Financial Reform Bill a CRA Coup, Despite Its Flaws

Though some have declared war on the financial services modernization legislation, it is important to keep perspective on issues such as the Community Reinvestment Act (CRA). The conference agreement between the Senate and House contains several key victories for those who support community reinvestment and development.

First, the bill preserves the existing CRA. This creates certainty for those doing the important work of bringing private capital to development of sustainable communities.

Second, provisions that would have weakened CRA are gone. About 40 to 80 percent of America’s financial institutions would have been exempted from the act had these provisions remained in place. Also gone is a provision that would have given institutions with “satisfactory” ratings a presumption of compliance with CRA in merger applications.

Third, the bill increases the importance of institutions’ having at least a “satisfactory” rating by tying the grade to the ability to enter newly authorized lines of business. And it provides an incentive for small institutions to seek “outstanding” ratings – an incentive that will increase the flow of funds into community reinvestment and development.

True, the bill is less than perfect. The conference committee agreed to nine pages of requirements legislating disclosure of “any written contract, written arrangement, or written understanding that provides for cash payments, grants, or other consideration” above $10,000 or loans in aggregate of $50,000. Mandated studies by the Federal Reserve Board and Treasury could be burdensome to the government and lenders as well.

Nonetheless, there has been bipartisan support for the views of my association and others that the language is overly broad and could be burdensome, particularly to nonprofit groups. As a result of this bipartisan support, the bill provides significant carve-outs and authorizes the Federal Reserve to allow “further appropriate exemptions.” Bank regulators are also authorized to minimize the burden by allowing nongovernmental entities to submit annual audited financial statements or federal income tax returns.

All things considered, the bill deserves to be enacted. It reflects bipartisan efforts to preserve and enhance the work of bringing private-sector funds to the important task of revitalizing and sustaining affordable housing, microenterprise, and economic development in communities that have been left behind by the tide of prosperity sweeping America.

Judith A. Kennedy, President, National Association of Affordable Housing Lenders


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