It’s not often that you’ll find community activists and Senate Banking Committee Chairman Phil Gramm on the same side of the table. As regulators issued proposed Community Reinvestment Act sunshine provisions this summer, however, CRA supporters and detractors have spoken out against the new rules.

Bankers and nonprofit groups engaged in CRA agreements criticize the proposed rules as too burdensome, while Gramm, an outspoken critic of CRA, told regulators the rules do not go far enough. Banking regulators promulgated the regulations as a result of the Gramm-Leach-Bliley Act passed last year.

The CRA sunshine rules would require banks to make public payments or grants of more than $10,000 and loans with an aggregate amount of $50,000. Community groups that make CRA agreements with banks would be required to report annually how they use the funds.

Congress passed the Community Reinvestment Act in 1977 to encourage FDIC-insured institutions to meet the credit needs of the neighborhoods they serve, including low- to moderate-income neighborhoods. CRA requirements may be fulfilled through mortgage loans, grants or loans to community groups, investments or special programs.

“We are hoping that the regulators will redraft this proposal and issue it again for comment,” said Tanya Duncan, director of federal regulatory and legislative policy for the Massachusetts Bankers Association. “It will serve as a disincentive for banks to enter into agreements with community groups if it creates such a huge regulatory burden.”

The regulatory burden, community activists fear, could deter banks from making investments in poor neighborhoods.

The Massachusetts Affordable Housing Alliance wrote to banking regulators supporting the disclosure of CRA agreements, but asking for the reporting burden to be eased.

“We’re all concerned because the author of the sunshine amendment was Sen. Gramm, and he’s an opponent of CRA,” said Massachusetts Affordable Housing Alliance Executive Director Tom Callahan. “We’re all skeptical about what the real motivation behind CRA sunshine is, if it’s to discourage [banks] from engaging in CRA negotiations and agreements.”

The proposed rule would require bankers to report when they engage in CRA contact, but does not narrowly define what kind of discussions must be reported. That worries Andrea Luquetta, director of housing and community reinvestment at the Massachusetts Association of Community Development Corporations.

“What is considered CRA contact?” Luquetta said. “It’s that particular piece that’s going to make it very difficult. You don’t even have to say the acronym ‘CRA’ to anybody, you can just talk about lending to low- and moderate-income communities, and have inadvertent miscompliance.”

In statements criticizing CRA, Gramm has said that community groups use the measure to justify extortion. He has particularly called attention to CRA agreements with community groups when a bank is planning a merger. In his letter opposing the new regulations, Gramm said the proposal has too narrow a definition of CRA contact, would exclude unilateral pledges by banks to give money for community development, and would exclude commitments by banks or their affiliates to make CRA loans over a period of time. Gramm also said the proposal has too many loopholes in the disclosure requirements.

The Texas senator pushed for CRA sunshine to become part of the financial modernization bill. But since banking regulators proposed rules this summer, Gramm has said the proposal has too many exemptions.

“Gramm was focusing on agreements that were what he considered extortion,” said Duncan. “These resolutions that were implemented are much broader in scope.”

Depending on how the sunshine rule is interpreted, it could apply to many areas of a bank’s business. For example, if a bank signs a lease to open supermarket branches at stores located in low- and moderate-income neighborhoods, the agreement could become subject to disclosure.

“Banks engage in a lot of businesses [in which] CRA might be a very small part of the motivation,” Luquetta said. “If it’s so broad, is it meaningful anymore?”

In addition to releasing information that usually stays confidential, the sunshine rule could cause other problems for bankers. Banks have limited resources to apply to CRA compliance, and bankers balk at releasing sensitive financial information, Duncan said.

“They may for whatever reason choose to give one community group a grant, and the problem with this becoming public is it may sour relationships with other groups that did not receive a grant,” Duncan said.

If enacted, the regulations would become retroactive and would apply to any CRA agreement entered into after the day the Gramm-Leach-Bliley Act passed on Nov. 12, 1999. The reporting requirements would apply to agreements made after May 12, 2000.

To ease reporting requirements for community groups, MAHA proposed allowing them to disclose grant relationships with banks through an IRS form.

“Both community groups and banks in some ways are on the same page on this one,” Callahan said. “We’re all saying don’t create a burden that makes it difficult for us to comply.”

Gramm wrote to regulators asking them to reconsider the rule, but for much different reasons. He called the proposed rule “totally ineffective.”

“If we are going to bring the people who actually live in the communities into the Community Reinvestment Act process, and give them the power to know and monitor what is said and done in the name of their interests, these regulations must not be allowed to go forward until these defects are corrected,” Gramm wrote to regulators.

Clouds of Doubt Enveloping CRA’s Sunshine Provisions

by Banker & Tradesman time to read: 4 min
0