Options for financial institutions to consider in generating more lending to low- to moderate-income (LMI) borrowers should be considered by the Treasury Department as it reviews how community reinvestment requirements are being applied, a new report by the congressional oversight agency recommends
In its report “Community Reinvestment Act: Options for Treasury to Consider to Encourage Services and Small-Dollar Loans When Reviewing Framework” the Government Accountability Office (GAO) notes that the Treasury Department is conducting a review of how the Community Reinvestment Act (CRA, an anti-redlining statute) is being implemented at financial institutions. According to Treasury, CRA is one of the statutes (among others) that should be modernized to better target the financial risks consumers face.
“Given the continuing unmet needs of many LMI consumers in obtaining basic banking services and small-dollar credit, the options that our work identified could help inform Treasury’s review of the CRA framework and potentially encourage financial institutions to provide basic banking services and small-dollar, nonmortgage loans,” the GAO report states.
The options listed by GAO (generated via input from consumer advocacy groups, financial industry members, and regulators) include:
- modifying tests conducted at financial institutions as part of the CRA examination process to focus more on the extent to which institutions are offering these services and loans;
- expanding the areas and entities assessed as part of the examinations;
- and clarifying guidance about the examination process.
The report points out that other stakeholders noted those options “may not alleviate institutions’ competing concerns about the profitability of these services and loans or regulators’ concerns about their safety and soundness.”
But the federal banking agencies, according to GAO, noted that they had, among other things, issued in 2016 additional guidance on small-dollar loans that would qualify for CRA consideration.