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Association for Neighborhood �& Housing Development

CRA Reform:

Take Action for Stronger

Race-Conscious Bank Regulations

July 20, 2022

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Jaime Weisberg & Will Depoo

Jaime.w@anhd.org, will.d@anhd.org

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CRA Reform Comments Due August 5th

Sample Comment Letter & FAQ

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Agenda

  • Welcome & Introductions
  • Brief history & overview of CRA today
  • Brief overview of proposal
  • How to comment using sample letter
    • If you have 15min; 45min;
    • If you have more time:
  • Overview of shorter community & Tenant Association comment letters
  • Q&As
  • Commitment to comment

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The CRA is a civil rights law

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The CRA was one of several civil rights laws passed in the 60’s and 70’s in response to discriminatory laws and practices, such as redlining, separate and unequal housing and schooling, and more:

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Civil Rights Act of 1964

Fair Housing Act of 1968

Equal Credit Opportunity Act of 1974

Home Mortgage Disclosure Act of 1975 (HMDA)

Community Reinvestment act of 1977 (CRA)

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What is the Community Reinvestment Act?

The CRA is a federal law stating that banks have an obligation to help meet the credit needs of the local communities in which they are chartered.

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Despite being a civil rights, anti-redlining law… the CRA as it is today remains color-blind: Focuses on how well banks serve low- and moderate-income (LMI) people and communities, small businesses / farms

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NY State is one of just a few states that also has its own CRA that covers state-chartered banks

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CRA Exams evaluate compliance

  • Each bank evaluated by one of three federal regulators. NY State chartered banks also examined by NYS Dept. of Financial Services (DFS)
  • Banks are evaluated within geographic areas called “Assessment Areas,” at the state level, and overall. Assessment Areas (AA’s) are currently determined by where banks have branches and deposit-taking ATMs -
  • Ratings for the bank: Pass / Fail
    • Pass: Outstanding, High or Low Satisfactory (only Satisfactory in final rating)
    • Fail: Needs To Improve or Substantial Noncompliance
  • Can downgrade the final rating for illegal or discriminatory credit practices.

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Impact of CRA Rating

  • Banks cannot merge or expand (open new branches) if they fail
  • Some municipalities (like NYC) require a passing CRA exam in order to do business with them
  • Regulators are required to take into account a bank’s CRA record and CRA plans at the time of a merger.
    • Community Benefits Agreements are great ways for banks to demonstrate their forward looking commitments when they plan to merge/expand

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But… 98% of banks pass their exams

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CRA Today: “Large banks” (> $1.3B assets) have a 3-prong CRA exam

Lending Test (50%)

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  • “Retail lending”: 1-4 family mortgages, small business/farm loans, and some multifamily loans

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  • Community development loans: multifamily mortgages; construction loans; larger small biz loans/lines of credit, etc

Investment Test (25%): Community Development investments: LIHTC, bonds, MBS, EQ2, grants, etc

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Service Test (25%):

Branches, banking products, and community service hours

Rating can go up with innovative/ responsive / flexible practices, and for high volumes of CD lending/investments, but can’t go down for harm if it’s not deemed to be illegal / discriminatory

Community Development = Affordable Housing, Economic Development (jobs/small businesses), Community Service, Revitalization/Stabilization

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Banks invest in LMI communities because of the CRA

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But… redlining, displacement, disinvestment persist

Financed by CRA-covered banks

Yet… 98% of banks pass their exams each year!

< 10% loans to Black borrowers; 10% to Latinx; lower at CRA-regulated banks

High rates unbanked in BIPOC communities where branches continue to close

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Examples of why the CRA needs to be strengthened

  • The CRA is color-blind despite persistent racial discrimination & disparities
    • Average Black and Latinx households earn about half as much as the average White household and have about 15 to 20% as much net wealth.

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  • Lending to bad acting landlords contributes to harassment and displacement, with no consequences / downgrades for banks when this happens.

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  • Banks continue to close branches and charge high fees without consequences

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  • Online bank lenders get little scrutiny; Non-bank / FinTech lenders are not covered by the CRA at all

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  • Low-income and BIPOC communities have fewer bank branches and do not have the products they need to bank, build credit, and build wealth

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  • Community input is not consistently taken into account and has little impact on exams - more so on applications, but also not consistent or sufficient.

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  • Race-conscious CRA: affirmative obligations to serve BIPOC people/communities
  • Evaluate quantity, quality and impact of bank activities.
    • Incentivize high quality, responsive activities that lift BIPOC and LMI people out of poverty and reduce wealth & income disparities
    • Downgrade banks that finance or engage in activities that cause displacement and harm.
  • Strengthen Community input 
  • Maintain & strengthen local obligations.

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CRA Reform is Happening NOW -

Regulators proposed the first major update in 25+ years -

Comments due Aug 5th

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Now is the time to push for a banking system that works for us:

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  • Race & Ethnicity: VERY Little - still color-blind
    • Expands “fair lending” / discrimination based downgrades to include consumer violations (eg: fake bank accounts)
    • Disclosure of lending by race/ethnicity (but no impact on rating)
  • New Exam Structure: New 4-prong exam for large banks (> $2B assets, up from $1.3B)
    • Retail lending (45%); community development finance (30%); retail services & products (15%); community development services (10%)
      • Exemptions: “Small” large banks $2-$10B: less data reporting; no deposits / bank product evaluation; no auto lending; Wholesale/Limited purpose: only CD finance (no eval of products they offer)
    • Higher thresholds reclassify hundreds of banks down to less rigorous test categories
  • Data! More data disclosure for the largest banks ($10B+)
  • Online Lending: Adds new online lending based assessment areas (only retail lending test)
    • But NO assessment areas for other online activity: bank accounts; consumer loans;
    • No evaluation of access to banking or CD finance in online assessment areas
    • Required to includes some affiliates, but not all - and no eval of non-bank/FinTech partnerships

So… What’s in this new 700 page proposal?

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  • New community development finance test (loans, investments, grants that aren’t retail consumer/small business loans)
    • 11 categories, including new climate resilience & disaster preparedness
    • Combines loans & investments: removes the requirement to make investments
    • Credit for CD lending inside & outside assessment areas
    • Strong anti-displacement criteria for some categories (not aff housing)
    • Multifamily: credit for unsubsidized housing if majority rents at 60% AMI (no credit if rents go above 60% AMI post-renovation). No evaluation of housing quality, harassment, displacement pressures;
    • NO downgrade for harm/displacement - even if loan is discounted for this reason
    • Impact review (“extra credit”) for a set of criteria (full list in FAQ)
      • Incentivizes deep affordability; support for smaller businesses; activities in underserved / high poverty areas. Incentivizes grants; LIHTC
      • Missing: long-term/permanent affordability; mission-driven developers; activities that close racial wealth gap
      • Missing: analysis of affordability/impact in prioritized communities

So… What’s in this new 700 page proposal?

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  • Retail lending test (45%): home mortgages (closed-end & HELOC separately); small business loans (to businesses < $5M revenue); auto loans; multifamily
    • Metrics based distribution tests: lower of market & demographics benchmarks.

NYC. mortgages: pass with 1.4% to low-income, 4.6% to mod-income

      • Mortgage/auto loans to low/moderate income people,
      • Small biz loans to businesses < $250K revenue; $250K-$1M revenue
      • All loans in low/mod census tracts (any income, any size)
    • Loans originated & purchased; owner-occupied/investor; all loan types/purposes
    • No analysis of products vs need; pricing/terms; impact of loans in LMI tracts
    • Exemptions/Loopholes for limited purpose banks (eg: credit card banks); loans not considered “major product lines”; auto loans by banks < $10B assets
  • Branches within the retail products test: branches, banking & credit products (15%)
    • Branches in low/mod tracts; opened / closed in LMI; extra credit for opening in unbanked area; Banks > $10B: where deposits taken; quality of bank accounts

So… What’s in this new 700 page proposal?

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  • Race-conscious: X
    • Some extra disclosure by race, and broader categories for discrimination review, but nothing else

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  • Quantity & Quality with downgrades for displacement: Mixed Review
    • Some Quantity / Quality throughout; potential lending downgrades
    • No downgrades for harm or displacement outside discrimination review
    • Too many exceptions & loopholes for banks / products / geographies

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  • Stronger Community Input: X
    • very similar to today - and unclear how comments factor into rating

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  • Maintain & strengthen place-based, local obligations - Mostly Yes, but mixed
    • Keeps branch-based assessment areas (AAs), adds lending-based AAs
    • But … can fail 40% of AAs and adds national review of activities
      • Can fail individual tests (like branching) and still pass in AA & overall
    • And no local obligations for banking/deposit products or CD if no branches

The proposal does not go far enough to match our priorities

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We need everyone to call for:

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  • Race-Conscious CRA
  • Downgrades for Harm & Displacement
  • Stronger Community Input on community needs and bank performance
  • Close the loopholes

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Let’s learn how…

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Four Easy Steps for organizations to Comment (plus a bonus step)

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  1. Go to ANHD’s CRA Advocacy page for background info, our FAQ doc, partner links, and materials
  2. Download ANHD’s Sample letter as a guide, and overview of what’s in the proposal (and what isn’t)
  3. PERSONALIZE the letter as much as you can - and remember to REMOVE all yellow highlights!
  4. Submit to ALL three regulators
    1. OCC: https://www.regulations.gov/commenton/OCC-2022-0002-0001
    2. FDIC: comments@fdic.gov
    3. Federal Reserve Board: regs.comments@federalreserve.gov
  5. Bonus step: Tell ANHD when you do! And ask other orgs to comment!
    • Also ask community members & TAs to comment using simpler guides (see slide 21)

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If you have just 15min

  • Put the letter on your letterhead, fill in your name/org and description Who you are, what you do, who you serve. And sign at the bottom
  • Remove all other highlighted instructions/prompts
  • Submit, tell us you did, & ask others to!

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If you have 30-45min:

  • Put the letter on your letterhead, fill in your name/org and description Who you are, what you do, who you serve. And sign at the bottom
  • Respond to the first few prompts:
    • Describe how banks have helped you/your/org/your community
    • And where they fall short in meeting the needs of LMI and BIPOC people and communities
  • Remove all other highlighted instructions/prompts
  • Submit, tell us you did, & ask others to!

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If you can devote more time (and we hope you can!) go deeper

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  • Put the letter on your letterhead, fill in your name/org and description Who you are, what you do, who you serve. And sign at the bottom
  • Respond to the first few prompts:
    • Describe how banks have helped you/your/org/your community
    • And where they fall short in meeting the needs of LMI and BIPOC people and communities
  • Go deeper into areas of the letter that matter to you - can also add others!
    • Respond to other prompts
    • Add examples/stories, local data, your recommendations
  • Remove all highlighted instructions/prompts
  • Submit, tell us you did, & ask others to!

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Draw from your work and experience about ways the CRA can better serve the BIPOC communities you work with. For example, you can write about

  • Why closing branches and pulling out of critical lines of business hurts your communities. And what your communities need to save, spend, and build wealth
  • Need for products / practices / support to mitigate climate change; downgrades for financing environmental harm like fossil fuels and other damaging industries/projects
  • Financing needs and gaps for mission-driven nonprofit developers & CDFIs
  • Stories of the tenants you work with who are being harassed and displaced - why we need downgrades for financing these landlords
  • How hard it is for your community to access affordable mortgages to buy and stay in a home
  • Challenges BIPOC-owned & immigrant-owned businesses face in accessing credit; affordable rents; and other supports they need
  • What good community input looks like
  • How regulators can identify responsive - and unresponsive - government plans

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Community Members and Tenant Associations Can Comment Too!

Resources in English & Spanish

  • Tenant Assocation Resources:
    • Flyer: Now is the Time to hold banks accountable for financing tenant harassment & displacement
    • Sample TA comments to personalize
  • Community Members:
    • Flyer: The Community Reinvestment Act needs to hold banks accountable for closing branches!
    • Simple Guide to Comment: tell your banking story and what regulators need to do

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Additional Resources

ANHD’s Community Reinvestment Act advocacy page

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ANHD’s Responsible Banking page and ANHD’s Equitable Reinvestment Coalition

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Additional Resources:

For more info, please contact:

Jaime Weisberg Will Depoo

Senior Campaign Analyst for Responsible Banking Organizer

Jaime.w@anhd.org, 718-637-3054 Will.d@anhd.org