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House Democrats gear up for CRA showdown with regulators


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House Democrats gear up for CRA showdown with regulators

Top House Democrats are exploring the tools at their disposal as they prepare to mount an offensive against a plan to overhaul anti-redlining rules.

The Office of the Comptroller of the Currency and The Federal Deposit Insurance Corp. proposed a rule Dec. 12 that would create an entirely new framework of regulating how banks service distressed communities and areas where they have brick-and-mortar locations.

But even before the proposed rule was rolled out, Democrats in Congress voiced concerns that the proposed rule would hinder the flow of capital into low-income neighborhoods.

In a surprise move, House Financial Services Committee Chair Maxine Waters, D-Calif., and four other members of her panel attended the open FDIC board of directors meeting where changes to the Community Reinvestment Act, or CRA, passed.

Waters told reporters after the meeting that she will consider many avenues to review and even kill the rule with congressional powers should regulators finalize the rule without major changes sought by Democrats.

"We are serious about our oversight responsibility, and we're not going to sit there and not take whatever time is needed to make sure that we weigh in on a proposal that has already been agreed on by [Treasury Secretary Steven] Mnuchin and [Comptroller of the Currency] Mr. Otting," Waters said.

In response to a reporter's question, Waters said that she and her team will pick apart the proposed rule, re-invite Otting to a hearing and consider next steps.

The congressional delegation that attended the meeting directed their criticism at a provision within the rule that aims to use a single metric to measure CRA activity. That metric undermines the intent of the rule to adequately evaluate a bank's CRA activity, Waters and former FDIC Chairman Martin Gruenberg, who sits on the FDIC board and voted against the proposal, argued.

"We're concerned about a single metric because even though Mr. Otting said they do the evaluation in three areas, it is not reflected in the single metric," Waters said after the meeting. "I am concerned that in the final analysis, this proposal does nothing to absolutely actualize the intent of CRA to service the low-income communities."

Of the many changes to the rule, the proposal establishes a universal measure to evaluate the sum of a bank's CRA activity relative to its total deposits. Comptroller of the Currency Joseph Otting, who spearheaded the effort to release the rule, argued that the single metric is not the only number bank examiners will use to determine a bank's CRA score.

The proposal bakes in several other metrics a bank must clear in order to achieve a positive CRA rating, he said.

Democrats also criticized the agencies for a "rushed" process that only allows 60 days for public comment. In a letter to regulators the day before the FDIC meeting, Waters and other top congressional Democrats asked that the comment period be extended to 120 days.

"If they could wait two decades to release this proposal, what's another 60 days?" said Rep. Brad Sherman, D-Calif., speaking to reporters. "If we're going to do this, let's do this right."

Two thumbs up from industry groups

But the proposal was well-received by industry groups that have been seeking clarity on the current rule's ambiguous provisions.

Three major banking industry groups — the American Bankers Association, the Independent Community Bankers of America, and the Consumer Bankers Association — issued statements that were generally upbeat on the proposal. All three groups expressed a hope that the Federal Reserve, which withheld its support for the proposal, would jump on board soon.

CBA President and CEO Richard Hunt applauded the proposed rule's attempts to increase transparency and reduce subjectivity. At the same time, he said in the statement that the group would be paying close attention to some of the rule's changes.

"CBA is interested in learning more about and commenting on the recordkeeping and reporting requirements, how the list of approved activities will be maintained and how the qualitative and quantitative assessments will work during examinations," Hunt said in the statement.

The ICBA approved of the expanded activities that will earn CRA credit, according to its statement. The community bankers' group also noted that the rule included a provision the group had recommended: an opt-in option for banks with under $500 million in assets.

ABA President and CEO Rob Nichols also said the inclusion of new activities was positive but that the industry group would continue to scrutinize the regulators' lists and policies in selecting qualifying activities.