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).
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