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Washington, D.C. — UNC Center for Community Capital associate director Janneke Ratcliffe urged federal regulators in testimony today (Aug. 6) to refocus Community Reinvestment Act (CRA) requirements to ensure they result in broader access to financial services for low- and moderate-income consumers.

“Your review comes at a critical time as our financial system is being rethought and communities and families are trying to rebuild,” Ratcliffe said at a hearing on CRA regulations held by the board of governors of the Federal Reserve System, Federal Deposit Insurance Corp., Comptroller of the Currency and Office of Thrift Supervision. “Today, as in 1977, the hope is that CRA can foster a more inclusive path to financial opportunity that strengthens all of our communities.”

Federal regulators are examining CRA in the aftermath of the financial crisis. The act passed by Congress in 1977 was designed to encourage financial institutions to meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods. Compliance is monitored through audits and a poor record of CRA compliance is supposed to be taken into consideration when the financial institution applies for deposit facilities, including mergers and acquisitions.

However, recent FDIC data suggests that financial institutions are not meeting the needs of their communities even under CRA, Ratcliffe said. The FDIC reported that a quarter of U.S. households are un- or underbanked, including 54 percent of black and 43 percent of Hispanic households. Nearly one in five lower-income households does not have a bank account at all. Further, 35-70 million Americans lack sufficient credit history to determine a credit score. For such individuals, reliance on alternative financial services adds costs and handicaps one’s chance of achieving greater financial security.

“Yet, from the ratings on CRA tests, it appears that our banks are meeting the credit needs of their communities well,” Ratcliffe told regulators. In the prior two years, 98 percent of large banks rated satisfactory or better (25.3 percent Outstanding and 71.5 percent Satisfactory), and rejections of bank applications for merger or acquisition on CRA grounds are extremely rare, she said.

“Consider Charlotte, where Wachovia and Bank of America hold 92 percent f deposits and both received “Outstanding” ratings on their 2006 service test,” Ratcliffe said. “Yet, in this banking city, 37 percent of households (286,000 total households), are un- or underbanked (10.9 percent unbanked; another 26.5 percent underbanked), above the national average.”

“We can only conclude that the service test must be measuring the wrong thing,” Ratcliffe said. “It is time to find a new approach.”

Ratcliffe recommended that regulators develop better assessment tools to evaluate an institution’s compliance with CRA and that those tools are designed to better meet the credit needs of the communities they serve.

View her testimony.

Mortgage finance is a major area of focus for the Center for Community Capital, the leading center for research and policy analysis on the transformative power of capital on households and communities in the United States. The center is part of the College of Arts and Sciences at the University of North Carolina at Chapel Hill. Its in-depth analyses help policymakers, advocates and the private sector find sustainable ways to expand economic opportunity to more people, more effectively. For more information, visit or call (919) 843-2140.

Topics(s): Affordable Homeownership, Mortgage Finance, Other, Testimony
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