Insights into the Proposed Changes to the Community Reinvestment Act
On March 3, 2020, the NYU Furman Center hosted a policy breakfast titled, Insights into the Proposed Changes to the Community Reinvestment Act. The panelists brought a diverse set of experiences in mortgage lending and community development to discuss the FDIC and OCC’s proposed rule to modernize the CRA, the first major regulatory change to the legislation since 1995. Panelists discussed the importance of the CRA in low- to moderate-income (LMI) communities, the needs of LMI communities, and what the proposed changes mean for lenders and borrowers.
The Community Reinvestment Act (CRA) was enacted in 1977 in response to redlining and the serious lack of investment by banks into communities where they were accepting deposits. The act confers upon banks an affirmative obligation to reinvest in the communities in which they were chartered to do business. Currently, the method of evaluating a bank’s CRA activity relies on three tests that evaluate the bank’s lending, investment, and services.
NYU Furman Center Senior Policy Fellow Mark A. Willis gave an overview of the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC)’s proposed CRA rule, which includes: a new method for evaluating bank CRA performance and delineating assessment areas; a descriptive list of qualifying activities; and requirements related to the collection and maintenance of data. Most notably, the proposed changes seek to consolidate the evaluation method of a bank into a dollar measure of the sum value of loans, investments, and services over total domestic retail deposits.
The presentation was followed by a moderated panel discussion. Members of the expert panel included:
- Hope Knight, President & CEO, Greater Jamaica Development Corporation (GJDC)
- Buzz Roberts, President & CEO, National Association of Affordable Housing Lenders (NAAHL)
- Jennifer Vasiloff, Chief External Affairs Officer, Opportunity Finance Network (OFN)
- Jaime Weisberg, Senior Campaign Analyst, Association for Neighborhood & Housing Development (ANHD)
The panelists all spoke to the historic and continued importance of the CRA in underserved communities. Hope Knight of the GJDC, reflecting on her experience in Queens, emphasized the role the CRA has played in incentivizing private investment in Jamaica. Jaime Weisberg of ANHD echoed this point, adding that the CRA has been successful in large part due to the voices of local community organizations like the GJDC.
The panelists criticized the proposed evaluation measure as one that is excessively aggregated. They noted the potential incentive this aggregate measure could present for banks to make large loans that do not directly benefit LMI communities, such as for projects to build stadiums, luxury rentals, or interstate highways. They agreed that banks will lose motivation for the much smaller-scale and impactful retail lending, such as home mortgages or small business loans.
Buzz Roberts of NAAHL, a national organization that represents affordable housing lenders, suggested that there could be additional exploitation of the loophole where infrastructure counts as reinvestment in an LMI community so long as LMI people are not explicitly excluded. Jennifer Vasiloff of OFN added that CDFI partnerships with mainstream banks are made possible by the CRA, and that the lack of clear expectations would change incentives and could reward behaviors that do not necessarily benefit LMI communities.
As Jaime Weisberg and Mark Willis pointed out, under the proposed rule banks will be evaluated on a pass/fail basis, but achieving satisfactory compliance requires a “passing” grade in just 51 percent of a bank’s assessment area. This would allow banks to ignore certain areas entirely, yet still achieve a “Satisfactory” CRA rating. The panelists all acknowledged the difficulty of addressing internet banking and Roberts suggested that the CRA should rethink the representation of internet banks as local community banks to ensure that the CRA is not overlooking certain neighborhoods.
Though the panelists agreed that a change to the CRA is overdue, there was broad consensus that the proposed changes are a wasted opportunity. The panelists believe that in adapting to the modern banking world, the OCC and FDIC have put forward a proposal that will make the CRA more complicated and less transparent.
Ultimately, the panelists questioned how the CRA will continue to ensure impactful, high-quality investment activities in LMIs. They urged guests to keep in mind the CRA’s fundamental goal of serving local communities through meaningful investments and to submit comments to call for more certainty and clarity in which activities count and where.