Trump’s CRA Impact

The announcement today that Richard Cordray will step down as Director of the Consumer Financial Protection Bureau (CFPB) made headlines and puts the work of the CFPB at risk.

Less visible but no less significant in today’s news is the New York Times’ story about the taming of the Office of the Comptroller of the Currency (OCC), the federal bank regulator with the broadest reach. Never known for taking hard stands challenging banks, the OCC is more bank-friendly, according to the piece.

The Community Reinvestment Act (CRA) is already diluted, the Times explains:

“The softer approach is spilling into the ratings that banks receive from the agency, a crucial measure of their compliance with federal rules. Last month, the agency revised its procedures for downgrading a bank’s Community Reinvestment Act rating, a four-tiered evaluation of whether a bank discriminates against borrowers and how well it meets the credit needs of low-income neighborhoods in areas it serves.

The agency had previously downgraded some banks two levels at a time, but a footnote in a new manual says the policy is not to lower a bank’s rating by “more than one rating level.”

The new policy also suggested that downgrades could be avoided altogether, emphasizing that the agency must “fully consider the corrective actions taken by a bank.” If the bank has fixed its behavior, the manual said, “the ratings of the bank should not be lowered solely based on the existence of the practice.”

For banks, a high rating is not just a point of pride: A low one can scuttle merger plans.

The comptroller’s office has subtly changed that calculus. This month, the agency issued another manual stating that a low Community Reinvestment Act rating should not inherently block a bank’s plans to merge or expand. A low rating, the manual said, “is not a bar to approval of an application.”

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