Menendez Urges FDIC Head Not to Weaken CRA

Menendez Urges FDIC Head Not to Weaken CRA

“I would hope that as you decide how to move forward on potential changes to the CRA, that you will take to heart the need to strengthen the CRA so that more Americans can benefit from this important civil rights law just as you did when you first came to the U.S.”

 
WASHINGTON, D.C. – During a hearing in the Senate Banking Committee today, U.S. Senator Bob Menendez urged Federal Deposit Insurance Corporation (FDIC) Chairwoman Jelena McWilliams that any potential Trump Administration changes to the Community Reinvestment Act (CRA) must prioritize the best interests of underserved communities and consumers, not banks. The CRA, passed by Congress in 1977 and reviewed in 1995, establishes regulations to encourage financial institutions to help meet the credit needs of the local communities in which they serve.  

According to recent news reports, the FDIC is considering revising the CRA’s regulatory framework in a way that smaller institutions could have a choice into which regulatory framework they adhere to.This would open the door for banks to choose the regulatory framework that yields the best grade, and not necessarily the one that best measures whether their activities are effectively addressing the needs of their communities.

 

Below is the full exchange:

Menendez: Chair McWilliams, I understand that when you first came to the U.S. you only had $500 in your pocket.  You used that $500 to open a checking account and, importantly, get a secured credit card.  You’ve stated that “with each swipe of that credit card, I felt more integrated into the very fiber of American society.” Chair McWilliams, do banks get CRA credit for offering a secured credit card?

McWilliams:  To tell you the truth, the answer is not that simple.  You have to go through a complex formula to figure out what qualifies and not under the CRA.

Menendez:  Let me share with you that according to the GAO, banks that offer secured credit cards designed to establish or rebuild credit histories receive credit under the CRA.  What we have here is a real life example of someone benefiting from the CRA.  You yourself said that this secured credit card opened up, “a world of opportunities,” for you.  So I would hope that as you decide how to move forward on potential changes to the CRA, that you will take to heart the need to strengthen the CRA so that more Americans can benefit from this important civil rights law just as you did when you first came to the U.S.

So let me relay one concern I have with how things are going. Recently Politico reported that the FDIC could give the smaller banks it regulates the choice of opting into this new OCC led CRA regulatory framework or continuing to be examined under the current system. And that could lead to a situation where banks themselves choose to participate in the model that gives them the best grade and not the one that best measures whether their activities are effectively addressing the needs of their communities.

If adopted what percentage of FDIC-regulated banks would have the choice to opt in to the OCC approach? 

McWilliams:  Sir, the proposal is still being worked on.  One of the options we considered was the opt-out for small banks – I’m sorry, opt-in, opting into the new regime or keeping with the existing regime.  The main reason for the opt-in opportunity would be to provide the ability for small banks not to have to change their reporting requirements and how they go through the analysis of what qualifies for the CRA.  The number of small banks, if they decide to opt-in would depend on what threshold we pick for the cut-off.

Menendez:  So you don’t know the number because you haven’t decided on the threshold.

McWilliams:  It’s not firm.  We’re looking at numbers and making sure…

Menendez:  But I hope that other than…we want small banks to have less necessity in terms of paperwork, but we don’t want them to have less necessity – or obligation – in terms of creating a portal of opportunity under the CRA.

McWilliams:  I agree with you.

Menendez:  If most FDIC-regulated banks would be able to opt in – if that’s what happens – then aren’t you simply making a political calculation that best protects the interests of the banks you’re charged with regulating over those who stand to benefit from a strong CRA rule?  Isn’t in essence the threshold going to determine whether that’s the reality or not?

McWilliams:  Actually it is not. The reason that I’m going to consider reform to the Community Reinvestment Act is because the Act has not been revisited since 1995 by the regulators, and Congress, you gave us the authority to take a look at the Act and make sure it serves its intended purpose. Currently we have digital delivery channels for banks that are not necessarily accounted for appropriately in the current assessment areas. The way the deposit-taking takes place is that everything is attributed to branch.  And now with the digital channels, there’s a lot of deposit-taking taking place outside this area.  And we want to make sure that under the reform of the CRA, those areas – where the digital banks are functioning and taking deposits and offering services -  are served by the CRA.

Menendez:  Let me just say that age itself is not a reason to review the Act, certainly to improve and strengthen the Act is something worthy, but you don’t want to, at the end of the day, use the time in which the Act was not reviewed, to weaken it.  So I’m concerned that you’re all trying to have it both ways. Not fully endorsing the flawed OCC plan that allows most of the FDIC-regulated banks to choose which system they’re measured under, but also not standing up and fighting for a better CRA standard than what Comptroller Otting has proposed. I hope that the end result is that I’m wrong on that but I will be looking at it with incredible intensity. 

McWilliams:  I look forward to proving you wrong, Senator.

Menendez:   I’m always happy to be proven wrong when it’s for the benefit of the consumer. 

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