UnidosUS Issues Public Comment to Treasury Dept.
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The comment, on Docket No. OCC-2022-0002-0001, was sent to the Chief Counsel's Office at the
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On behalf of
The CRA is a useful tool to combat lending disparities, but has failed to fulfill its promise due to serious flaws that must be addressed by the agencies.
This rulemaking represents an historic opportunity to modernize the CRA, which holds promise to improve the banking system for low- and middle-income (LMI) people and for Latinos. As we outline below, thus far there has been progress, yet key improvements are needed to modernize the application of this cornerstone law so that it may live up to its potential and purpose of promoting fair and equal access to banking services for all.
1 The term "Hispanic" and "Latino" are used interchangeably by the
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The CRA was first enacted into law in 1977 in response to a clear public record of racial and ethnic discrimination in the banking and credit systems, and as protection against the pervasive practice of redlining. Over the years, the CRA helped to revitalize neighborhoods and to encourage banks to be innovative with investments, so that low- and moderate-income (LMI) borrowers, who are historically underserved by banks, can benefit directly from large bank investments that might otherwise not reach their neighborhoods. The law helped to curb the harms of discrimination and unequal treatment that Latinos, immigrants, and other communities of color face when they interact with banks and the marketplace./2
Yet despite the law's record of progress over the past four-plus decades, profound financial inequities persist, including racial disparities. For example, a 2022 analysis by the
The CRA can play a greater role in curtailing these inequities, but specific, critical flaws prevent it from doing so. For instance, despite the documented disparities that persist, as described above, approximately 98% of banks pass their CRA exams on an annual basis, with less than 10% receiving an "Outstanding" rating and almost 90% of receiving a rating of "Satisfactory." Importantly, CRA exams also fail to include race and ethnicity data in bank examinations despite the law's original intent, which was to combat redlining, an overtly racist practice. Rather, the exam focuses on income levels, thereby yielding a useful but incomplete picture of inequities in access to credit and banking services.
The Agencies Should Retain the Positive Aspects of the CRA, While Significantly Expanding its Reach to Meet the Needs of the Community Today
The joint proposal contains several elements that will strengthen the CRA and improve equity and inclusion in the banking system. As we note above, however, several key pieces are also missing from the proposal, and many aspects of the proposal could be improved. We ask that the agencies make the following changes to the proposal: first, include an evaluation of financial institution's lending and deposit product offerings to people of color in CRA exams. Second, strengthen and expand opportunities for impacted communities to provide input in CRA examinations. Third, include incentives for financial institutions to provide language access services.
Financial institution lending and deposit product offerings to people of color should be included, and scored, in CRA exams.
Although the impetus for enacting the CRA was to combat redlining, a practice that predominantly impacted Black communities and other communities of color, including Latinos, the proposal fails to...
2
3
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...include race and ethnicity data in CRA exams. The need to include these data is consistent with the purpose of the law and remains highly relevant to achieving its core purpose. Lending disparities persist today and remain largely unaddressed.
A recent study by an
The study also finds disparities in loan pricing explaining, "Black and Hispanic borrowers paid approximately 6 basis points more in interest rate than White borrowers... and paid more in total loan costs compared with White borrowers."/5
Race and ethnicity data could be included in CRA exams and used to evaluate performance in a similar way that LMI data are used in the retail lending test to determine whether financial institutions are meeting the needs of LMI communities. Under such an approach, the agencies would measure the number of a financial institution's loans located in census tracts with high concentrations of people of people of color to the total number of the financial institution's loans in an assessment area. If a financial institution provides a lower share of its total loans or deposit products to census tracts with high levels of people of color than the share of people of color in an assessment area, then this discrepancy would negatively impact their CRA score. Conversely, if a financial institution extends a higher share of its total loans or deposit products to census tracts with high levels of people of color relative to the share of people of color in an assessment area, then a financial institution would get positive credit in their score.
Both community input, and requirements that banks build better relationships with LMI communities, are critical to improving the inclusiveness of financial institution banking services.
The proposal takes small but positive steps towards including community input by allowing more opportunities for public comment during an exam./6
However, much more is needed to empower the community in CRA examinations, provide appropriate input into exams, and establish healthy relationships with financial institutions.
Communities impacted by financial institutions should not be involved only during CRA examinations. Instead, they should have opportunities to establish consistent and sustained relationships with financial institutions, to ensure that they are meeting community needs. For example, community committees could be established to provide regular input directly to a financial institution. Such committees could include community-based organizations and individual community members themselves.
4 Popick, Stephen J., "Did Minority Applicants Experience Worse Lending Outcomes in the Mortgage Market? A Study Using 2020 Expanded HMDA Data",
5 Ibid
6
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Additionally, community-based organizations and community members should be given a prominent role in providing input in CRA examination. As part of creating specific channels for public input in the exam process, the agencies should allow the public and impacted communities to provide feedback about:
* The quality of credit and deposit products offered in the area.
* The impact on branch closings in the affected community.
* The impact of mergers on an affected community.
* A financial institution's outreach efforts to LMI people and people of color.
* An institution's existing relationship, or lack thereof, with low-income communities, which should include community stakeholders such as community-based organizations and consumers from an LMI community.
Financial institutions should get credit for providing language access services in credit and deposit products, and in community service activities.
As the agencies consider additional categories to gauge the responsiveness of bank's credit programs and products, they must include language access as an additional category for banks to be evaluated on. Promoting language access in bank services and products opens the door for millions of consumers with limited-English proficiency to access high-quality and affordable banking.
Language barriers limit the ability of nearly 26 million limited-English proficient (LEP) consumers in the
They found that neighborhoods with high LEP concentration had homeownership rates 5 percentage points lower than those with a median concentration of LEP residents./9
We strongly urge regulators to consider products or services geared to borrowers with limited-English proficiency as an additional category to responsive credit products and programs as part of the qualitative consideration. In addition, regulators should give higher ratings to financial institutions that provide community supportive services (whether directly or through an intermediary) geared towards consumers with limited-English proficiency. This can look like financial institutions that provide grants to HUD-certified housing counseling agencies working closely with LEP consumers to forge a path to...
7 "Spotlight on serving limited English proficient consumers."
8 Golding, Edward,
9 Golding, Edward,
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...homeownership./10
Finally, the CRA must consider outreach efforts that fit within the local context of the communities that banks serve. For instance, a financial institution located in a primarily Spanish speaking community must make the effort to provide the services described above in the appropriate language.
Conclusion: the new proposal is a step in the right direction but is missing critical elements that could make banking more equitable.
The proposal from the Federal bank regulatory agencies will make the tests more rigorous by sharpening the scoring systems and making it easier to compare performance among financial institutions. Yet the proposal omits the use of race and ethnicity data and language access services and should include a more developed approach to requiring community feedback in CRA examinations.
The agencies should ensure that the spirit of the CRA is honored with concrete steps to make banking more inclusive and equitable and should strengthen these mechanisms under the law. We welcome efforts by the agencies to make progress towards this end in the service of Latinos and LMI consumers.
10 "Housing counselors help Latinos build generational wealth through homeownership."
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Original text here: https://downloads.regulations.gov/OCC-2022-0002-0131/attachment_1.pdf
TARGETED NEWS SERVICE (founded 2004) features non-partisan 'edited journalism' news briefs and information for news organizations, public policy groups and individuals; as well as 'gathered' public policy information, including news releases, reports, speeches. For more information contact
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