Part Four of a four-part series examining noteworthy trends in the comment letters sent to regulators as they finalize Community Reinvestment Act reform.
Recently NCRC has highlighted comments from the recent joint agency Notice of Proposed Rulemaking (NPR) for the long-awaited overhaul of Community Reinvestment Act (CRA) rules. Though only 13% of the thousands of comments sent to regulators about the NPR have been made public, this limited sampling nonetheless contains some notable trends.
In this fourth and final part of our series reviewing these trends, we highlight matters of interest in the comments submitted by local, state and federal policymakers.
Local elected officials echoed calls from community-based organizations regarding the consideration of race in CRA exams. Montgomery County Maryland Council Member Will Jawando offered a comment that aligned closest to NCRC’s regarding race. He noted the homeownership gap between Black and White families remains near a 120-year high point. He also supported the agencies’ proposal to use Section 1071 data on small business lending by the race and gender of the business owner. Jawando noted a resolution the Montgomery County Council submitted in 2020 in support of strengthening the CRA and expressing concern regarding the NPR issued by the OCC and FDIC when those agencies were led by Trump Administration appointees.
The African American Mayors Association (AAMA) similarly supported the inclusion of race into the CRA in their comment letter. AAMA’s letter also opposed the proposal from the regulators to eliminate certain subtests for about 1,000 medium-sized and smaller banks, and thereby eliminate their accountability for providing community development finance and branches in underserved communities. AAMA noted that this proposal lacked justification since the banks have been successfully performing these activities for several years.
The Comptroller of the City of New York, New York City’s chief financial and accountability officer, stated in his comment that federal CRA regulations need to better explain the processes for community engagement and accountability. He encouraged the CRA regulators to conduct a comprehensive needs assessment based on local data and community input, which would create a practical process to solicit local input on both community needs and bank performance from a wide range of stakeholders. This process would have an emphasis on BIPOC-led and serving organizations, and in racial and ethnic minority communities, representing the wide range of community development areas.
He also suggested that the CRA regulators utilize community advisory boards within local communities to facilitate this engagement process. The agencies should provide clarity on how public comments factor into ratings. The agencies should also encourage Community Benefits Agreements (CBAs) and community-informed CRA plans. These should be monitored and enforced through conditional approvals on mergers and review for CRA exams.
Chicago Mayor Lori Lightfoot offered a concern not mentioned by other municipalities that commented. The mayor was concerned that too much CRA exam weight for geographical areas with branches may neglect areas with relatively few branches and high percentages of unbanked and underbanked populations. She suggested that community or neighborhood level data for large metropolitan assessment areas may be needed to address and ameliorate disinvestment in urban Black and Brown communities.
The City of Cleveland, in their letter, like NCRC and others, opposed the CRA regulators’ proposal to exempt more banks, such as intermediate small banks (ISBs), from examination of their community development lending and investments. They also supported applying this to non-bank institutions including mortgage companies, fintech companies and credit unions. In addition, the city opposed any efforts by regulators to water down the penalties under CRA for discrimination.
State policymakers submitted comments that were broader in scope than those written by local officials. However, many of the same themes persisted – especially the argument that race should be included in CRA, which continues to be the most common theme throughout the comments. In addition, the Attorney General for Colorado noted that CRA regulators should consider adopting the Bank On national account standards as a ready-made metric for determining whether a deposit product is responsive to the needs of LMI communities. The Attorney General stated that LMI consumers in Colorado and around the country would be well-served by encouraging more institutions to offer these products.
The New York State Department of Financial Services (NYDFS) supervises and regulates the activities of nearly 3,000 financial institutions in New York with assets totaling more than $8.8 trillion. Their comment held similar views as the New York Comptroller, but also covered some interesting additional ground. NYDFS voiced concern over the regulators’ proposal to not treat a bank’s loan production offices as automatically constituting a facility-based assessment area. Loan Production Offices (LPOs) are banking facilities that conduct loan approvals, closings, originations and other key pieces of the lending process. The NYDFS comment acknowledged that LPOs do not meet the traditional definition of bank branches, but are nonetheless physical locations that can factor into banks’ overall lending performance in LMI communities – and therefore ought to be brought into the facility-based assessment area component of CRA oversight. Like other commenters, the NYDFS expressed support for maintaining a list of activities qualifying for CRA credit. NYDFS also remarked that regulators should ensure that activities that only loosely or tangentially assisted local communities should not be included. They also advised close coordination between federal and state regulating agencies administering CRA evaluations regarding the federal preclearance process for qualifying activities for CRA credit.
A topic not mentioned in many comments, but discussed in the NYDFS’s comment was the express inclusion of unfair, deceptive or abusive acts or practices (UDAAP). The NYDFS conveyed support for the regulators’ decision to include UDAAPs as conduct that could negatively affect a bank’s CRA rating. They noted the harm these practices regularly inflict upon LMI individuals and communities.
The Pennsylvania Housing Finance Agency’s (PFHA) mission is to provide affordable homeownership and rental apartment options for older adults, LMI families and people with special housing needs in the state of Pennsylvania. The PFHA urged full consideration of Low Income Housing Tax Credits (LIHTC) activities, which is all the more important in the context of a declining stock of affordable housing.
Regarding what standard should be used to determine whether a government program qualifies as an affordable housing activity, PFHA suggested that regulators find a balance between administrative simplicity and thorough verification. As examples, PFHA cited programs with a federal component, such as mortgage revenue bonds (MRB), LIHTC and project-based vouchers that require LMI verification. These programs, the PFHA argued, should be categorically eligible for full CRA consideration.
We were pleased to see policymakers from both the US House of Representatives and the US Senate comment on the joint CRA NPR. Both letters enumerated similar sentiments to comments mentioned in this series of blogs. Below are the themes both letters discussed in detail
Race in the CRA
The House letter expressed concern that race was not included in the NPR. It was suggested that regulators look to advocates’ recommendations – including NCRC’s legal analysis on how to consider race and ethnicity on CRA exams while still meeting the requirements of the Equal Protection Clause of the United States Constitution. The Senate’s letter, which was not as explicit in its request, urged the regulators in the final rule to strengthen data collection and disclosure of banks’ service to communities of color. This would include the requirement of public disclosure of data; strengthen review of banks’ compliance with fair lending and housing obligations; and consider any disparities by race or ethnicity in CRA evaluations and mergers, acquisitions or other bank requests.
Bank CRA credit should be granted for projects that meaningfully improve communities
The House’s letter noted the need to better utilize data from bank records and publicly available sources to measure the impact of both bank loans and investments. Impact needs to be measured rigorously in order to promote effective reinvestment that results in thriving communities.
The Senate’s comment stressed the need for CRA regulators to preserve their proposal for CRA activity to have the primary purpose of community development. This would be demonstrated by having the majority of the funding or benefits produced going to low- and moderate-income communities in order to receive community development credit. In addition, the Senate supported the regulators’ proposal to develop a list of broad types of activities eligible for CRA credit. However, they made sure to stress the list should be as broad as possible to leave room for creativity as banks work to meet local needs and challenges.
The Senate did not touch this topic but the House stated the desire for regulators to strengthen CRA exam standards so they are more rigorous, which is a position that NCRC has advocated for years. Over the years, it has become relatively easy for banks to pass their CRA exams. NCRC highlighted this in a 2020 report where we found that roughly 98% of banks consistently pass their CRA exams on an annual basis, receiving either the highest possible rating, “Outstanding,” or the next highest rating, “Satisfactory.” The House letter emphasized that banks’ CRA exam standards should reflect the goal of ending redlining in the 21st-century. Lastly, the House letter emphasized that discriminatory and abusive practices must result in CRA ratings downgrades for both traditional banks and the newer “fintech” banks.
The Senate letter supported the regulators emphasis on branch placement, responsiveness of banks’ product offerings and hours of branch operations. Their letter went on to urge the CRA regulators to evaluate the extent and availability of low cost, small-dollar lending products offered by banks since these are the products most easily utilized by LMI consumers. In addition, the Senate urged regulators to expand the service test to consider banks’ efforts to serve borrowers with limited English proficiency (LEP). NCRC and other groups like AFR advocated for the same LEP inclusivity in their NPR comments as well.
Joseph Reed is the Senior Policy Advocate at NCRC.