Born out of a need to address inequities in access to credit, the 1977 Community Reinvestment Act (CRA) marked a distinct change in lending legislation. Unlike previous civil rights laws that focused on what lenders shouldn’t do, it established a precedent of what they should.
As such, lenders have been obligated to reinvest in the communities in which they operate, including low-income areas.
But as the banking world shifted towards digital, the rule was in need of a revamp. For years, a proposal has been in the works.
As finalization loomed closer, banks showed concern. In a letter written to federal regulators, a delay in finalizing the rule was requested. Apparently, passing the rule now could disincentivize mortgage lending to lower-income families.
It was swiftly ignored, and yesterday, the official legislation was issued to make the long-awaited adjustment.
As is often the case, the rule’s updated literature is long and detailed – too long and detailed to summarize in a newsletter introduction. (American Banker published a comprehensive writeup that you can access here.)
But the digital world has made its mark, and one of the more significant updates is the focus of the rule.
The rule no longer focuses on the communities where the bank is physically located. Instead, it requires banks to engage where they have high concentrations of mortgages and small business loans.
As physical branches close nationwide, it is only fair that banks’ dwindling reliance on physical presence is mirrored in their obligations.
FEATURED
After years of discussion among regulators, the Federal Reserve Board has approved changes to its CRA rules that will base compliance exams on where lending occurs rather than branch locations.
FROM FINTECH NEXUS
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- Global: Flourish Ventures, a ‘fintech venture fund with a purpose,’ secures $350M in new capital. Flourish Ventures is an evergreen venture firm investing globally that has backed the likes of Chime, Unit and Flutterwave.
- USA: SEC’s Peirce questions if crypto court fights are best use of resources “I do worry that some of the things that we’re doing in the crypto space could have adverse effects on the rest of the agency’s work,” she said. “Why don’t we go ahead and help people by thinking through some of the issues ahead of time?”
- Global: Value-added services: A missed opportunity for banks in commercial payments? Fintechs and Big Techs are pushing the frontiers in the payments space, increasing competitive pressure on traditional banks and incumbent payments providers. While there are many reasons behind non-bank institutions outperforming banks, part of it is that their established rivals are held back by legacy systems.
- USA: US Bank Debuts Avvance Installment Payment Tool U.S. Bank has introduced a tool that lets businesses offer consumer financing at point-of-sale.
- Global: The impact of BigTech on BankTech and FinTech (BIS report) This month the Bank for International Settlements (BIS – the guys who do Basels) released a report on the implications of BigTech on FinTech and banking. The report is not what I expected, as it is far too simple in its thinking imho, but it is worth a read. Maybe next time, they’ll ask yours truly.
