Traditionally underserved communities lost on bank modernization. Policymakers missed a great opportunity to expand CRA to the new players in the financial sector. Moreover, CRA was weakened with less frequent small bank exams and the chilling disclosure requirement placed on groups commenting about a lender’s CRA performance.
NCRC and its 700 member organizations will be mitigating the legislation’s damage by influencing the drafting of the regulations by the Federal banking agencies over the next few months. Although S. 900 is a battle lost, it is part of a war that is far from over. The next battle grounds include expanding CRA, improving data disclosure, combating CRA grade inflation, and fighting predatory lending.
A People’s CRA Bill
NCRC is already calling for a CRA modernization bill, which could be more possible than people think. A few days before the Congressional recess, as part of a federal “reinsurance” bill for disaster insurance, Rep. Michael Capuano (D-MA) offered an amendment that would have extended CRA-like requirements to insurance companies that participated in a federal reinsurance program. The amendment would have required insurers to meet the insurance needs of all the communities they serve.
The amendment lost, but on a tie vote in the House Banking Committee. This is the closest that a CRA expansion to the non-bank part of the financial industry has ever come to passing a vote in committee. It shows that financial modernization sensitized Congress members to the need for strong fair lending and reinvestment laws.
We should push Congress for a true CRA modernization bill. As well as applying CRA-like requirements to insurance companies and securities firm, the bill must apply the current CRA law to all lending affiliates of the new financial holding companies authorized under S. 900. This not only includes mortgage companies, but also insurance firms and other affiliates of holding companies that will be offering loans and basic banking products in the post S. 900 world.
Improved Data Disclosure
Improving data disclosure is vital to bolstering community reinvestment in underserved neighborhoods. As part of its Regulation B reforms, the Federal Reserve Bank is now considering allowing banks to voluntarily collect information on the race and gender of small business borrowers. This would apply real “sunshine” on banks’ small business lending practices toward minorities and women. NCRC generated more than 250 comments from our member organizations, public agencies, and more than 15 members of Congress before the November 10 due date.
In addition to improved small business disclosure, we must fight for data disclosure by insurance companies. A few states, like Massachusetts, have HMDA (Home Mortgage Disclosure Act)-like laws applied to insurance companies. We should increase the number of these state laws as well as working with members of Congress including Rep. Luis Gutierrez (D-IL) and Rep. Tom Barrett (D-WI) who have tried to legislate insurance data disclosure on a federal level.
Combating CRA Grade Inflation
If bank modernization does nothing else, it puts a greater value on the actual CRA rating of financial institutions. The “have and maintain” provision of the bill requires banks to achieve at least Satisfactory CRA ratings if they wish to merge with insurance companies and securities firms. Yet, this provision means little as long as 100 percent of large banks and 98 percent of small banks continue to get passing grades. Even moving the inflated ratings down by 3 to 5 percentage points could have a major impact on the motivation of banks to make loans in low- and moderate-income communities. NCRC will expand its efforts to help community organizations impact ratings on CRA exams.
Stop Predatory Lending
We must step up our efforts to identify and eradicate predatory lending. Horror stories abound of minority and low- and moderate-income families losing their homes and wealth due to unfair and deceptive tactics. On a national level, the banking industry increased their subprime mortgage lending from less than 1 percent of all conventional mortgage loans in 1993 to 6 percent in 1998. Our efforts will be to support and promote state and/or federal legislation, similar to that recently passed in North Carolina, that curbs abusive lending.
Information: NCRC,202-628-8866, www.ncrc.org