An important part of the National Low Income Housing Coalition’s mission to ensure decent, affordable housing within healthy neighborhoods for everyone is the work state housing coalitions have done with the Community Reinvestment Act (CRA). Banks and savings institutions have committed more than $400 billion to low-income neighborhoods through negotiated CRA agreements. CRA has succeeded in modifying the behavior, attitudes, and norms of the banking industry and of bank regulatory agencies toward low- and moderate-income neighborhoods.
Nonetheless, powerful critics of CRA agreements and the nonprofit organizations that have negotiated them have charged that CRA is a vehicle for activist community groups to extort money from banks and magnify their political importance. If it fulfills the promise of its sponsors, the recently passed financial modernization legislation, especially “CRA Sunshine Requirements,” will have a serious impact on the relationships nonprofits have formed with banks and with bank regulators.
In a nutshell, nonprofits are now subject to the supervisory authority of bank regulators, who can void CRA agreements, bar individuals from being party to a CRA agreement for up to 10 years, and substitute another “non-governmental party” for a nonprofit found to have broken the new rules. At the same time, the legislation and House report take pains to say that regulators do not have the power to enforce the provisions of a CRA agreement. The new law also tilts the scales in favor of banks in at least two ways: it fails to subject them to the same penalties should they break the new rules (although they are still subject to the provisions of the FDIC Act), and it establishes the banks as permissible regulatory conduits for nonprofit reporting requirements.
The sunshine provisions may have a chilling effect on nonprofits. While the House report specifically instructs regulators to minimize reporting burdens, nonprofits with limited resources may find it difficult to comply. It also may not be clear what a CRA agreement is. The legislation includes a detailed definition of an agreement, but the report lists a number of possible exceptions. Introducing more uncertainty, the definition includes activity “made pursuant to, or in connection with, the fulfillment of” CRA. The legislation leaves to regulators the task of defining “fulfillment.” It instructs them, for example, to determine which factors have a material impact on an agency’s decision on a merger application or a bank’s CRA rating.
What is clear is that the law’s full effect will not be known until the regulations are written and enforced. The devil lurks in the details, and the details have yet to be drafted.