NAMIC Opposes CRA Expansion to Property/Casualty Insurance Companies

The National Association of Mutual Insurance Companies strongly opposes legislation that would apply provisions of the Community Reinvestment Act to insurance companies that will be considered in a hearing today of the House Financial Services Committee.

The Committee will meet Wednesday to examine H.R. 1479, the Community Reinvestment Modernization Act of 2009, introduced by Rep. Eddie Bernice Johnson, D-Texas. H.R. 1479 would subject non-bank affiliates of bank holding companies to CRA requirements if they engage in lending or offer banking product services.

“At a time when Congress is re-evaluating the entire financial services regulatory system, we hope members of the committee will recognize the diversity of different financial products,” said Jimi Grande, senior vice president of federal affairs for NAMIC. “Insurance companies are not the same as banks. Forcing insurers under the CRA would require them to abide by unfair regulations, raise costs for policyholders and potentially violate their fiduciary duty.”

The Community Reinvestment Act (CRA) requires that federal banking regulatory agencies evaluate how each of its regulated businesses affirmatively meets the credit needs of its entire community, particularly low- to moderate-income neighborhoods. Many in the banking industry have argued that the burdens imposed on them by the CRA led to the questionable lending practices that contributed to the current financial crisis. 

If an institution fails to meet its CRA requirements, the federal government can choose to impose penalties and restrictions. However, these tests are based on lending, investment and service, with lending as the primary factor. Insurance companies would violate their fiduciary duty to policyholders as well as state insurance laws if they were to extend credit in the manner and to the degree contemplated by the CRA lending test.

The proposed expansion also fails to recognize the state-based systems in place that address the concerns of the CRA. State regulators also seek out potential problems through regular market conduct examinations, or by investigating consumer complaints.

“Seeking to apply the Community Reinvestment Act to insurance companies would be forcing a square peg into a round hole,” said Grande. “We encourage lawmakers to focus on correcting the regulatory gaps that led to this crisis rather than on harmful policies such as expanding the CRA to property/casualty insurers.”

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Matt Brady
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