Anited States Senate ‘WASHINGTON, OC 20810 October 5, 2016 ‘The Honorable Janet L. Yellen ‘The Honorable Thomas J. Curry Chair Comptroller of the Curreney Board of Governors of the Federal Resorve Office of the Comptroller ofthe System Currency 20" Street and Constitution Avenue, NW 400 7" Street, SW ‘Washington, D.C. 20551 ‘Washington B.C. 20219 ‘The Honorable Martin J. Gruenberg, Chairman Federal Deposit Insurance Corporation 550 17" Street, NW ‘Washington, D.C. 20429 Dear Chair Yellen, Comptroller Curry, and Chair Gruenberg: ‘As we approach the 4" aniversary ofthe passage ofthe Community Reinvestment Act (CRA), ‘ve vite fo express our deep concer, hich reflect issues brought to our attention by both consumers ant banks, about its cute! implementation and enforcement. The recent clarification trough the Interagency Questions and Answers Regarding Community Reinvestment and review though the Beonomic Growth and Regulatory Paperwork Redcton Act have served as ‘opportunities to improve the enforcement of the CRA and clarity how banks can comply. However, greater modernization of the regulations are needed given the tctonie shifts that have coceurted inthe financial landscape. ‘The environment for banking institutions is changing dramatically, which has broad implications forthe future of CRA examinations and the ability of low-ineome communities to receive vital banking services. The financial crisis in 2008 was a major catalyst for bank closures. According 10. 2016 report by the New York Federal Reserve, the United States lost about 5,000 banking ‘ranches nationwide (5 percent of total bank branches) between 2009 and 2014, The same 2016 report found that about 24 percent of low-acome census tacts qualify as banking deserts, which hhave no bank branches within ten miles of the center ofthe census tract.” Small businesses, in particular, ae impacted by local bank closures. When merging tanks closed a branch, the ‘number of small business loans made in the eensus tract fell by 13 percent for more than eight years afterwards? ‘At the same time, more financial services activities are occuring online. The United States received $44 billion in new global financial technology (also known as fintech) investment in "Donald Morgan, Maxim Plkovaky, and Bryan Vang “Banking Des. [Now ork Federal Reserv, March, 9, 2016. Mi 2 Hoai-Lau O. Neuve Univesity of Califor Closings, and Sot information.” Do an Bees fillMatis? The fst of Closings on Locl Economie Outcomes.” Derk, Ostabe, 20152015, which grew to $22.3 billion, a 75 percent increase over te previous year.‘ A US. “Treasury report cites analysts’ projections that the market for online marketplace lending alone could rach $1 trillion by 2020.*In a whitepaper the Office ofthe Comptroller ofthe Currency (OCC) recently recognized the importance of responsible innovation in banking and the “great promise for increasing financial inclusion of underserved consumers."® While the grow of fintech represents an important opportunity to increase access to ered, regulators and policymakers are examining whether the industry is properly regulated. Stil, the Fact remains ‘that the Community Reinvestment Act is an important too! for ensuring thet underserved ‘communities can borrow for everything from home purchases to small business origination. AS active bunk branches huve deereased—due, in pur, to evonumni factors—and welmology platforms have proliferated, it has become imperative that regulators retool and update the CRA. ‘Tho CRA was first passed in 1977 to combat reining activities by banks and, instead, encourage them to provide banking services to low. and moderate-income connmnities across the United States. Congressional intent behind the CRA wast "e-afTirm the obligation of federally insured financial institution to serve the convenience and needs of thie service areas," and “to help met the credit needs ofthe localities in which they are chartered, consistent with the prudent operation ofthe institution,"7 Henceforth, all banks have been subject to testing and oversight by federal regulators atthe Federal Reserve, the OCC, an the Federal Deposit Insurance Corporation. Over is history, the law has benefited the communities thet ave CRA- covered institutions within their Boundaries. Since 1996, CRA-covered banks have issued more than 22 million loans to small businesses in low and moderate-income census rats” ‘While the CRA has improved credit availabilty for low-income communities, there are [egitimate concems about the structure of the tes itself. Grade inflation is one commonly cited problem with the CRA exam—98 percent of banks that were tested passed the exam from 2012 — 2014. Over the entire history of the CRA, 97 peccent ofall banks have received ratings of Satisfactory or Outstanding. * While advocates raise concems over grade inflation, some community banks raise concerns about the arbitrary and ambiguous nature of CRA exams, including a lack of carty of what kinds of activities will be counted for CRA credit. Examples of community development activities are currently offered throughout the interagency Question tnd Answer document, Regulators should consider developing a guide that describes and lists community development activities anda detailed summary of how they will be considered on exaras, The “services test” portion currently focuses more on the existence of particular banking services than how much ofan impact those services are having on communities. Additionally, the scoring system itself on the twenty-four point sale fails to demonstrate whether «particular bank is meeting the credit needs in low- and moderate-income neighborhoods. Given the ‘changing banking landscape, we also have some concems about the “assessment are” that ‘covered institutions are equited to service. While we age that itis vital that banks continue to ‘ula San, James Dickerson, and Luea Gal “Eintsh nd the coving landscape: anne point fe the indus, Accenture, 2016 US, Department of Treesury, “Oppose ant Challenge in Maksiplae Leming.” May 10, 2016 * Office ofthe Compl of te Currency, “Supporting Responsible Innate Federal Banking Sst” March, 206, 7 Gonsuny Reinvestment Act Pub. L 95-128) * jt Taylor, NCRE Celebrates the Amivesny GommatityRelvestnent Calton, October 1, SUS! Leary of Congress, Congressional Research Servic, The Aifectones ofthe Commanty Reston Ae, by Dar Gate, A651, 2016 2h Signing ofthe Community Reinvestment Act, Nato!serve the community in which they are chartered, we hope to address the ineease in banking deserts and the rise of fintech, including online lending. Specifically, we ask that you adress the following questions in your responses: 1) Isthe CRA test rigorous enough in its current form fo effectively implement the intent of the Act? 2) Does te “services test” adequately balance the value of acvessing specific services with an assessment of broader impact? 13) Whit steps will agencies ike co discourage further branch closures, parila fn Lowe and moderate-income communities? 4). Should the “assessment area” be expanded to capture real lending ovcuring beyond ‘branches and to reflect the financial industry's evolving products and services, ineluding fintech? '5) Are mergers and acquisitions leading to Fewer bank branches, futher resticting credit to low- and moderate-income communities? 6) Do regulators believe that more clarity is needed for banks on how to qualify for CRA credit, and that providing alist of specific activities would help banks better ‘understand and anticipate their responsibilities under the Act? ‘We urge the banking regulators to strongly consider making changes tothe implementation and enforcement ofthe Community Reinvestment Act, so thatthe law is enforeed more effectively ‘nd has a greater impact on communities. We also call on regulators to reassess the current system for CRA scoring and expand the availability of data on banking services offered to low and moderatesncome customers Finally, given the derease in bank branches, we ask you to ‘continue to closely asses the public benefit of individual bank mergers and acquisitions. ‘The Community Reinvestment Act has played a central role in expanding opportunity or nillions of Americans. We must work to ensute thatthe CRA functions propery inthis 21* ‘century Landscape, so that communities across the country can continue to receive the banking services tha are vital fo ensuring their financial security. Please respond to our inquiry by December 1,2016. We look forward to seeing the result of your ‘cureat collection of feedback on the Community Reinvestment Act, and we are prepared to ‘work to improve and strengthen the Act overall Sincerely, United States Senator United States Senatoree United States Senator larry Rei United States Senator Barbrrhtbedc ‘Barbara Mikulski ae ae . . | ee ‘ape. 2 pen ee en SSI eros —— United States Senator