CBA Outlines Recommendations To Strengthen Joint CRA Modernization Proposal

To Whom It May Concern:

The Consumer Bankers Association (“CBA”)[1] is pleased to submit these comments to the Board of Governors of the Federal Reserve System (“Board”), the Office of the Comptroller of the Currency (“OCC”), and the Federal Deposit Insurance Corporation (“FDIC”) (collectively, the “Agencies”) on behalf of its members in response to the Joint Notice of Proposed Rulemaking (“NPR” or “Proposal”) entitled “Community Reinvestment Act.”[2] The CBA welcomes the Agencies’ unified approach to Community Reinvestment Act (“CRA”) regulation and their efforts to propose rules that adapt to changes in the banking industry and provide greater clarity and consistency in CRA compliance.     

The CBA supports the goals of the CRA, and its members acknowledge an affirmative obligation to help meet the credit needs of their communities, including low- and moderate-income (“LMI”) areas, consistent with safe and sound banking practices. As noted by a leading advocacy group, the CRA “has leveraged trillions of dollars of responsible loans, investments and services for traditionally underserved communities.”[3] Through the CRA, banks across the nation invest hundreds of billions of dollars in their communities, demonstrably benefitting them. Our members remain committed to further supporting their communities and emphatically reject any notion that current CRA ratings are inflated or reflect anything other than the Agencies’ recognition of that commitment.  

In reviewing the proposed rulemaking, the CBA’s objective was to make sure that changes to the existing 1995 regulatory structure facilitate this commitment by providing banks with a flexible yet predictable mechanism to satisfy their CRA obligations, perhaps for the next quarter century. In furtherance of this objective, our members carefully analyzed the NPR and several provided relevant data on a confidential basis.[4] We offer the following comments to facilitate the implementation of a streamlined, modernized rule that reasonably accounts for the operational realities of the banking industry.

The CBA endorses a more quantitative approach to CRA examinations, an expansion of community development categories, and a pre-clearance mechanism for activities not expressly authorized. But our analysis also shows some aspects of the NPR would be counterproductive to modernization and serving our communities. Specifically:

• Retail Lending Assessment Areas (“RLAAs”) are contrary to the plain language of the CRA and congressional intent. In fact, RLAAs turn CRA on its head by effectively requiring banks to use deposits gathered from their local communities to make loans in places potentially thousands of miles away. We urge the Agencies to dispense with the notion of RLAAs and to instead examine each bank’s facility-based assessment areas (“FBAAs”) and institution-wide performance.
• The Major Product Line (“MPL”) determination process will lead to uncertainty and inaccurately depict a bank’s AA lending. MPL determinations at the AA level will make it challenging for banks to implement credit programs that meet community needs since banks will not know which products constitute MPLs until examination time. Additionally, basing MPL determinations on a dollar-volume metric creates statistical anomalies by devaluing small business loans for banks with high mortgage and/or auto lending volumes. We urge the Agencies to determine MPLs at an institution level, using a unit-based metric, to afford banks greater clarity, consistency, and assurance.
• Consumer auto loans should not be evaluated under the Retail Lending Test (“RLT”). The Agencies have not substantiated their inference that LMI individuals have little or no access to auto loans, nor have they adequately articulated why auto loans warrant vastly different treatment than other consumer lending under the NPR. We urge the Agencies to exclude auto loans from the RLT and to refocus the CRA on mortgage loans and small business loans, which are instrumental to helping LMI individuals build wealth.
• Banks will have less flexibility in how to serve their communities. The NPR adopts a one-size-fits-all approach for large banks, deemphasizing performance context and adopting strict compliance thresholds. We urge the Agencies to continue to use performance context as the foundation of a bank’s performance evaluation, recognizing that banks require flexibility to address different needs and issues across different markets.
• An “Outstanding” rating will be largely out-of-reach, which may mean more banks will be content with “Satisfactory.” The NPR would require an “Outstanding” bank to perform at 125% of market, creating an unsustainable race to the top. We urge the Agencies to set this benchmark between 90% and 100% of market and supplement it with an analysis of discretionary factors that may boost ratings.
• Rating downgrades should only be based on discriminatory or other illegal practices that have a nexus to the CRA. The NPR proposes to expand the types of discriminatory practices that could result in a CRA rating downgrade to include any practice, not just ones related to providing financial products and services. We urge the Agencies to limit the scope of practices that could result in a downgrade to practices with a nexus to CRA, i.e., related to the provision of financial products and services.
• Banks will have less incentive to engage in community development (“CD”) financing because CD lending would no longer be eligible for consideration under the more heavily weighted lending test. Instead, lending and investments would be aggregated and assessed under a less heavily weighted CD Financing Test. We urge the Agencies to redress this imbalance by providing banks with the option of receiving qualitative consideration for CD lending under the RLT and weighting combined CD activities at 50%.
• Limiting the strategic plan option will deprive banks of the flexibility needed to serve their communities in ways consistent with their business orientations. The NPR raises the bar for strategic plans by requiring banks to be evaluated under the same performance tests and standards as traditional banks unless they are “substantially engaged” in other activities. We urge the Agencies retain strategic plans in their current form.
• The transition period is much too short. The 12-month period for large banks to implement the Proposal’s significant new administrative and data collection requirements is insufficient because it does not give banks nearly enough time to come into compliance. We urge the Agencies provide at least a 24-month implementation period and establish all standards and benchmarks at the beginning of an examination cycle based on two years of performance. 
• Restrictions within CD financing categories will complicate banks’ efforts to serve LMI communities. The NPR’s 30/60 affordable housing standard presupposes an abundance of 30/60 projects, which the data does not support. We urge the Agencies to adopt a 30/80 affordable housing standard, if they adopt one at all, with higher thresholds in high-cost areas, to appropriately serve both low- and moderate-income neighborhoods and individuals.
• Consideration for CD services should be based on LMI community needs and not be limited to the provision of financial services. The NPR’s focus on CD services that are related to the provision of financial services (in metropolitan but not rural areas) unduly restricts banks’ efforts to prioritize the unique, varying needs of urban LMI communities. We urge the Agencies to eliminate this restriction and allow banks to receive consideration for all CD services, regardless of whether such services are related to the provision of financial services.

Read the full letter here.