The three federal regulators—FDIC, Federal Reserve Bank, and OCC—have released their final proposal to update the Community Reinvestment Act (CRA), with comments due by August 5, 2022. Enacted in 1977, the CRA has been an essential way to incentivize equitable investment by financial institutions in low-income communities and communities of color. The last rule updates occurred almost three decades ago, despite significant changes in banking and lending since then.
Speak up to help ensure that low-income communities and communities of color are the focal point of CRA.
Comments are due by August 5, 2022.
Points you may want to emphasize in your comment, which the IL CRA Coalition believes are of particular importance:
- Opt In for Community Engagement Outreach
I understand that the Illinois CRA Coalition has proposed that the agencies create and maintain a database of community-based organizations who would like to contacted by examiners when a bank evaluation is being done in their communities or service areas. My organization would like to be added to this database if this proposal is adopted. - Deposit-Based Assessment Areas
We strongly support the implementation of deposit-based assessment areas. The CRA’s intent is to ensure that banks are reinvesting in the communities where they are taking deposits. Since the last CRA regulation update in the 1990s, the banking industry has evolved and financial institutions no longer rely solely on branches, ATMs and other physical facilities to collect deposits. As a result, facility-based assessment areas alone can no longer accurately reflect where a bank’s customers are. However, banks of all sizes do collect and maintain information on the home addresses of their depositors as a normal part of doing business. That information must be used to delineate deposit-based assessment areas. - Financial Literacy
We do not support financial literacy activities with no income limits being eligible for CRA consideration. The CRA is intended to increase access to credit for LMI households, and to address historic redlining that impacted individuals’ and families’ ability to get home and business loans and credit. The income limits should remain in place. Non-profit organizations that perform financial literacy activities as described in the proposed rule regularly track the income level of their clients. While possibly inconvenient, this is not a burden that financial institutions are unable to meet. If the agencies are concerned about the regulatory burden placed on banks, an alternative qualifying criteria could be included allowing for financial literacy activities that are provided through a HUD approved housing counseling agency or Intermediary to be CRA eligible without consideration of household income. - NOAH
Although naturally occurring affordable housing (NOAH) plays a critical role in meeting the housing needs in many LMI communities, the NPR still lacks sufficient details regarding safe-guards to ensure long-term affordability and to avoid or discourage displacement and gentrification. We do not support this addition unless at least these two protections are in place. - Non-Bank Lenders
Non-bank lenders and credit unions should be regulated under the CRA. A growing number of borrowers use non-bank lenders and mortgage companies instead of traditional banks for their credit needs. As these lenders do not take deposits, they are not FDIC-insured and therefore do not fall under CRA review. However, non-banks make up a substantial portion of the mortgage lending market. Failing to make them subject to the CRA leaves the majority of the retail mortgage market without any regulation related to community reinvestment and racial equity. This was clearly not the intent of the CRA when conceived. In addition, there is a growing practice by banks of partnering with fintechs and other non-bank entities in which the banks provide depository services and the non-bank partners provide lending and many of the essential functions of lending such as underwriting, often evading state usury caps and offering high cost products that burden consumers with unsustainable debt loads. Although the agencies proposed to automatically include operating subsidiaries of banks on exams, the NPR does not indicate that exams will scrutinize bank partnerships with third party non-bank institutions. - Rural
We applaud the regulators’ consideration of the unique credit and banking needs of rural areas throughout the NPR. Rural areas also suffer from disinvestment but often have fewer (and smaller) financial institutions serving these communities. For these reasons, we urge that certain activities, such as the newly proposed “Other Areas for Eligible Community Development Activity” be limited to rural and other documented underserved areas. - Homeownership
Research by the Urban Institute confirms that “[h]omeownership is the primary tool for building wealth, especially for Black households, but homeownership has failed to benefit Black homeowners as much as it has benefited white homeowners because of a long history of unequal treatment. The COVID-19 pandemic now threatens to widen this gap, as Black and Hispanic communities continue to suffer greater health and economic losses than white communities.” Closing the Gaps: Building Black Wealth through Homeownership, p. 1, Urban Institute (Nov. 23, 2020). Considering how important homeownership is to creating household wealth and the long-standing disparities in homeownership rates by race and ethnicity, the CRA evaluation process must include a core component that examines whether banks are providing quality mortgage and home equity loans that offer a path to affordable, sustainable home ownership. Banks need to do better in overcoming barriers to homeownership caused by overly stringent underwriting criteria, appraisal bias, lack of down payment assistance, and other factors. Moreover, promoting homeownership is a strategy for revitalizing communities suffering from disinvestment in their single-family housing stock. Finally, banks must be evaluated on the loan products offered to low- and moderate-income borrowers to ensure that they actually lead to sustainable homeownership.
About the IL CRA Coalition
The IL CRA Coalition is a group of organizations dedicated to protecting and strengthening the federal and the Illinois Community Reinvestment Acts as tools for building more equitable communities and addressing the racial wealth gap.
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Comment Period Closed
The comment period for the proposed changes to the Community Reinvestment Act closed at the end of August 5.
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