This year, the Community Reinvestment Act has been a headline-grabber. From changing guidelines to full-scale CRA modernization, it's been all over the news. Here are a few recent headlines that help illustrate the future of CRA compliance. Banks of all sizes should make sure that they're prepared for what's to come. Based on the news, credit unions and mortgage companies will want to pay attention, too.
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It's difficult to stay on top of all the changing news in the compliance space. We've seen radical updates to HMDA, a renewed focus on Redlining, and this year, a major push for CRA modernization.
Over the past few weeks, it seems like the heat on CRA has been turned up. In this post, we'll be sharing 5 recent articles about CRA compliance, and provide a little insight about what it might mean for CRA compliance in the future. Spoiler alert: now is a great time to shore up your CRA compliance risk management.
Explore 5 fresh CRA compliance headlines, and learn what it might mean for the future of the Community Reinvestment Act at your financial institution!
Let's jump right in...
1. Fed's Powell Expresses Support for CRA Modernization Efforts
Published in late September, this post from the ABA Banking Journal discussed the Federal Reserve Board Chairman Jerome Powell's perspective on CRA modernization.
In a press conference, Powell said that the Fed is still "very much interested" in working with the other regulatory agencies to update the Community Reinvestment Act.
"We’re hopeful that over time there will be a joint proposed rulemaking. It’s a process, and we’re very much interested in continuing to push it forward.”
- FRB Chairman Jerome Powell, speaking about CRA modernization at a press conference
Earlier this year, the OCC took the first step toward CRA modernization alone by issuing an Advanced Notice of Proposed Rulemaking. In his comments, Powell said that the OCC's ANPR does address the Fed's goals in any CRA reform efforts.
Powell is not the only person from the Federal Reserve to speak out about CRA modernization! More on that to come.
TRUPOINT Viewpoint: We think this is a positive sign that CRA modernization will eventually be a joint effort between most, if not all, of the regulatory agencies. In compliance, consistency is (almost) always a good thing, especially when it comes to rule-making. Expect to see much more news about CRA modernization in the months to come. To get up to speed on the topic, you may want to read "Learn What CRA Modernization Would Mean for American Banks Like Yours."
Also, this is a gentle reminder that all comments on the OCC's ANPR are due by November 19.
As we've written about before, the OCC's ANPR does hint at clarified numerical standards for CRA performance, meaning that data analysis will likely be at the center of any reform. Now's a great time to get your CRA analysis program. TRUPOINT can help.
2. Elizabeth Warren's Ambitious Fix for America's Housing Crisis
The Atlantic published this in-depth article about Elizabeth Warren's recent financial bill in late September. While The Atlantic is a more political media outlet than most we post on our blog, this story does a good job of covering the implications of Warren's bill from a different perspective. For a perspective from industry leaders, check out this article from the ABA.
Warren's "American Housing and Economic Mobility Act" is a behemoth. One of the splashiest ideas she introduces in this bill is the idea that credit unions and some mortgage originators might be required to comply with the CRA. But that's definitely not all. It outlines approximately $500 billion in spending to support low and moderate income communities, improve access to homeownership, and combat systemic discrimination.
Here is a summary released by Warren's Senate office. And here are a few of the key ideas:
- Price controls on renting and buying homes for lower- and middle-income families.
- Creates incentives for local governments to eliminate unnecessary land use restrictions that drive up construction costs.
- Down payment assistance and financial support for individuals severely impacted by the financial crisis.
- Strengthens CRA act enforcement and expands it to cover credit unions and mortgage companies.
- Expands anti-discrimination protections to cover sexual orientation, gender identity, marital status, and source of income.
To pay for all of this, Warren proposes re-establishing Bush-era estate tax rules, and increasing taxes on 10,000 of the wealthiest people in America.
TRUPOINT Viewpoint: While we don't think this bill has much of a chance, given the current administration and the fact that Republicans are likely to maintain control of the Senate, it does introduce the idea of different types of financial institutions being covered by CRA. It also shows that housing is a top issue for Democratic legislators - and some Republicans.
No matter which party controls the House and Senate come 2019, we are expecting to see more interest in fair housing and anti-discrimination lawmaking in the future.
With that in mind, it's important to make sure that your CRA compliance program is strong enough to handle risks.
In particular, are you analyzing your data for CRA compliance? Are you making enough Community Development loans? Are you prepared to answer any questions that an examiner or community group might send your way?
TRUPOINT Analytics is the CRA compliance analysis and submission software that can help make sure your answer to those questions is a definite "yes." With the software, you'll get unlimited support and guidance during any CRA exams. Sign up for a customized demo of CRA Analytics today!
3. CUNA Rejects Bill that Would Jeopardize Credit Access
The Credit Union National Association, or CUNA, published an article in late September in strong opposition to Senator Warren's proposed bill. While Warren believes that credit unions should be complying with CRA, as they serve an important role in the financial wellness of their communities, credit unions express a different perspective.
According to the article, CUNA says that credit unions are unlike other financial institutions because they are member-owned and have never engaged in discriminatory activities like Redlining, which the CRA is designed in part to prevent.
Calling the CRA and reform efforts "punitive," CUNA president and CEO Jim Nussle added "make no mistake: this bill would jeopardize this benefit and the ability for credit unions to serve their members. It will make it more difficult for low and moderate-income borrowers to access credit from credit unions.”
TRUPOINT Viewpoint: Credit unions nationwide are speaking out against the idea that they should be required to comply with the Community Reinvestment Act. The good news for CUs is that this bill is unlikely to pass. The bad news is that it may start to attract more research from outside interests regarding the role credit unions play in their communities. This is one story that we will be watching closely.
4. Speech by Federal Reserve Board Member Lael Brainard on Community Investment Roundtable in Denver
While not quite a headline in the traditional sense, this speech from Federal Reserve Board member Lael Brainard also emphasizes the Fed's commitment to CRA reform.
This event is part of the Federal Reserve's efforts to hear from bankers, community members, local researchers, housing advocates, researchers, and others about improving the CRA's ability to make credit and housing available to lower-income areas. The FRB will be hosting roundtables such as this one in cities and communities nationwide.
During the speech, Brainard emphasized that "promoting community development is one of the key purposes and functions of the Federal Reserve." She also commented on the CRA modernization efforts, and how the Fed is staying involved. She also said, in no uncertain terms, that the Federal Reserve will be working with the OCC and the FDIC to review all comments received from the OCC's ANPR, and that they will be coordinating on future legislation as much as possible.
In addition, she outlined the three areas of focus for the FRB in any CRA reform discussions:
- Update the area in which the agencies assess a bank's CRA activities while retaining the core focus on place.
- CRA regulations should be tailored to banks of different sizes and business models.
- Any redesign of CRA regulations should be done with the goal of encouraging banks to seek out opportunities in underserved areas.
"Even though the Federal Reserve did not join in the publication of the ANPR, we will be reading the comment letters in anticipation of working with the Comptroller and Federal Deposit Insurance Corporation on a joint proposal. We understand the importance of having the agencies work toward one set of CRA regulations that are clear and consistently applied and will do everything we can to make that possible. CRA regulations are complicated, and the regulators will benefit from perspectives from a variety of channels, so I encourage you all to submit comments.
The CRA is too important to the financial well-being of communities across this country for banks and community members to disengage in any part of this process."
- Federal Reserve Board member Lael Brainard at a Roundtable in Denver
TRUPOINT Viewpoint: Even though the OCC released the ANPR alone, the Federal Reserve, FDIC, and OCC will be working together future CRA modernization efforts. This is a good sign that CRA modernization is likely to make real headway in the next year.
It also is a good indication that it has bipartisan support. Brainard is an Obama-era appointee to the Federal Reserve Board, while most of the other public figures involved in this effort were appointed by President Trump. The fact that people aligned with both parties are actively involved with and in support of CRA modernization is a good sign, if you support the efforts.
5. Bankers vs. Activists: Battle Lines Form Over Low-Income Lending Rules
This article from the Wall Street Journal, published on September 25, provides an interesting perspective on the relationship between OCC Chairman Joseph Otting and Treasury Secretary Steven Mnuchin, and community groups they've dealt with in the past, as they work toward CRA modernization.
Otting and Mnuchin were colleagues during the highly publicized OneWest Bank deal in 2015. The article outlines the history of the bank, the details of the attempted purchase by a bank owned by another of Mnuchin's Goldman Sachs colleagues, and the reaction by community groups. It's a really interesting read that shows the personal experiences of these banking leaders with the CRA, and a possible speculated motive for modernizing it.
It also illuminates the leverage that community groups can have when a merger or acquisition is on the table. In this instance, one prominent California group was able to put serious pressure on the deal and try to get the bank to spend more on their communities. Remember, CRA performance becomes scrutinized in any merger and acquisition proceedings.
TRUPOINT Viewpoint: If a merger or acquisition is in your bank's future, it's time to refocus on CRA compliance. At the very least, it's a good idea to analyze your data and make sure you're controlling risks actively and efficiently. CRA compliance will be focal point, as community groups and regulators actively review your performance to ensure that you've done a good job of meeting the credit needs of your existing and new communities.
CRA compliance is a primary focal point for regulators, community groups, and activists. As plans for updating the CRA move forward, data analysis is at the center of those discussions. Are you prepared?
Luckily, TRUPOINT can help make that process of analyzing and submitting your data, controlling risk, answering regulator questions, and supporting your community a little easier. We spoke with a few of the leaders at First Financial Bank in Cincinnati, Ohio about their experiences, and we're really excited to share their perspectives with you. You can read the whole piece here, and see how CRA Analytics helps them:
- Improve their CRA performance.
- Navigate the challenging waters of a merger.
- Complete a recent exam, and
- Identify more marketing opportunities.