CRA continues to be the primary means for ensuring safe and responsible investments in low- and moderate- income communities. Traditionally underserved areas would benefit from the expansion of CRA throughout the financial services industry.
Government loans, investments, guarantees, and subsidies for the financial industry during the financial crisis have totaled more than $23 trillion. Given this level of government support, it is reasonable to enforce an industry-wide duty to serve the capital and credit needs of America’s communities consistent with safety and soundness. Expanding and strengthening CRA would leverage hundreds of billions of dollars in additional credit and capital for America’s small businesses and responsible homeowners. We urge Congress to act to:
- Expand CRA’s coverage to reflect today’s financial system. CRA has been hampered because it was not updated as the financial industry has changed.
CRA should be applied to:
° Mortgage companies and other non-bank lenders. In recent years, lenders have evaded the law as mortgage lending migrated to non-banks, including brokers, affiliates and independent mortgage companies not subject to CRA. Such a substantial portion of the marketplace should not be exempt from good corporate citizenship under CRA.
° Wall Street investment banks and securities firms. The financial crisis demonstrated the direct impact that Wall Street’s practices had on neighborhoods and communities. These institutions should be examined by federal regulators under CRA for their impact on access to capital and credit in low- and moderate-income areas. Applying CRA to Wall Street would help the country recover from the financial crisis by requiring financial institutions to invest responsibly in the American people and businesses.
° Insurance companies. Under the Dodd-Frank law, insurance companies will now report data to a federal regulator for the first time. This gives policymakers an opportunity to identify and address the problem of insurance redlining and other impediments to accessing insurance. Applying CRA to insurance companies would ensure they are not arbitrarily denying services to low- and moderate-income communities.
° Credit unions. NCRC’s research has shown that the credit union industry lags banks at serving low- and moderate-income communities. Originally chartered to serve people of “small means,” these institutions receive significant tax breaks and should be held accountable for community reinvestment obligations.
- Close loopholes and gaps in the law. The assessment areas of banks on CRA exams should be fixed so banks’ are measured where they do the majority of their business, not just where they have branches. Banks have also bypassed the law by excluding their affiliates from the exam, shielding risky lending from CRA’s scrutiny; affiliates must be included on the exam.
- Enhance the performance-based measurement system of CRA. Creditworthy small businesses and consumers are struggling to get loans, and yet 98% of banks receive passing or excellent grades on their CRA exams. Improving CRA’s performance based measures would put an end to grade inflation, double counting and “pro forma” activities.
- Improve enforcement of the law. The law currently contains limited tools to ensure that problematic practices are addressed. Expanding enforcement mechanisms to include public improvement plans for correcting a poor rating overall or in any local area, limiting the ability of poor performing banks to sell to loans to the Government Sponsored Enterprises (GSEs), allowing the public to appeal CRA ratings, or pursue a private right of action to correct problems, and creating more rigorous fair lending reviews of financial institutions would improve the performance of the law.
- Expand transparency and accountability under the law. Requiring regulators to regularly hold public hearings on mergers, giving meaningful weights to CRA tests and putting them on a 1-100 point scale, and collecting data on banks’ branching patterns and deposits in communities would make the grading system more useful to the public as a measure of good corporate citizenship.
For more policy resources on the Community Reinvestment Act, please contact Dion Spencer, Director of Legislative and Regulatory Affairs on 202-464-2722 or Josh Silver, Vice
President for Policy and Research, on 202-464-2708.
