May 18, 2018 / 1:38 PM / 10 months ago

Fed's Brainard says rules on low-income lending can be modernized

WASHINGTON, May 18 (Reuters) - A Federal Reserve governor said Friday U.S. regulators are keen to update long-standing rules on lending in lower-income communities, saying the requirements could be modernized and streamlined.

Governor Lael Brainard said banking regulators are considering a significant update to rules around the 1977 Community Reinvestment Act, which requires regulators to assess how well banks are serving the needs of lower-income communities where they do business.

The Trump administration has made updating CRA rules a priority, and Brainard, an appointee of President Barack Obama, said is “high time” they be reworked.

Under the CRA, banks must promote financial inclusion by extending mortgages and other types of credit to low-income communities where they take deposits, and can face limitations on their business if regulators believe they are lacking in that effort.

Banks have long complained the CRA rules are onerous and have failed to keep up with technological developments that have changed how banks approach local lending. But some community groups are concerned that easing the rules could discourage lending in lower-income communities.

Brainard said updated rules could ease burdens for banks while also encouraging them to engage in effective lending to underserved areas.

“I am confident that there are ways to update the areas where we evaluate a bank’s CRA performance without losing the core focus on place,” she said in New York, according to prepared remarks.

Brainard said existing CRA rules could be streamlined and made more predictable, while also tailoring them to better allow banks to take different approaches to doing business in various communities.

“We will want to maintain the flexibility to ensure that, no matter the business line, a bank can meet its CRA obligation by doing what it has the expertise to do well,” she said.

Updated rules should also acknowledge technological developments have changed how banks engage in local lending, she said. For example, Brainard noted online lenders are evaluated for CRA compliance based on how they serve the area around their business operations, despite the fact that they lend nationwide.

Brainard’s comments come after the Treasury Department recommended relaxing penalties against banks that have shortcomings in CRA compliance, as long as the bank is working to address the problem.

Brainard said the Fed is working with the Comptroller of the Currency and the Federal Deposit Insurance Corporation on a joint update to the rules. Comptroller Joseph Otting has said he would like to propose updated rules in the coming weeks. (Reporting by Pete Schroeder Editing by Chizu Nomiyama)

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