Good afternoon —
The decision by New York state yesterday to extend its Community Reinvestment Act rule to nonbank lenders is huge, even though it was widely expected. Illinois enacted a similar law earlier this year, including nonbank lenders into the financial institutions subject to its CRA rules.
It's difficult to understand how the state-level rules can be applied to nonbanks, since they aren't depository institutions. CRA was meant to "encourage depository institutions to help meet the credit needs of the communities in which they operate," which under federal law has usually meant the communities where that bank has a branch.
How does that work if the nonbank has no branches and instead has a national call center?
The New York Department of Financial Services doesn't get very specific on this crucial question, nor on the question of how nonbanks can know if they are complying with the rule.
"CRA does not contain any formulas, dollar figures or lending ratios that must be achieved by an institution in a specific community. Rather, what constitutes a satisfactory level of lending, investment and service by an institution is determined in the context of many different factors, including: opportunities presented by a specific community (i.e., demographic and economic factors); the institution's product offerings and business strategy; institutional capacity, constraints, and other factors," the NYDFS website states.
So, about as clear as mud.
Unfortunately, the stakes are high. While New York won't apply punitive measures to lenders who fall short, the state will block mergers or expansions for those lenders. But even more could be at stake, as the federal government under the Biden administration has been very focused on equitable housing, and redlining in particular. The big question is: will the OCC follow New York's lead and extend federal CRA requirements to nonbanks?
Until tomorrow —
Sarah Wheeler
HousingWire Editor in Chief
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