WASHINGTON WATCH: Federal Legislation Introduced to Strengthen the Community Reinvestment Act (CRA)

(as reported by the National Low Income Housing Coalition) The CRA Modernization Act of 2009, introduced by Representative Eddie Bernice Johnson (D-TX) March 12, would strengthen the Community Reinvestment Act (CRA) as applied to banks and expand CRA to non-bank financial institutions.

Currently, under CRA, each federally insured depository institution is evaluated periodically on its record in helping meet the credit needs of the communities in which it operates, including low and moderate income neighborhoods. These evaluations are performed by the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Office of Thrift Supervision. Based on these evaluations, each institution receives a rating. These rating are made public and are taken into account in considering an institution's application for deposit facilities, including mergers and acquisitions. All CRA lending must be done in a safe and sound manner.

The CRA Modernization Act would expand the areas in which an institution's action must be evaluated to include areas where they lend through brokers. Currently institutions are evaluated in the areas where they have actual physical locations. The bill also expands the types of activities examined to include lending and services to minority communities. Institutions would be penalized in the ratings process for predatory lending or other credit practices that have a negative impact on any community or a neighborhood.

This bill would also apply CRA to a variety of non-bank institutions including independent mortgage companies, credit unions, mortgage company affiliates of banks, insurance companies, and securities firms. Advocates contend that if these non-bank institutions had been subject to CRA requirements sooner, the foreclosure crisis might have been prevented because CRA requires institutions to serve communities consistent with principles of safety and soundness.

The CRA Modernization Act would also increase the accountability of covered institutions through improved data disclosure and additional opportunities for public comment on an institution's performance. Data collection requirements would be expanded to include the race and gender in the case of small business loans, data on deposit accounts by neighborhood and data from insurance companies similar to the data required under the Home Mortgage Disclosure Act. The CRA Modernization Act would require federal regulatory agencies to hold more public hearings and meetings when banks merge.

The bill was referred to the House Committees on Financial Services and on Rules. The Rules Committee may now decide, based on the substance of the bill, to refer H.R. 1479 to other committees of jurisdiction. No action has been scheduled on the bill.