Bankers and borrowers agreed at a special hearing Wednesday that the law preventing loan discrimination needs to be dramatically overhauled to channel more money and banking services into inner-city and rural areas.
The hearing in Los Angeles, hosted by four top U.S. banking regulators, was held to gather information from community groups and bankers on how best to reshape the Community Reinvestment Act, the 1977 provision that is the nation’s major loan anti-discrimination law. President Clinton has ordered regulators to put more teeth into CRA lending guidelines.
For bankers, the Community Reinvestment Act is vague, enforced inconsistently and requires far too much paperwork. “A small bank doesn’t have the personnel,” Judith J. Reinartz, senior vice president of Bank of Santa Clara, told the gathering. “The paperwork is a nightmare.”
For many minority borrowers, the law allows too many banks and thrifts to get by on minimal lending to low-income neighborhoods.
“CRA is a national disgrace, a cruel hoax to the hopes and aspirations of low-income and minority borrowers,” said John C. Gamboa, executive director of Latino Issues Forum of San Francisco.
The Los Angeles hearing was the second of six that will be hosted by regulators through Sept. 22. The Comptroller of the Currency, the Federal Reserve Bank, the Federal Deposit Insurance Corp. and the Office of Thrift Supervision together will draft a new set of CRA regulations in early November for public comment. The new rules are to go into effect Jan. 1.
The CRA, along with the Home Mortgage Disclosure Act passed in 1990, has focused increasing attention on fair-lending laws.
The passage of the HMDA requires banks to disclose race, sex, income and age information of borrowers. Coupled with public disclosure of CRA examinations, the laws have given fair-lending advocates the means to monitor bank and thrift loan practices.
Critics say the problem with the CRA is that it simply requires that banks and thrifts “serve the needs of their communities,” rather than spelling out specific loan requirements to low-income or minority groups.
Banks and thrifts have been left to devise compliance strategies that are heavy on marketing and public relations but short on actual lending. Even banks earnestly trying to comply with the CRA are left to guess what may or may not satisfy examiners.
At the same time, banking failures, along with a continuing consolidation of the financial services industry, have decimated those services in the inner city. As a result, more inner-city residents must resort to using expensive check-cashing shops to conduct routine transactions.
“Inner-city people are paying for the privilege of being poor,” Los Angeles City Comptroller Rick Tuttle told the regulators.