CRA changes in the Treasury's plan

The recently released Treasury plan for regulatory reform includes some potentially significant CRA changes including more aggressive enforcement and a new Agency to evaluate banks' CRA performance:

The appropriate response to the crisis is not to weaken the CRA; it is rather to promote robust application of the CRA so that low-income households and communities have access to responsible financial services that truly meet their needs. To that end, we propose that the CFPA should have sole authority to evaluate institutions under the CRA.

While the prudential regulators should have the authority to decide applications for institutions to merge, the CFPA should be responsible for determining the institution’s record of meeting the lending, investment, and services needs of its community under the CRA, which would be part of the merger application.

This document suggests a much more vigorous enforcement of the Community Reinvestment Act by a totally new Agency responsible for CRA performance evaluations for all banks. Undoubtedly, it reflects not only a faith in CRA but also implies a criticism of the bank regulators for not enforcing CRA more stringently. While it is a long way from implementation, it clearly demonstrates the direction of CRA under the Obama administration.

We advise all our clients to start placing an increased focus on CRA.