The Financial Technology Association (FTA) has issued a statement regarding potential changes to the Community Reinvestment Act (CRA). The CRA is a law that seeks to encourage financial institutions to serve diverse communities, including low and moderate-income neighborhoods.
Recently, several federal institutions, including the FDIC, OCC, and the Federal Reserve, issued a notice of proposed rulemaking (NPR) in regards to the CRA.
A fact sheet on the proposed changes is available here. The complete version is available in the Federal Register here.
FTA CEO Penny Lee stated:
“Financial technology puts preferred services in the hands of more people and plays an increasingly powerful role in reaching traditionally underserved communities. We applaud this effort to modernize the Community Reinvestment Act to account for the role of technology in breaking down barriers to financial services.”
FTA’s comment letter states:
Fintech companies can reach historically underserved consumers in LMI neighborhoods either directly under state licensing laws, as chartered banking entities, or as partners to chartered banking entities. Pursuant to the CRA, the focus of our recommendations is the latter two methods of reaching underserved consumers, namely when fintechs are banks or partner with banks.
In brief, Fintech can more effectively provide services to the under-banked or non-banked sectors of the community that persists.
The FCA calls for CRA modernization to:
- Incentivize bank-fintech partnerships that expand access to low and moderate-income consumers: The combination of mobile and internet access with advanced, automated, and digital underwriting processes can fill gaps created by legacy models and approaches. A modernized CRA regime should focus on fostering banking models that incorporate such technologies, whether directly or through partnership, to promote fair and inclusive lending and financial services.
- Explicitly recognize and address small, digital fintech banks: Large banks are not the only banking entities that will maintain robust mobile and online distribution channels, given the rise of fintech competition. The CRA should apply the same principles regarding large bank digital activities to benefit small and intermediate-sized bank entities. Regulators can use CRA modernization as an opportunity to encourage small and intermediate-sized banks to incorporate digital distribution channels and capabilities – including through partnerships with fintech.
- Incentivize credit programs that provide an alternative to high-cost payday products and overdraft fees: The short-term, small-dollar credit space remains one of the more significant challenges for low and moderate-income consumers, who often turn to high-cost, predatory products to meet short-term and emergency funding needs. FTA supports explicit recognition of banking activities, including partnerships with fintechs that offer consumers responsible, low-cost alternatives.