Community Reinvestment Act

How Much? How Long? When?
After having Regulation CC (Expedited Funds Availability) written, released, revised, and now being revised again, and then the same procedure happening with Regulation DD (Truth-in-Savings), we weren't surprised when the regulators said they were going to revise Regulation BB (Community Reinvestment Act). What does surprise us is the fact that even the regulators can't agree on what the revisions should be.

Basic requirements
There are some very basic requirements to the Community Reinvestment Act (CRA). The four most quoted are:
Ascertain community credit needs
Develop products and services responsive to those needs
Affirmatively market those products to ensure they are equally available throughout the community served
Monitor and evaluate the effectiveness of the CRA program
Anyone who has worked with CRA knows there are many areas that have not been clarified, and too many unanswered questions. The examiners have not had clear direction, and the financial institutions are frustrated with changing translations.

President Clinton, in July, 1993, ordered a rewrite of CRA by January 1, 1994. In December of 1993 the CRA proposal was finally issued by the Secretary of the Treasury. The Federal Reserve put the proposal out for comment a few days later, but their own remarks were not complimentary.

After extending the comment period, they finally closed the time for comments on March 24, 1994. By that time over 2,000 letters had been received from the banking community. They will all have to be read and digested before the final rule can be published.

Because of the volume of objections by bankers who perceive the new proposed rules to be unworkable, many in the banking industry are urging a second round of comments after any changes and before the final rule is issued.

Record keeping and reporting big issues
Most of the problems facing regulators bound on revising CRA are in the area of record keeping and reporting. Additional information for small business, small farm and consumer loans may be exceedingly costly and time-consuming. But even in the area of cost and time the regulators do not agree with each other or with the government and banking studies.

90 hours-or 250 hours ?
For instance, how much time will it take to comply with CRA? The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) estimate that financial institutions will spend an average of 18 hours preparing paperwork to meet the new proposed requirements. They say the maximum time any institution will spend on CRA compliance paperwork will be 90 hours.

The Federal Reserve, on the other hand, didn't come out with an average estimate, but they say the maximum time any institution will spend on CRA compliance paperwork will be 250 hours. When questioned about the differences in time estimates, Fed said they didn't feel the other agencies' figures were realistic.

$3.5 million-or $70 million ?
Other "guesstimates" on the cost of compliance with the new CRA rules vary widely, too. Government agencies estimated that big banks would spend a total of $3.5 million a year in labor costs to comply with CRA. The American Bankers Association did their own survey, and found the banks anticipate spending a total of $70 million in labor costs to comply-20 times higher than the agencies' estimates. Estimated start-up costs range from $1,000 to $700,000 per bank.

Regulators do say that their estimates are not intended to cover the total costs of compliance. By law, they say, they need only offer information about the burden of time to complete paperwork. With the emphasis on the relief of regulatory burden and reduced paperwork, the regulators are committed to carefully evaluating all proposed changes to requirements. With all the comments and suggestions, regulators say there may not be a final rule until June or July at the earliest.

Copyright © 1994 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 4, No. 10, 5/94