WASHINGTON (2/14/08)—The House Financial Services Committee Wednesday began what its chairman has said will be a broad study of the 31-year-old Community Reinvestment Act (CRA), and as expected the fact that credit unions do not fall under CRA requirements was noted during the hearing proceedings. CRA was enacted in the late 1970s to stop banks from denying credit to consumers and small businesses in low-income areas The general picture that developed during the testimony of three panels of witnesses at Wednesday’s hearing was that CRA has been an important piece of legislation to encourage better lending practices. The committee heard from federal banking and thrift regulators, and industry and consumer groups. The regulatory agencies represented at the hearing were the Federal Reserve Board, Comptroller of the Currency, Federal Deposit Insurance Corp., and the Office of Thrift Supervision. In general, those witnesses concurred that CRA had been successful in its intent and suggested relatively minor changes that they said could update the law sufficiently to address emerging issues. “While the hearing today was broad and exploratory, we know that there are more to come and we will be following developments closely,” said Ryan Donovan, CUNA vice president of legislative affairs, after the hearing. He noted that it is likely that, as during a question-and-answer session with witness John Taylor of the National Community Reinvestment Coalition, the committee will hear occasional calls to apply CRA to credit unions. Donovan reiterated CUNA’s opposition to the imposition of CRA requirements on credit unions. “It would make no sense to impose CRA on credit unions for the simple reason that credit unions may only lend to their members, who are the sources of their deposits, and therefore--by their very nature--comply with the spirit of the Act,” Donovan said. CUNA analysis has shown that as credit union ability to serve communities has increased, their performance in lending to low- and moderate-income (LMI) borrowers is superior to other lenders. According to 2005 and 2006 data collected through Home Mortgage Disclosure Act (HMDA) reporting:
* Credit unions make a greater proportion of HMDA-covered loans to LMI borrowers than do other mortgage lenders; * Credit unions approve first mortgage loans to LMI and minority borrowers at much higher rates than do other lenders. Similarly, credit unions deny first mortgage loans to LMI and African American borrowers at much lower rates than do other lenders; * Credit unions are much less likely than other lenders to make high-rate loans. When credit unions make high-rate loans the rates tend to be substantially lower than the rates typically charged by other lenders; and * Credit unions are portfolio lenders, whereas other lenders are much more likely to use the originate-to-sell model--which has been recognized as one of the key drivers of sub-prime lending abuse and recent mortgage market disruptions.
The House Financial Services Committee is expected to conduct additional hearing on CRA, focusing on the law’s relevancy today and ways in which it could be modified to better reflect the changing financial services environment.