Last year, we wrote about the Office of the Comptroller of the Currency (OCC)’s efforts to update the Community Reinvestment Act (CRA) through a Notice of Proposed Rulemaking (NPRM) that was published in August 2018. OCC’s stated goal was to strengthen and modernize the CRA. However, the proposed rules indicate the effect will be quite the opposite.
Most CRA stakeholders – community leaders, economic development organizations, and financial institutions – agree that the new rules weaken the CRA’s impact. They oversimplify performance metrics and give banks credit for activities that don’t respond to the needs of the communities they serve. One particular rule – the one-ratio grading system – has received wide criticism. This approach assigns a monetary value to CRA-qualifying activities without measuring their impact on meeting local needs. Adopting the one-ratio would incentivize banks to prioritize large projects in high-cost areas. This would come at the expense of small businesses, rural residents, and vulnerable communities.
Despite this feedback, in December 2019, the OCC and Federal Deposit Insurance Corporation (FDIC) published a joint NPRM that maintains the one-ratio. It also keeps intact many of the rules that would weaken the CRA and lessen its impact on low-and-moderate-income communities. Then on January 8, 2020, Lael Brainard, Governor of the Federal Reserve – the third regulatory agency that oversees CRA compliance – gave a speech outlining his agency’s vision for the future of this legislation. Brainard’s speech is notable in that it differs widely from OCC and FDIC’s proposed rules and is more in line with the true purpose of the CRA.
The Federal Reserve has yet to publish its own NPRM. However, the debate over the CRA’s modernization is in full swing. On January 15, Congresswoman Maxine Waters, Chairwoman of the House Financial Services Committee, opened an investigation into claims that a substantial number of comments on the NPRM came from special interest groups rather than legitimate stakeholders. On January 29, the House Financial Services Committee held a hearing “Community Reinvestment Act: Is the OCC Undermining the Law’s Purpose and Intent?” It’s worth a listen.
On the microenterprise development side, American Banker published an article featuring input from CDFIs in the industry – including Working Solutions’ CEO Sara Razavi. All of them worry about the future of small-dollar loans for micro businesses if the changes go forward.
What can you do?
The latest NPRM is open for comments until April 8, 2020. NCRC and California Reinvestment Coalition have resources on their websites for those who want to submit comments in support of a stronger, more equitable CRA. CAMEO is in the process of writing a letter to the federal regulatory agencies that we will share.
The Community Reinvestment Act is a vital piece of legislation for the micro-enterprise sector. It helps ensure that underserved entrepreneurs get the support they need to thrive and contribute to their local economies. We must safeguard investment in our country’s most vulnerable communities.