SAN FRANCISCO, CA, Aug. 28, 2018 – Today, the Office of the Comptroller of the Currency (OCC), which regulates all national banks, announced efforts to alter the Community Reinvestment Act (CRA) in a way that could threaten tens of billions of dollars invested in low- and moderate-income communities in California. The Advance Notice of Proposed Rulemaking (ANPR) contains recommendations that purport to modernize CRA, but actually make it easier for banks to get away with contributing less to their communities.
“Joseph Otting, head of the OCC, is acting as a lone wolf, without other regulators, in an attempt to weaken this critical law. This is deeply concerning. CRA was created as a response to discriminatory redlining policies in the 1970s and a way to ensure that banks meet the credit needs of the communities where they operate. Weakening this law serves as a giveaway to big banks, which have already benefitted from the Trump administration’s Wall Street-friendly regulators,” said Paulina Gonzalez, Executive Director of the California Reinvestment Coalition (CRC).
Historically, all banking regulators acted in unison to change regulations. For Otting to go his own way raises concerns. Otting was former president and CEO of OneWest Bank, which CRC has alleged, in a pending HUD complaint, practiced redlining and had one of the worst CRA records of all banks in California. At the time, CRC exposed significant problems with the merger of Otting’s OneWest Bank and CIT Group, run by Steven Mnuchin, now the US Secretary of the Treasury.
Today’s ANPR presents questions in a way that seem to lead to a predetermined outcome, raising questions as to how seriously the OCC will take community feedback. Problematic areas of this release include:
- Redefining the definition of community in a way that shuts some communities out, broadening the concept of assessment areas, and expanding the types of activities eligible for CRA credit.
- The OCC asks (in question 21) if CRA-qualifying activity should be limited to low- and middle-income (LMI) communities. By counting communities that are not LMI , this jeopardizes the heart of CRA: giving credit for activities that do not benefit historically-marginalized communities.
- Circumventing the community input evaluation process to lower the bar for banks to get a passing grade.
The OCC expresses desire to broaden the scope of assessment areas in evaluating a bank’s footprint, as well as expanding the universe of activities that are eligible for CRA credit. However, with over 96% of banks already receiving high scores on CRA exams, it is unnecessary to dilute CRA even more. This is deeply problematic: CRA was established as a response to redlining specifically to ensure that these communities have their credit needs met.
The OCC indicated interest in a “metrics-based system” to calculate a bank’s community investment. However, this overly simple formula would leave out many California communities from the benefits of bank reinvestment. Analysis from NCRC shows that this ratio would allow a bank to ignore local needs and ignore communities in its footprint. Regulators would have no effective way to understand if banks are meeting credit needs of all the communities in which the banks do business. This effectively negates the purpose of CRA.
“CRA has been an effective way to hold banks accountable to communities. Any changes to CRA should retain a focus on community participation, identification of local needs, and promote community benefit agreements with banks,” said Elba Schildcrout, Director of Community Wealth at East LA Community Corporation.
“Small businesses in the Central Valley rely on banks for reasonably priced credit to help them start, expand, and hire workers. These changes may dilute banks’ focus on rural communities which will have a devastating effect on small businesses, homeowners, tenants, and community institutions. Anyone who cares about rural America should care about the weakening of CRA,” said Salam Nalia, CEO of Access Plus Capital and CFO of Fresno EOC.
“Homeownership is the key to building wealth in America while closing the wealth gap among people of color and working-class families. Banks are essential to providing financing for homes, and without regulation there is no guarantee that redlining, discrimination, and displacement practices will not continue,” said Nikki Beasley, Executive Director of Richmond Neighborhood Housing Services.