NCRCAnalysisoftheCRAandFairLendingSectionoftheObamaAdministration’sDraftoftheConsumerFinancialProtectionAgencyActof2009

OnJune30,2009,theUSDepartmentofTreasurysubmittedtoCongressadraftoftheConsumerFinancialProtectionAgencyAct(CFPA)of2009.Theactprovidesaconsiderableamountofadditionaldatadisclosureinanefforttomotivatebanksandfinancialinstitutionstoincreasetheirlendingandservicestominoritiesandlow‐andmoderate‐incomeborrowersandcommunities.

ThefollowingarethedatadisclosureenhancementsproposedbyTreasury’sdraftlegislation:

CollectionofDepositAccountData

Banksandcreditunionswouldberequiredtomaintainanddisseminatedataontheirbranches,ATMs,andotherdepositoryfacilities,aswellasmaintainanddisseminatethecensustractlocationsoftheirdepositoryfacilities.(Note:Depositaccountsincludechecking,savings,creditunionshareaccountsandothertypesofaccountasdefinedbyCFPA.)Thenumberanddollaramountofdepositaccountsfortheresidentialandcommercialcustomersforeachdepositfacilitywouldalsobecollected.Theplaceofresidence/businessofbank/creditunioncustomerswouldbeprovidedonacensustractbasis,makingitpossibletoanalyzetheincomelevelandrace/ethnicitypercentageofthecensustractsofthesecustomers.CFPAwouldusethesedataaspartoftheirCRAexams.

SmallBusinessLoanDataCollection

FinancialinstitutionswouldberequiredtocollectHomeMortgageDisclosureAct(HMDA)‐likedataonsmallbusinessestodeterminewhetherabusinessisminority‐and/orwomen‐owned.Inadditiontocollectingraceandgenderdata,thefinancialinstitutionwouldberequiredtocollectthetypeandpurposeoftheloanforwhichthebusinessisapplying,thetypeofactiontakenwithrespecttotheapplication,thegrossannualrevenueofthesmallbusiness,thecensustractlocationofthebusiness,andanyotherinformationCFPAdeemsappropriate.

Financialinstitutionsthatwouldberequiredtocollectandreportthesedataincludeanypartnership,company,corporation,andcooperativeorganization.ThisrequirementextendsbeyondbanksthathaveacurrentobligationtoreportsmallbusinessloandataunderCRA.CFPAdoes,however,reservetherighttoexemptanyclassoffinancialinstitutionsfromthisreportingrequirement.

EnhancementstoHomeMortgageDisclosureAct(HMDA)Data

InadditiontothedemographiccharacteristicstheyalreadycollectinHMDAdata,financialinstitutionswouldberequiredtocollecttheageoftheborrower.NCRCandothershavefoundthatelderlyborrowersexperiencelendingdisparities;thisadditionaldataelementwillallowforamoresystematicinvestigationofthesedisparities.Severalloantermsandconditionswouldalsobecollected,includingtotalpointsandfees,thedifferencebetweentheannualpercentagerateandabenchmarkrateforallloans,prepaymentpenalties,thevalueoftherealpropertypledgedascollateral,whethertheloanisahybridloanwithalowerteaserrate,whethertheloanisanegativeamortizationloan,whethertheapplicationwasreceivedbyabrokerorotherretailchannel,andthecreditscoreoftheborrower.

NCRCRecommendationsforExpandingandModernizingCRA

TheObamaAdministration’slegislativedraftfortheCFPAisparticularlystrongregardingdisclosuredatarequirementsdiscussedabove.Yet,theothermajorelementsofCRAmodernizationincludingstrengtheningCRAasappliedtobanksandexpandingCRAtonon‐bankfinancialinstitutionsisabsentfromtheproposal.

ThefollowingisadescriptionofthecriticalelementsofCRAmodernizationthatarenotintheAdministration’splan.TheCommunityReinvestmentModernizationActof2009(H.R.1479)containscriticalelementsforexpandingandmodernizingCRA.

StrengthenCRAasAppliedtoBanks

CRAshouldbeupdatedsothatthegreatmajorityofloansthatbanksmakearescrutinizedbyCRAexams.CurrentlyCRAexaminesbanksingeographicalareaswheretheyhavebranchesbutnotinotherareaswheretheylendthroughbrokers.Consequently,CRAexamsofmanylargebanksonlyscrutinizeaminorityofthebanks’loans.Inaddition,abankhastheoptionofincludingitsaffiliatedmortgagecompanyonitsexam.NCRChasfoundthatmortgagecompanyaffiliatesnotincludedonbankexamsengagedinredlining,suchasrefusingtolendtorowhomes.Existingloopholes(primarilyexaminingloansmadethroughbranchesandoptionalinclusionofmortgagecompanies)leadtoinconsistentenforcementthatfailstodetectandeliminateabusivepractices.

ExpandCRAtoNon­bankFinancialInstitutions

CRAshouldbeexpandedtocovernon‐bankfinancialinstitutions.Independentmortgagecompanies,investmentbanks,andothernon‐bankinstitutionsengagedinhighvolumesofriskylendingthatendedupinforeclosureandledtothefinancialcollapse.HadCRAbeenappliedbroadlythroughoutthefinancialservicesindustry,theforeclosurecrisiscouldhavebeenaverted,asCRAmandatesresponsiblelendingandinvesting.

ProvideVetoPowerfortheCFPAintheMergerApplicationProcess

BecausetheAdministration’sproposalshiftsCRAresponsibilitytoCFPAbutindicatesthattheprudentialregulators(FederalReserveBoard,FDIC,andtheNationalBankSupervisor)mustdecidetheoutcomeofmergerapplications,theprudentialregulatorswouldberequiredtoconsidertheCRAexamsconductedbyCFPAintheirdecisionsonmergerapplications.Assuch,NCRCrecommendsthatprudentialregulatoryagenciesmustberequiredtoobtaintheconsentofCFPAbeforedecidingtheoutcomeofamergerapplication.Currently,theseagencieshavetheauthoritytoapprove,deny,orrequirespecificimprovementstoCRAandfairlendingperformanceaspartofamergerapproval.Themergerapplicationprocessmustalsoretainthesameproceduresfornotifyingthepublicwhenmergerapplicationshavebeenfiled,whichallowsthepublictoobtaincopiesofthemergerapplicationsandprovidecommentstotheregulatoryagencies.NCRCrecommendsthatCFPAissueawrittenopinionregardingtheCRAandfairlendingperformanceofbanksaspartofthemergerapplicationprocess,andthatCFPAandtheprudentialregulatoryagenciesholdpublichearingsandmeetingswithbanksandthosewhohaveofferedwrittencommentsonthemergerapplication.

MandateAdditionalEnforcementMechanismsbeyondMergerApplications

NCRCbelievesthatCRAneedsadditionalenforcementmechanismsbeyondthemergerapplicationprocess.OneenforcementmechanisminvolvesrequiringbankstosubmitimprovementplanssubjecttopubliccommentandfederalagencyapprovalifabankhasalowCRAratinginanygeographicalareasontheirCRAexams.H.R.1479wouldexpandthenumberofgeographicalareasreceivingratingstoincludemetropolitanareasandruralareas(currentlyratingsareassignedonastate‐widelevelandformulti‐statemetropolitanareasthatcrossstateborders).Byincreasingthenumberofgeographicalareasthataregradedandrequiringimprovementplansforanyareareceivingalowrating,H.R.1479wouldincreasebankattentiontoandthereforebolsterbankCRAperformanceinmedium‐sizedcitiesandruralareas,aswellastheirlargermarkets.

InextendingCRAtoinsurancecompaniesandmortgagecompanies,H.R.1479preventsloansfrombeingsoldtoFannieMaeandFreddieMaciftheinsurancecompanyandmortgagecompanyinvolvedwiththeloansfaileditsCRAexamandthendidnotsubmitasatisfactoryimprovementplan.Thisrequirementshouldalsobeextendedtobanks.

NCRCrecommendsthatCongressconsiderestablishingaprivaterightofactiontoenforceCRA.CommunityorganizationsandindividualswouldhavearighttobringactionstoacourtoflawiftheycouldprovethatCFPAandprudentialregulatoryagenciesfailedtoadequatelyexamineabankunderCRA,oradequatelyconsiderconsumerprotectionandCRAfactorsinamergerapplication(Note:ThisisnotacurrentprovisionofH.R.1479).

AdditionalDataElements

H.R.1479requiresthecreationofaloanperformancedatabasethattracksdelinquencies,foreclosures,andloanmodifications(theAdministration’sproposaldoesnothavethisrequirement).Inaddition,NCRCrecommendsthattheAdministrationandCongressconsideraugmentingtheCRAdataoncommunitydevelopmenttoincludethecensustractlocationofcommunitydevelopmentloandataandrequireasimilardisclosureforcommunityinvestmentdata.Thepurposeofcommunitydevelopmentlendingandinvestment(suchasaffordablehousingorsmallbusinessdevelopment)shouldalsobedisclosed.NCRCalsorecommendsthattheenhancementsthattheAdministrationproposedregardingrace,gender,andotherdataelementsalsobeextendedtosmallfarmloandisclosure(Note:TherecommendationsaboutcommunitydevelopmentandsmallfarmdataarenotinH.R.1479).