OCC Must Take a Multi-Faceted Approach to Community Reinvestment Act Enforcement

The Community Reinvestment Act has served since 1977 as a critical part of a broad national policy to promote the participation of private capital in serving America’s communities and consumers.  The Act was prompted in large part by widespread evidence of private lender discrimination in lending patterns.  Following the first Home Mortgage Disclosure Act (HMDA) reports after its enactment in 1975, it was evident that many federally insured depository institutions were neglecting important parts of their service areas, primarily neighborhoods serving low- and moderate-income households, and households of color.  As the Act’s principal author Sen. William Proxmire noted at the time,

The data provided by that act (HMDA) remove any doubt that redlining indeed exists, that many credit-worthy areas are denied loans.  This denial of credit, while it is certainly not the sole cause of our urban problems, undoubtedly aggravates urban decline.

The Act established these institutions’ obligation to fully serve the credit needs of their communities, in particular low- and moderate-income neighborhoods.  Significant disparities in credit access for mortgages, small business loans, and affordable small dollar credit continue to plague America’s cities and rural areas. However, a wealth of research, as well as hard fought experience by advocates, community developers and lenders has demonstrated beyond any doubt that the CRA has reduced these disparities and increased the amount of capital available throughout regulated lenders’ service areas in significant and important ways.

Earlier this year, the Office of Comptroller of the Currency published an Advance Notice of Proposed Rulemaking (ANPR) asking a series of questions about changes to the current regulatory guidance for CRA.  Notably, neither the Federal Reserve nor the Federal Deposit Insurance Corporation (FDIC), the other two federal supervisory regulators with responsibility for enforcing CRA joined in the ANPR.

CFA filed comments on this ANPR on November 19, 2018.  Our comments, which highlighted a number of concerns with the direction implied by the ANPR’s questions, were like those submitted by a host of consumer advocacy, civil rights and even some business groups.  As of November 21, more than 1,000 comments had been filed with the OCC on this ANPR.

The most serious concerns raised by CFA and others relate to a suggestion in the ANPR that the current multi-factor test for CRA compliance that incorporates quantitative and qualitative factors be replaced by a so-called “one metric” test.  Under this approach, all of a lender’s loans, investments and services would be assigned a value and then compared to some single metric of lender capacity, such as total assets or deposits.  The resulting ratio would determine whether the lender would receive a high or low rating.

As CFA wrote in our comment letter, “Experience has shown that CRA investment involves a range of considerations. Reducing their impact or importance to some series of numeric values and then relating them to some other numeric value would reduce rather than enhance CRA’s effectiveness.”  This view was shared by many other commenters from both the for-profit and non-profit sectors.

CFA’s comment letter also made the following recommendations:

  1. Branches should continue to be a significant part of assessing lender CRA compliance. “Branches remain an important source of banking services, especially for LMI households, even with the rapid advance of online banking.  While there is merit in reexamining how assessment areas should be defined, we strongly oppose removing branches from that consideration.”
  2. CRA exams should continue to place significant weight to comments and analyses from stakeholders, residents and advocates working in lenders’ assessment areas, because these sources have unique and important perspectives on the efficacy and importance of CRA investments.
  3. CRA performance should continue to focus on service to LMI neighborhoods and residents.
  4. Small dollar lending to LMI consumers should continue to be a factor in CRA ratings, but “Payday lending, car title loans, and similar forms of high-cost credit should never be treated as CRA-qualifying activity.”

The full CFA comment is available here.