Trade Groups: Proposed changes to ARC fall short of modernization goals

The American Bankers Association and 51 state banking associations today submitted comments on the bank agencies’ proposed revision to the Community Reinvestment Act regulations, saying that while they support the effort in principle, there are had multiple flaws in the proposed rule that ultimately worked against the agencies. of the announced objectives. In a 43-page letter to the agencies, the associations said there was broad consensus that the CRA’s regulatory framework needs to be updated to reflect the technological transformation in the delivery of financial products and services. , but that several elements of the proposal are contrary to the objectives. regulatory modernization.

Problematic elements cited in the letter include the creation of new “retail lending assessment areas” for large banks (which the proposal defines as those with more than $2 billion in assets) without legal and policy analysis. sufficient; the creation of a new retail credit test for large banks and intermediary banks that does not take into account the diversity of the banking system (small banks could stick to the existing test or opt for the new test); and heightened performance expectations such that banks would have to exceed past performance order to achieve the same ARC rating they received in previous reviews. The latter provision was included to incentivize banks to increase lending to underserved communities, but it could discourage certain types of lending and investment, the associations said.

Another flaw cited by the associations was a one-year implementation period for the final rule. Given the magnitude and scope of the proposed changes, the groups suggested that a two-year period would be more appropriate. They also pointed to language regarding “facility-based rating zones” which, among other things, would require banks to include ATMs and other deposit technology sites in their rating zones. “An ATM should not trigger the full lending, service and community development obligations of an FBAA,” they said.

The associations welcomed certain provisions of the regulations, such as the efforts to continue adapting the regulations according to the banks’ assets and business model. However, they reiterated that the comment period was insufficient given the scope and complexity of the proposed changes. They also reiterated their support for CRA-like requirements for credit unions and other financial companies, noting that when a credit union buys a community bank, “the bank’s obligations cease to exist and the acquiring credit union has no CRA responsibility to the community”.

Michael J. Birnbaum