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Low-income lending rules set for extensive overhaul

Major US banking regulators said Tuesday that they would work together to modernize the rules governing how banks lend hundreds of billions of dollars a year in low-income communities.

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

The Office of the Comptroller of the National Bank and the Office of the Comptroller of the Currency, which oversees most of the activities under the low-income lending rules, said it would propose to withdraw the controversial changes it 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 commendable that the OCC took action to modernize the CRA through the adoption of the 2020 rules, but after a review, I think it was a false start,” said Comptroller Michael Sue on Tuesday. Said in a statement.

CRA is one of the key tools 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 address the gaps in wealth, income and access to financial services between blacks and other racial groups.

In another statement, all three regulators said they were planning 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, “Joint action provides a consistent and modernized framework for all banks, and the credit of the communities in which banks operate, including low- and middle-income areas. It will help meet your needs. ” The Wall Street Journal reported on the joint approach early Tuesday.

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

Banks are evaluated 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 limit 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. May lead to. The FDIC also seeks to allow most of the regulatory community banks 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 all over the country through their online accounts, but they need to lend to the low-income community around their offices. This has led to overspending of CRA in places with more than 20 banks, such as Salt Lake City.

The OCC’s 2020 revision aimed to spread online bank lending nationwide. They added an area where banks can withdraw large amounts of deposits even if they do not have branches. You can also clarify the type of loan or investment you need.

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

The main criticism of the Auditor’s rules is that banks will take responsibility for CRA through some large investments or loans rather than many small loans to individuals.

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 rules to describe banks without physical branches. Said.

The Federal Reserve Board has suggested that their approach provides more credit than the Comptroller framework for the number of loans banks offer to individual customers and SMEs. They said banks wouldn’t get more credit by offering a small number of large loans.

The CRA was primarily intended as a civil rights law, but its enforcement rules have dealt with race only peripherally. The Federal Reserve Board has indicated that it is considering changing it and has sought comment on how to modernize the rules in a way that explicitly addresses racial equality in lending.

Write to Andrew Ackerman andrew.ackerman@wsj.com

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Low-income lending rules set for extensive overhaul

Source link Low-income lending rules set for extensive overhaul

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