Low-income loan rules set for a major overhaul

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Leading U.S. banking regulators said on Tuesday they would work together to modernize the rules governing how banks lend hundreds of billions of dollars a year to low-income communities.

When many banking services came online, regulators sought to form a consensus to update the rules of legislation enacted over 40 years ago, when banks were primarily in-store.

The National Bank’s Office of the Comptroller and the Office of the Comptroller of the Currency, which oversees most activities under the low-income lending rules, said they would propose to withdraw the controversial changes they pushed. last year without the support of the Federal Reserve and Federal Deposits. .. Insurance Corp, two other banking regulators responsible for overseeing community reinvestment legislation.

“It’s laudable that the OCC took steps to modernize the CRA by adopting the 2020 rules, but after a review I think it was a false start,” Controller Michael Sue said on Tuesday. Said in a press release.

ARC is one of the main tools that governments use to encourage banks to lend more to low- and middle-income communities. The renewal comes when the Biden administration promises to do more to close the gaps in wealth, income and access to financial services between blacks and other racial groups.

In another statement, the three regulators said they plan to jointly modernize the rules in question. Formal joint proposals are probably not expected until 2022, in the coming months, people familiar with the matter said.

In a statement, the agency said, “The joint action provides a cohesive and modernized framework for all banking and credit communities in which banks operate, including low and middle income areas. This will help you meet your needs. The Wall Street Journal reported on the joint approach early Tuesday.

The Consumer Bankers Association, an industry group that has urged regulators to review the CRA, welcomed Tuesday’s joint statement. Richard Hunt, Group Chairman and CEO, said:

Banks are assessed for CRA compliance based on complex formulas such as loans to homebuyers and small businesses and the number of branches in low income areas. Poor performance can prevent banks from consolidating or opening new branches.

Last year’s regulatory split was an unusual situation in which some US banks had to follow one set of rules to comply with the law, while others had to follow another set of rules. Can lead to. The FDIC is also seeking to allow most banks in the regulatory community to comply with existing rules, raising the prospect of three different regulatory regimes for a single law.

Under existing rules, banks currently accept deposits from across the country through their online accounts, but they must lend to the low-income community around their offices. This has led to overspending by the CRA in places with more than 20 banks, like Salt Lake City.

The 2020 OCC revision aimed to expand online banking lending nationwide. They added an area where banks can withdraw large amounts of deposits even if they don’t have branches. You can also specify the type of loan or investment you need.

The Federal Reserve Board refused to back the auditor’s plan last year, and Federal Reserve Board Rael Brainard inadvertently completed the plan and inadvertently loaned to low-income areas. He suggested it could be reduced. Brainard is leading the Fed’s work on this issue.

The main criticism of the auditor rules is that banks will take responsibility for ARC through some large investments or loans rather than many small personal loans.

The Fed announced its own framework last September. Similar to the auditor’s approach, the Fed will include a more standardized method for testing bank compliance and updating the geographic constraints of the rules to describe banks without physical branches. Mentionned.

The Federal Reserve Board has suggested that their approach offers more credit than the Monitor Framework for the number of loans banks offer to individual customers and SMEs. They said banks would not get more credit by offering a small number of large loans.

The CRA was primarily conceived as a civil rights law, but its implementing rules only dealt with race in a peripheral way. The Federal Reserve Board has indicated that it is considering changing it and asked for comments on how to modernize the rules in a way that explicitly addresses racial equality in lending.

Write to Andrew Ackerman [email protected]

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