AFSA Comments on CRA Modernization
Today, the American Financial Services Association wrote to the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, and the Office of the Comptroller of the Currency (OCC), commenting on their efforts to modernize the Community Reinvestment Act (CRA). While these efforts are appreciated, the proposed inclusion of automobile loans as a mandatory part of the metrics-based Retail Lending Test would not further the CRA goal of increasing credit for low- or moderate-income (LMI) communities.
AFSA’s letter outlines the issues with the Notice of Proposed Rulemaking, including:
- Under indirect financing arrangements, banks engaged in automobile lending are dependent upon the marketing and sales strategies employed by dealers. This leaves banks with a limited ability to influence the percentage of LMI customers who decide to do business with any particular dealer.
- The auto lending market is mostly composed of nonbanks and captive finance companies that are not subject to CRA evaluation. As of the first quarter of 2022, banks have only 29.11% market share of new loans or leases. This means that banks have even less leverage to influence dealers to increase their presence in LMI communities.
- The CRA regulations would treat auto loans differently from other consumer loans for the first time. For example, credit card loans are also a means of gaining access to credit and building credit history, yet they have been excluded from the Retail Lending Test.
- The inclusion of auto lending as a mandatory part of the new Retail Lending Test would be a departure from the historical focus of CRA on wealth-building, small business, and mortgage credit needs. Although auto lending is an important consumer product, there is no indication that there are unmet auto lending credit needs, as financing is readily available for consumers.
AFSA strongly encourages the agencies to adopt a qualitative approach to evaluate auto lending because auto loans should be treated the same as other consumer loans.
August 5th, 2022
