OCC and FDIC’s Proposed Rules Would Weaken Community Reinvestment Act

Earlier this week, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) released their plan to modernize the Community Reinvestment Act (CRA). The two governing bodies are soliciting feedback on their proposals, due mid-February. This is our first statement on the proposed changes; we will be submitting a formal comment letter in response before the February 2020 deadline.

The Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation’s (FDIC) proposed changes to the Community Reinvestment Act threaten to weaken the historic civil rights law aimed at encouraging banks to invest in low-to-moderate-income communities and small businesses.  

Based on our initial read of the proposed changes, the reforms would significantly dilute the importance of CRA ratings and fail to ensure a sufficient flow of capital into underserved communities — especially communities of color, immigrant communities, and rural parts of the nation. 

One prime example is a proposed definition of ‘small business loan’ that is completely out of touch with the needs of underserved entrepreneurs. Seventy-six percent of American small business owners who are seeking financing seek a loan of less than $250,000. By giving CRA credit for business loans of up to $2 million, and by making total dollars lent the primary measure for CRA credit, this proposal gives banks even less incentive to make the smaller loans a majority of small business owners truly need. 

Meant to usher in modernization of the CRA, these proposed changes resemble deregulation instead. What’s more, without the participation of the third major bank regulator, the Federal Reserve, the result will be confusion and inconsistency, rather than the stated goal of increasing transparency and consistency.  

Changes that would weaken the CRA could result in the loss of up to $16 billion in small business lending to low- and moderate-income areas over five years, according to a forecast by the National Community Reinvestment Coalition.

The reforms don’t modernize the CRA, they jeopardize it. The CRA was created to combat the negative effects of discrimination in lending, and while the problem of discrimination persists, the CRA has been remarkably effective. While Opportunity Fund agrees the CRA needs modernization, any changes must strengthen its congressionally-mandated purpose of supporting low- and moderate-income communities, which is needed more than ever due to widening income inequality. 

Opportunity Fund has received $84 million in CRA-motivated investments from banks since 1994, which in turn has allowed us to originate nearly $500 million in small business loans to underserved, low- and-moderate income entrepreneurs.