WASHINGTON–The Trump administration is planning to introduce major revisions to the Community Reinvestment Act.
Analysts said the proposed changes could “potentially transform the way banks make billions of dollars in loans, investments and donations to poorer customers. In all, they could make it easier for banks to meet certain lending requirements and lower penalties for compliance problems,” according to the Wall Street Journal.
The law, best known as CRA, was enacted in 1977 in response to “redlining” practices, a reference to areas on maps that had been redlined, or identified as areas in which banks would not extend credit. Consumer groups told the Journal they fear that any rollback could mean poorer people over time would have less access to loans and banking services.
Dialing back compliance around CRA has been a long-time priority for the banking industry.
The Wall Street Journal reported that some of the government’s changes have already gone into effect. Now the Treasury Department is planning to unveil broader recommendations to revamp the government’s enforcement of the CRA.
“While both (banks and community groups) generally agree that CRA helps lower-income communities, debate has intensified about how it can be improved,” the Journal reported. “Community groups say the law should be expanded in order to bring opportunity to more low-income areas, while banks say they would do a better job of helping these people if the law became more flexible and less bureaucratic.”
“Community groups don’t like the way CRA is today, the banks don’t like the way CRA is today, and regulators don’t like it,” Comptroller of the Currency Joseph Otting told the Journal. “I have a very strong viewpoint of how to fix this.”
According to several sources, Treasury doesn’t plan to repeal CRA; instead, it plans to propose changes to the tests used to grade banks on compliance.
“Banks spend billions and billions and billions of dollars fulfilling their CRA obligations,” noted Treasury Secretary Steven Mnuchin at a congressional hearing in June of 2017. “I want to make sure [it] is absolutely going to help communities and isn’t just a check the box to satisfy regulators.”
The Journal added that it remains unclear what many of the administration’s proposed changes will be, but some important potential changes, as well as some already enacted, make it easier for banks to pass the exam.