|As I continue to review the 2022 CRA NPR I am recognizing more and more potential problems for bankers if the Rule is adopted as proposed. Today I am going to briefly comment on what I call the “Double Whammy” for banks subject to the new proposed Retail Lending Test. What do I mean?|
The NPR proposes that banks be evaluated under the Retail Lending Test not only in their traditional “Facility-Based Assessment Areas” but in new “Retail Lending Assessment Areas” and “Outside Areas” too. This is one of the most radical provisions in the NPR. It means that bank lending outside of the branch assessment areas will be subject to scrutiny for the first time ever – and it can apply to communities thousands of miles removed from a bank’s branch system!
The NPR makes it clear that the performance benchmarks will be local to the Retail Lending Assessment Areas and Outside Areas too. That sounds fair until you think about it. Market- and community-based standards will be derived in areas where local-based competition knows the market and enjoys significant competitive advantages compared to a bank without a branch within a thousand miles. The Agencies don’t propose adjusting the locally-based benchmarks to reflect this competitive disadvantage.
So the CRA NPR is a “Double Whammy” for banks whose lending activity (1) will be subject to examination on a far broader basis than ever before in the 45-year history of the CRA – and (2) there will be no adjustment to the performance standards to reflect the huge difference between being a hometown lender with local branches and a bank that takes applications over the Internet with no offices anywhere near the market.
This is a very important part of the NPR that banks should express concerns, if not objections to. Remember, the NPR shows that the bank CRA exam failure rate would have been 500% greater if the new assessment areas and the new Retail Lending Test were in effect since 2005! That should be motive enough to speak up!
And if you want to know more I suggest you take a look at our recording of our June 29, deep dive into the 2022 CRA NPR webinar for only $200. For more information click here
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