as well.

“There are more and more online [banking] options available, and that has given rise to the question of whether the regulations that implement the CRA should be updated,” Julie Stackhouse, executive vice president of the St. Louis Fed, told Arkansas Business.

Stackhouse, who called Dennis “a legend,” expects the public to soon have the opportunity to comment on the CRA, the first step toward new regulations.

“Prior to the passage of the CRA, ‘redlining’ — or limiting or refusing to make loans in certain areas — was rampant,” Stackhouse wrote for the St. Louis Fed’s blog earlier this year.

CRA has never required any bank to make a loan that does not meet its underwriting standards. But it does prevent banks from rejecting loans that meet those standards anywhere within the geographic market they serve

And compliance is high. Since 1990, only eight Arkansas banks have received a “needs to improve” rating — and the most recent was more than 10 years ago.

Dennis, the bank consultant, said the CRA has not done much to increase lending to low- and moderate-income neighborhoods. “Time has suggested that people don’t borrow in those areas because they don’t need credit,” he said.

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But the CRA has kept outreach to less affluent communities top-of-mind for bankers who might otherwise follow only the money. “What it has done is it caused banks to study what media serve those communities,” Dennis said.

The CRA focused bank and regulatory attention on geographic areas, but Dennis said technology and “big data” will increasingly allow regulators to look at how individuals are being treated by banks — “not just are loans being made there but are we treating borrowers differently in those areas?”

Among the issues new CRA regulations are likely to address is the changing nature of a bank’s relationship to its customers through branches. Closing branches in markets subject to CRA scrutiny has traditionally been a red flag for examiners. But Doug Kerr, assistant vice president for consumer compliance for the St. Louis Fed, expects exams for CRA to be increasingly “holistic.”

“If a bank is still serving a community, regardless of whether they have a branch there or not, we can look at that and use that when we judge what the bank has done over the assessment period,” Kerr said.

U.S. Fair Lending Laws

Fair Housing Act (1968)
Part of the Civil Rights Act of 1968. The FHA makes it unlawful for any lender to discriminate in housing-related lending activities against any persons because of their race, color, religion, national origin, disability, family status or sex.

Equal Opportunity Credit Act (1974)
Prohibits discrimination based on race, color, religion, national origin, sex, marital status, age, source of income or whether a person exercises rights granted under the Consumer Credit Protection Act for any credit transaction and through the life of the loan.

Home Mortgage Disclosure Act (1975)
Provides the public loan data that can be used to assist:
     • In determining whether institutions are serving the housing needs of their communities;
     • Public officials in distributing public-sector investments so as to attract private investment to areas where it is needed;
     • In identifying possible discriminatory lending patterns.

Community Reinvestment Act (1977)
Intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations.

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