Nearly 40 years ago, Congress enacted the Community Reinvestment Act to encourage commercial banks to lend to low-income and minority customers, who historically had a difficult time getting loans and banking services despite their ability to pay for them. Today the law is still critical in pushing banks to engage with all segments of their community, and to offer capital that can build wealth and revitalize neighborhoods. But as New York-based CIT Group Inc. prepares to acquire Pasadena-based OneWest Bank, some advocates are concerned that federal regulators will approve a community reinvestment plan that falls short of what other banks have pledged to do under the law.
The U.S. Comptroller of the Currency gave conditional approval for the merger this summer. But regulators ordered CIT to submit a revised plan by mid-October after meeting with nonprofits, chambers of commerce and other community groups from minority and low-income neighborhoods in Southern California. Specifically, CIT was asked to explain how it would help meet the need for affordable housing and small-business development in the Los Angeles area through its lending programs, and how it would provide more retail banking to underserved neighborhoods.
CIT has not yet submitted its revised plan, but some advocates are turning up the heat on the bank and the comptroller’s office. The California Reinvestment Coalition, which pushes for equal access to banking services, has warned that CIT’s previous proposal shortchanges Los Angeles. The bank had committed to investing $5 billion over four years in low-income communities, or roughly 5% of its deposits, according to the coalition. That is less than what other banks have committed in recent mergers. Banc of California, for instance, agreed to put 20% of its deposits per year into community reinvestment activities when it acquired Popular Community’s Bank’s branches in the state. As part of its merger with Royal Bank of Canada, City National Bank said it would invest $11 billion over five years, or roughly 12% of its deposits per year, in specific high-need areas, including small-business and construction loans for affordable housing.
Critics note that the less-than-stellar financial commitment comes from two institutions that received public support during the financial crisis. CIT got a $2-billion federal bailout, then declared bankruptcy and never repaid the money. OneWest’s predecessor, IndyMac Bank, was a leading issuer of risky mortgages during the housing boom, and its collapse was the costliest ever for the Federal Deposit Insurance Corp., at $13 billion. Several billionaire investors bought the remains of OneWest, and the FDIC agreed to absorb most of the losses from bad loans. Now the billionaires stand to double their investment.
Certainly every bank is unique, and regulators can’t demand one-size-fits-all quotas. However, recent mergers have shown that banks can step up their investment in underserved communities. Regulators should set a high bar for CIT.