One of the impacts of the Office of the Comptroller of the Currency’s (OCC) new rule aimed at “strengthening and modernizing” the Community Reinvestment Act (CRA) will be that far fewer loans will be evaluated for their adherence to CRA standards and goals, according to research from the Urban Institute.
The OCC released its new CRA rule on May 20 after reviewing more than 7,500 comments from various stakeholders. The OCC adopted its original rule to meet some of the proposals in the comments, including clarifying the quantity and quality of CRA activities and increasing credit for mortgage loans to promote affordable housing.
The final rule received praise from some within the industry as well as staunch criticism from Rep. Maxine Waters, Chairwoman of the House Financial Services Committee.
Researchers from the Urban Institute are now expressing concerns with the new rule, claiming that fewer loans would be reviewed by CRA standards. Thus there is less assurance and insight into whether and how banks are meeting the specific needs of local communities.
While conceding that the new rule does “offer some improvements over the proposed rule,” the researchers ultimately call the new rule “unsatisfactory.”
“CRA regulations should ensure the goals of the CRA statute are aligned with its execution and should evaluate banks on the importance of the bank’s activities to the local community,” wrote three Urban Institute researchers. “Tying evaluation instead to the importance of the activity to the bank misses the point and ignores the fact that many activities constituting an as small share of the bank’s business have outsize importance to the bank’s community.”
The researchers take issue with the fact that the new rule does not assess particular loans unless the local retail lending makes up at least 15% of the bank’s total origination volume from that retail line.
Relying on 2018 lending data, the Urban Institute found that in New York City, 17% of small business loans would not be evaluated for their small business lending in the community under the new rule. By dollar volume, this amount makes up 30% of small business lending in the metro and 26% of low- to moderate-income small business lending.
In the Worcester, Massachusetts metro, 33% fewer low- to moderate-income loans would be evaluated under the new rule, and 64% less dollar volume of loans would be evaluated, according to the Urban Institute.
Small farm loans would also be often left out of CRA evaluations because they do not make up more than 15% of originations at the banks making them. For example, in Indianapolis, which the Urban Institute says is the metropolitan statistical area with the smallest farm loans, 72% of small farm loans would not be subject to CRA review. By dollar volume, 83% of loans would be exempt.
A move to reverse the new CRA rule was proposed by Waters and has passed the House.
However, the Community Bankers Association previously praised the rule for “attempting to bring an analog regulation into a digital rule” and for creating a “more transparent and objective process for measuring banks’ continued service to their clients.”