Congressional Quarterly | Tuesday, September 28, 2010
By Steven Sloan, CQ Staff
WASHINGTON — The chairman of the House Financial Services Committee said Sept. 24 that he hopes to expand the Community Reinvestment Act (CRA) to cover financial institutions that are not traditional banks.
Chairman Barney «Frank» , a Massachusetts Democrat, said the law needs to be updated to reflect the fact that institutions other than banks, such as independent mortgage lenders, originate a large number of loans.
“When the CRA was adopted in 1977, all loans were made by banks,” he said. “Now we have this whole non-bank system. We do think it will make sense to expand it.”
The law encourages banks to make loans in all communities, including low-income and minority neighborhoods. It was a response to the process known as “red-lining,” where banks effectively cut off credit to disadvantaged communities.
Legislation could be introduced before Congress adjourns for its election recess but, given the time constraints, «Frank» said the CRA «expansion» would be a “next -year issue.”
«Frank would not elaborate much on which new businesses could come under the jurisdiction of the law, although he did mention Internet-based financial institutions as one possibility.
“Banks have a geographic footprint, but what about Internet banks?” he asked. “What does the CRA obligation look like in the absence of a geographic footprint? That’s something we’ve talked about.”
Credit unions are currently exempt from the requirements under the Community Reinvestment Act and would likely fight efforts to extend the law to their industry.
Efforts to expand the application of the law depend largely on Democrats retaining control of the House after the midterm elections. The GOP has pointed to the Community
Reinvestment Act as a cause of the recent financial crisis, arguing it encouraged banks to make bad loans.
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