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Published: October 2009

Keep community investment in consumer agency legislation

Coalition: Predatory Lending

In the battle to define the Consumer Financial Protection Agency (CFPA), Consumer Action signed on to a letter requesting that the Community Reinvestment Act (CRA) be reinserted into any legislation about the agency.

Below is an excerpt from the letter:

While we applaud your commitment to take up the mantle of financial regulatory reform, we ask that you amend your proposal and place the Community Reinvestment Act (CRA) under the jurisdiction of the CFPA just as the President proposed.

As you have stated, the CFPA’s central mission is to protect consumers from abusive and discriminatory lending. CRA is integral to protection against discriminatory, deceptive, and unsafe lending practices. Redlining, the refusal to lend to neighborhoods, and “reverse” redlining, saturating communities with abusive lending, have been experienced by communities of color for decades. CRA has also played a key role in encouraging investments in community development activities that benefit low- and moderate-income people and underserved communities. Thus, not only should CRA be under the jurisdiction of the CFPA but the CFPA should have explicit responsibilities to address community development concerns and issues in its CRA enforcement.

The existing regulatory agencies have failed to adequately enforce CRA. The agencies have given passing ratings to 98 to 99 percent of banks and thrifts for several years. Not only were the existing agencies ill-equipped to enforce CRA in the past, they will not be able to adequately enforce CRA in the future as CRA is expanded to cover non-bank institutions. If Congress passes H.R. 1479 or similar CRA expansion legislation, the logical outcome of the current regulatory landscape would be to add even more regulatory agencies overseeing CRA obligations applied to mainstream credit unions, mortgage companies, insurance firms, and investment banks. It is hard enough for the current bank agencies to agree to updates of the CRA regulation. If even more agencies would have to coordinate CRA regulation on an interagency basis as CRA modernization progresses, CRA regulation and enforcement would quickly become out-of-date.

Placing CRA jurisdiction under the oversight of the CFPA is the only sensible policy choice in order to create the foundation for meaningful and lasting CRA modernization. The alternative is more regulatory stagnation and malaise.