August 11, 2022
CRA: More Than Just A Box To Check
Creating Responsible Access through innovation
By Joseph Garba and Cinnamon Chambers
A crucial mission of modern financial services should be to break down traditional barriers that prevent perpetually marginalized communities from accessing the capital they need to grow. For decades, the biggest players in the traditional American financial system have had the opportunity to equitably serve long underserved, minority and low-income communities, but have failed to meet the challenge. It is clear that more must be done to ensure that our nation’s means of wealth creation reach all families and small businesses regardless of their backgrounds, race or where they live.
Born out of the 2008 Great Recession, responsible “fintech” leverages the latest technology and innovation to expand the reach of traditional financial services. This mission is directly aligned with the goals of the original Community Reinvestment Act (CRA), which was to eliminate the ill effects of so-called “redlining” and ensure financial institutions treated all Americans equally.
We are encouraged and support proposed efforts to modernize CRA to meet the changing financial services landscape. Further, we wholeheartedly agree with regulators’ intent behind expanding CRA assessment areas and creating non-exhaustive lists of qualifying and non-qualifying community development activities. However, there are still aspects within these areas where CRA can be improved. Current and proposed CRA requirements do not allow responsible fintech providers to adequately reflect the impactful lending, volunteering and other activities they conduct to serve low-to-moderate income (LMI) communities across the country.
First, while Cross River and many in our industry recognize that the proposed reforms could allow for more accurate assessments of financial institutions that have few or no branches, the proposed changes to the CRA assessment area requirement do not adequately allow for companies like Cross River—which leverage partnerships with fintech companies—to receive recognition for national lending both inside and outside of LMI communities. Allowing for additional flexibilities, including expanding assessment areas for entities that operate through bank-fintech partnerships is crucial to ensuring that LMI communities are served and that the banks receive proper CRA recognition for their lending activities.
Second, companies are only given credit for community development volunteer services that impact the specific assessment area. Through the Covid-19 pandemic, Cross River, and others have pursued hiring strategies that include remote and hybrid working schedules. While this has been beneficial to employees, it also means that their volunteerism is not adequately captured and counted for CRA purposes, because it naturally falls outside of the bank’s assessment area. It is essential to ensure that the proposed rules to CRA include the ability to count community development services that fall outside of an assessment area to capture remote employee volunteerism where they are. In turn, this would increase opportunities by aligning incentives for providing CRA qualified services to LMI communities and small businesses across the nation.
Third, we wholly agree with stakeholders regarding the importance and benefit of having a non- exhaustive, illustrative list of qualifying community development activities. However, regulators must ensure the list, and those creating it, have a broad view of what will serve LMI communities and small businesses. To ensure that communities are properly served, a process should be pursued through an advisory board and maintain a broad interpretation of activities that can help a community develop.
Cross River strongly supports the overarching goals of reimagining the Community Reinvestment Act (CRA), but it needs to encompass the newest innovations in financial services that are currently providing much needed access to the underserved. We believe that Cross River, and organizations exploring responsible innovation, are well positioned to uniquely serve LMI communities and reach the intended purpose of CRA; however, additional reforms and flexibilities for obtaining CRA credit are required before these efforts can be fully realized.
You can read Cross River’s response to the Joint Notice of Proposed Rulemaking for the Community Reinvestment Act HERE.
Joseph Garba is Head of External Affairs at Cross River, and Cinnamon Chambers is VP, Director of CRA Compliance/Community Reinvestment Act Officer at Cross River.