Updating CRA: What Changes Are Afoot?
As the banking landscape and lending environment go through some of the most significant changes in our lifetime, it makes sense that policies and rules are reexamined to insure they are still meeting their intended goals. The Community Reinvestment Act, introduced in 1977, last saw major revisions in 1995. Now Democratic lawmakers are trying to update CRA through new legislation. The House Financial Services Committee, chaired by Barney Frank, has been fixed on this.
Also, during 2010 regulators began holding hearings across the country gaining feedback on changes needed in the CRA from community groups. Over 600 community groups submitted testimony and public comments during these sessions.
On September 30th, a bill was introduced in the House by Chairman Frank, as his “number one priority”, and Rep. Luis Gutierrez (IL). Changes proposed in the bill include:
- Independent mortgage companies, investment banks and hedge funds will have to meet the same CRA requirements as banks
- Affiliates and subsidiaries of banks will also have to comply
- More importance will be placed on the role of community development lending and investments
- CRA exams will become more rigorous and will include a new rating scale
- Institutions will be provided incentives to achieve “Outstanding” or “Satisfactory” ratings on their exams and will have to apply to their rating agency to get the “Outstanding” rating
- Penalties will be increased for institutions that score poorly on CRA exams
In the proposed legislation Credit Unions noticeably are excluded from having to meet the requirements that other financial institutions must. Credit Unions have long argued that they exceed the scope of CRA because of their localized and member driven operations.
What will the final bill look like when passed? What other changes be included? It is hard to say at this time, but certainly there will be changes coming.