Recently the U.S. Department of the Treasury released recommendations to the primary CRA regulators to modernize the Community Reinvestment Act (CRA). The regulators include the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board, and the Federal Deposit Insurance Corporation.
According to the Treasury, the Act has not kept pace with the vast organizational and technological changes in the lending industry. “Interstate banking, mortgage securitization, and internet and mobile banking are just a few of the major changes that have come about in the past four decades,” the Treasury said in its memo to regulators. “In this evolving banking environment, changes should be made to the administration of CRA in order for it to achieve its intended purpose.”
“Our recommendations will improve the effectiveness of CRA by enhancing the assessment and examination process, enhancing the ability of banks to deliver services in the communities they serve while considering technological advances in the financial industry,” Treasury Secretary Steven T. Mnuchin said in a statement.
The Treasury’s recommendations focus on four key areas—assessment areas, examination clarity and flexibility, examination process, and bank performance. All four areas also affect reinvestments in the community by banks through lending.
When it came to nonbanks and CRA, the study found that the increasing market share by nonbanks placed more pressure on CRA-regulated banks, whose Lending Test evaluations were largely based on mortgages and small business loans. “Banks have recommended that regulators consider this change to the credit markets when evaluating the performance context for CRA examinations,” the Treasury said. “Banks and community groups have also suggested that regulators consider whether the same market failures that apply to the market for bank loans also apply to the market for nonbank loans.”
It recommended that CRA regulators continued to monitor the impact of the emergence of nonbanks on the effectiveness of CRA, with more research being done on the extent to which these financial institutions met the credit needs of low- and medium-income communities.
While examining the clarity and flexibility of CRA examinations the study found that while there was certainty surrounding specific categories, such as single family mortgage loans or Low Income Housing Tax Credit (LIHTC) investments, banks remained unclear about whether more complex, innovative, or infrequent types of products and services would receive credit (such as letters of credit, alternative delivery systems, and investments in or loans to infrastructure projects).
The Treasury’s recommendations to overcome this issue included expanding the types of loans, investments, and services eligible for CRA credit; establishing clear standards of eligibility for CRA credit, with greater consistency and predictability across each regulator; and simplified record-keeping procedures, for more regular and timely eligibility updates.
Additionally, the Office of the Comptroller of Currency (OCC) published the Community Reinvestment Act (CRA) evaluations for 24 national banks and federal savings associations for March. Four of the 24 evaluations, were rated Outstanding. They included Presidential Bank, FSB, an Intermediate Small Bank in Bethesda; The First National Bank of Fairbury a Small Bank in New England; The First National Bank of Groton, a Small Bank in New York; and The Conway National Bank, a Large Bank in South Carolina.