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Dueling Community Reinvestment Act proposals divide House subcommittee

A new proposal submitted by a Federal Reserve official to overhaul anti-discrimination lending laws split members of Congress and community groups at a Jan. 14 congressional hearing.

Members on a panel in charge of overseeing financial institutions and consumer protection debated between two substantively different proposals that have been recently introduced by regulators to reform the Community Reinvestment Act.

Subcommittee Chairman Gregory Meeks, D-N.Y., said Congress may have to step in to avoid a "fragmented CRA landscape."

"By abandoning the interagency process, [Comptroller Joseph Otting] is making it more likely that Congress will have to legislate on CRA," Meeks said.

The law was signed in 1977 to keep banks from withholding services to minority and low-income communities. Rules for complying with the law have not meaningfully changed since 1995, before widespread use of the internet and modern banking practices.

In December 2019, two regulators proposed a rule that aimed to provide clarity on which activities count for CRA credit; where, geographically, they count; and how to measure them. But the Federal Reserve, one of three federal banking regulators, decided it would not join the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp.'s proposal to overhaul CRA.

In a speech made a week before the House hearing, Fed Governor Lael Brainard expressed reservations about the OCC and FDIC's use of a "single ratio" to measure a bank's CRA activities. The single ratio measures the total dollar amount of a bank's CRA activities relative to its total retail deposits. Brainard, along with a number of advocacy groups, cautioned that the ratio could be manipulated by banks to gain more favorable CRA ratings by bank examiners.

Brainard laid out the Fed's preferred approach for measuring CRA activities, which would include two tests for banks: one that counts the number of CRA activities a bank engages in per assessment area, and another that accounts for the nature of those activities. Those metrics would be compared to the needs of local communities in banks' assessment areas.

Brainard added that the central bank would continue working with the other two regulators to come to a consensus.

At the Jan. 14 House hearing, community and advocacy group leaders took turns slamming the FDIC and OCC's proposed CRA rewrite. Conversely, they touted Brainard's approach as a "good start."

"The proposed changes are substantial, dilutive and would weaken the effectiveness of the law," said Gerron Levi, director of policy and government affairs at the National Community Reinvestment Coalition. "I can say, without equivocation, the winners would be the nation’s largest banks, and the losers would be low- and moderate-income (LMI) and underserved borrowers and communities," Levi added.

Consumer Bankers Association CEO Richard Hunt wrote in a letter to the committee that his group, which represents the retail banking industry, supports the OCC and FDIC's proposal for establishing "transparent guidelines for CRA performance that will ensure banks can better understand how the activity they conduct will affect their CRA ratings."

Hunt also encouraged all three regulators to create a "uniform set of CRA regulations" that reflects evolving banking practices.

Otting is expected to testify before the committee on Jan. 29.