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Community Reinvestment Act
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The original purpose and intent of the Community Reinvestment Act is often lost in its implementation by the regulatory agencies.
Position Statement
ABA will continue to work with Congress and regulators to encourage that the original purpose and intent of the Community Reinvestment Act (CRA) not be lost in its implementation and will continue to urge regulators to review CRA rules for their effectiveness in placing performance over process, promoting consistency in evaluations, providing flexibility in the examination process, and eliminating unnecessary burdens.
ABA also believes that the following areas should be emphasized in the review process:
• Incentives for both large and small institutions to achieve higher ratings;
• Reduction of burdensome recordkeeping requirements for all institutions;
• Acknowledgment of the use of alternative delivery systems by all institutions and a further acknowledgement of the role of technology in the fulfillment of CRA;
• An expansion of the degree of favorable consideration received by institutions for optional out-of-assessment-area provision of lending and other financial services; and
• Provision should be made for banks facing difficulty obtaining necessary CRA credit as a result of abnormal competition for CRA credits in their assessment areas.
Explanation
ABA members are committed to making credit available to the communities in which they operate. It is hard to imagine how a bank can succeed without serving its local community. However, in striving to meet regulatory tests and processes in achieving this goal, the development of new technologies, delivery systems, and methods of operation continue to present challenges for institutions and regulators alike. In addition, ABA believes that the agencies have placed too much emphasis on services just in low- and moderate-income (LMI) neighborhoods or just to LMI residents rather than looking at the services to the entire community as required by the actual text of the statute.
In 2007, all of the banking regulatory agencies had amended their CRA regulations to add a new category, "intermediate small bank," with an asset size threshold between $250 million and $1 billion in assets. An intermediate small bank is evaluated for CRA purposes under two tests: the current streamlined small institution examination lending test, and a community development test that includes review of the number and amount of community development loans and qualified investments as well as a review of the bank's provisions of community development services. For all banks, the rule expanded the definition of "community development" to include activities that revitalize or stabilize distressed or underserved rural areas including low-income as well as moderate-income tracts and middle income non-metropolitan tracts. The rule provides that evidence of discrimination will adversely affect a bank's CRA performance. The regulators have issued examination procedures for small institution banks that describe the scope of the examinations and the changes to the performance context and lending criteria. These changes have reduced the reporting burden on small institutions and have lessened the excessive emphasis on LMI activities, but more needs to be done. One improvement would be providing CRA credit for financial education for the whole community, not just the LMI segment of the community.
Contact for further information: Rich Riese (202) 663-5051.
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