New CRA laws review banks' performance, not process
Pacific Business News (Honolulu) - by Sandi M. Skousen PBN Staff Reporter
Bankers welcome amendments made to the Community Reinvestment Act, saying the new law reduces unnecessary -- and sometimes illogical -- documentation and compliance requirements.
All that is good news for an industry that spends millions of dollars keeping records to prove they are complying with the CRA -- a 1977 law created to ensure banks provide loans for all members of their communities, even the poor.
The law aims to combat discriminatory acts such as "red lining," a bank policy in which loan officers do not lend money to residents who live in low-income neighborhoods. Federal regulators examine each financial institution every two years and make public their findings. In recent years, the results have been used by community groups to hamper mergers involving banks that allegedly complied poorly with the CRA.
While bankers generally agreed with the spirit of the law, they often complained the CRA measured activities unrelated to a bank's lending habits toward low- or moderate-income level people.
This year marks the first time financial institutions will undergo the new CRA exam and bankers are not yet sure whether the new law means more or less paperwork. But, they said, at least the required paperwork makes sense.
"In the past, a lot of time was spent on the process -- the establishment of boards, the issuance of grants," said Corbett Kalama, a vice president and region manager for community reinvestment and government affairs at First Hawaiian Bank.
Said Kelly Walsh, a vice president and CRA officer with Bank of Hawaii: "Before, it used to rate you on how many community meetings you attended. And banks were spending a lot of money on documentation."
At the least, data collecting and reporting alone costs Bank of Hawaii more than $25,000 each year, she said.
Under the new law, compliance standards are based on performance. For example, it places significant emphasis on lending. Banks must report the total number and dollar amount of loans made to neighborhoods defined as low- and moderate-income areas. Also, examiners are interested in the incomes of individual borrowers.
"It's much more objective," said Ed Hanashiro, a compliance officer at City Bank. "In the past, it was very subjective."
"I always told regulators we were a CRA company," said Harris Hirata, executive vice president and chief operating officer of Realty Finance Inc. The company is a small Hilo-based financial institution with $18.4 million in assets and $14.2 million in loans.
"This is our market: low- to moderate-income customers," Hirata said. "But I was not able to document or quantify it."
The original CRA, for instance, concentrated heavily on a bank's advertising to ascertain credit needs, meaning examiners wanted to know where a bank was advertising and whether a bank made an effort to determine a community's credit needs.
Preliminary results of the bank's most recent exam, which was conducted under the auspices of the new law, finally corroborated Hirata's insistence. "Because of the change in rules, it was easier to examine our performance," he said.
Another change that benefits Realty Finance are provisions treating small and large banks differently. This makes it easier for small banks, those with assets less than $250 million, to participate in CRA-related activities and receive credit for them.
Hirata would not disclose examiners' findings until the final conclusions are released. But, he said, Realty Finance was pleased with the exam and the attitude of the regulators. Examiners even helped quantify and give the bank credit for CRA activities Realty Finance staff members had missed, he said.
Since the revised law places greater emphasis on the loans themselves, low- and moderate-income borrowers will likely find greater relief from credit obstacles.
"The benefit is passed to tenants who reside in [affordable housing] buildings," said Donald L. Tarleton, president of Hawaii Community Reinvestment Corp., a private non-profit organization comprising financial institutions that pooled together $50 million to make loans to low- and moderate-income people.
So far, four local companies -- Realty Finance, Rainbow Financial Corp., Bank of Honolulu and First Hawaiian Creditcorp. Inc. -- have undergone the new exam process.
All had positive experiences, said Anna Marie Springer, president of the Hawaii Community Reinvestment Act Association, a group of about 29 financial institution compliance officers.
"They said regulators were more than fair," said Springer, who is also senior vice president of retail lending and a CRA officer at American Savings Bank. "Regulators were helpful and even produced some information for them, whereas in the past, you had to have all these fancy charts and things."
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