Trade groups: Proposed CRA changes do not accomplish modernization goals

The American Bankers Association and 51 state banking associations submitted comments today on the banking agencies’ proposed overhaul of the Community Reinvestment Act regulations, saying that while they support the effort in principle, there were multiple flaws in the proposed rule that ultimately worked against the agencies’ stated goals. In a 43-page letter to the agencies, the associations said there is broad agreement that the CRA regulatory framework must be updated to reflect technology’s transformation of the delivery of financial products and services, but that several elements of the proposal are contrary to the objectives of regulatory modernization.

Problematic elements cited in the letter include the creation of new “retail lending assessment areas” for large banks (which the proposal defines as those with more than $2 billion in assets) without sufficient legal and policy analysis; the creation of a new retail lending test for large banks and intermediate banks that does not take into account the diversity of the banking system (small banks could stick with the existing test or opt in to the new test); and heightened performance expectations such that banks would need to exceed past performance order to attain the same CRA rating that they received on prior exams. The latter provision was included to incentivize banks to increase lending to underserved communities, but it could disincentive certain types of lending and investment, the associations said.

Another flaw cited by the associations was a one-year implementation period for the final rule. Given the size and scope of the changes proposed, the groups suggested two years would be more appropriate. They also pointed to language concerning “facility-based assessment areas” that, among other things, would require banks to include ATMs and the sites of other deposit-taking technology in their assessment areas. “A deposit-taking ATM should not trigger the full lending, service, and community development obligations of an FBAA,” they said.

The associations welcomed some provisions in the rulemaking, such as efforts to continue to tailor regulation based on banks’ asset side and business model. However, they reiterated that the comment period was inadequate given the size and complexity of the proposed changes. They also reiterated their support for CRA-like requirements for credit unions and other financial firms, noting that when a credit union buys a community bank, “the bank’s obligations cease to exist and the acquiring credit union has no CRA responsibility to the community.”