The Fed has voted to approve significant legislative changes
US banking regulators are setting redlining in their sights by updating a landmark act aimed at increasing lending to lower-income areas.
The Federal Reserve voted today to approve changes to the 1977 Community Reinvestment Act that mean online and mobile banking services are now covered under the legislation, which grades firms based on their lending to low- and moderate-income communities across the country.
Under the new measures, which must also be adopted by Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, those grades would no longer be solely based on the locations of lenders’ physical branches.
Michael Barr, vice chair for supervision at the Fed, said in a statement that the rule would allow regulators to continue evaluating bank performance in areas where those institutions have deposit-taking facilities, “but also enables evaluation of retail lending and community development activities outside of branch networks.”
Critics of the legislation argue that the new lending criteria could make it more difficult for financial institutions to expand, while others believe it doesn’t go far enough and is too lenient on those companies.
Nonbank lenders, which account for around 60% of all mortgage originations in the US, are not subject to the Act. A $2 billion asset threshold is in place to judge which banks are covered by the CRA – a level that Fed governor Michelle Bowman said in a statement was too low and risked putting small community banks in the same boat as the nation’s lending giants.
