It’s Time to Push Back Against Regulatory Actions to Derail the Community Reinvestment Act
Last month, Prosperity Now wrote about the Office of the Comptroller of the Currency’s (OCC) intent to conduct a review of the Community Reinvestment Act (CRA). On August 28, 2018 the OCC acted on this intention by releasing an Advanced Notice of Proposed Rulemaking (ANPR). The ANPR is soliciting public feedback about revising the CRA, the first step a bank regulator takes to amend a rule.
Since 1977, the CRA has been a critically indispensable tool to combat practices that lock working families out of the banking system, including opening the mortgage market up to more households and preventing the proliferation of “banking deserts.” The refusal by banks to provide mortgages and other loan products to low-income families and communities of color is what prompted Congress to adopt the CRA. And without stopping the closure of brick-and-mortar bank branches, these communities run the risk of becoming banking deserts.
Access to mainstream banking is extremely important because it lets people avoid high-cost lending products like payday loans, helps build credit, provides guarantees against loss, gives consumers more products to choose from and provides opportunities to generate wealth through investments and interest.
Unfortunately, the actions and statements from the leadership at the OCC—including the recently released bulletin discussed in our earlier blog post and statements by the current Comptroller of the Currency, Joseph Otting—don’t appear to be motivated by a desire to reduce lending discrimination and increase access to banking services in poor communities.
The following issues raise major red flags:
Regulators Must Work Together to Reform the CRA
Despite stating that the OCC would wait to coordinate reform efforts with the CRA’s other regulating agencies—the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve (the Fed)—the OCC forged ahead and released the ANPR by itself (the bulletin mentioned above was also a solo event). This approach goes against decades of agency collaboration when it comes to CRA implementation and potential reform. Instead of trying to arrive at a consensus with the other regulators, the OCC took matters into its own hands.
This will not only lead to avoidable confusion about what regulations and guidance should be followed by banks, but the OCC is prioritizing its own vision of reform over the wishes and preferences of the FDIC and the Fed. In the process, there is also a risk this could water down the regulation for the national bank entities overseen by the OCC, while keeping them stronger for the state-chartered entities the FDIC and the Fed regulate.
The OCC does not have more authority over the CRA than the other regulators and does not have the final say on CRA restructuring. If the OCC advances a reform agenda that weakens or undermines the law, the FDIC and the Fed should be prepared to push back. They should not let the OCC dictate the direction that CRA restructuring takes. The bottom line is that we need to make sure any reform of this important law strengthens it rather than waters it down.
The Needs of Underserved Communities Should Take Priority Over Banks
The OCC placed reforming the CRA at the top of its list of priorities, but its proposed changes emphasize how to make the CRA easier for banks to comply with, rather than expanding banking services to more underserved markets. While some reform is needed to make the law more effective and to incorporate shifts in the financial marketplace (like the rise of online banking), any changes must honor the core mission of the CRA: to make sure underserved communities have access to mainstream banking.
Bank profits and operations should not be put ahead of serving unbanked households and economically distressed communities. These institutions are currently enjoying record profits, while at the same time, low-income neighborhoods are losing bank branches and the African-American homeownership rate is the lowest since the Fair Housing Act (FHA) was passed in 1968.
Leadership at the OCC Raises Concerns About Credibility
The head of the OCC is the former CEO of OneWest Bank, Joseph Otting. Since becoming Comptroller, public statements made by Otting suggest he is not the person who should be leading the restructuring of a law aimed at putting an end to inequality in the financial market. This includes telling the House Financial Services Committee in June that he has “never personally observed” discrimination in banking.
Moreover, during his tenure at OneWest, alarm bells were raised about the bank’s compliance with the CRA, specifically concerns about its poor track record serving communities with the greatest needs. Indeed, the California Reinvestment Coalition states the bank’s community investment and development efforts were “one of the weakest of all California banks,” and has outlined a number of investigations into violations of consumer protections.
This is why Prosperity Now supports efforts to restructure the CRA, but only changes that focus on making the law better positioned to achieve its intended purpose. What the OCC is doing is actually moving the CRA further away from this goal, and the FDIC, the Fed and consumer advocates alike should resist this path and choose a direction that makes it easier for the communities that are meant to be helped by this bill to achieve greater financial security.