Federal Reserve Chairman Jerome Powell said in an interview that existing government rules governing how well banks must serve lower-income borrowers should be applied to all companies offering consumer credit, including nonbanks such as credit-score companies. The CFPB’s underwriting rules have “helped the markets evolve,” Powell said in an interview with Bloomberg Television’s Tom Keene. While the Fed and the CFPB oversee banks, “this isn’t a banks versus credit market story.”
WASHINGTON – The chairman of the U.S. Federal Reserve
said the rules for lending in low-income communities should apply to all consumer lending companies, not just banks.
This type of activity should be regulated in the same way, Powell told the National Community Reinvestment Coalition, a group that advocates for fair lending.
The comments show Powell’s support for efforts to revise and extend the more than 40-year-old Community Reinvestment Act legislation to non-banks, which increasingly make most loans to individual borrowers, particularly in the $11 trillion mortgage market.
President Biden said during last year’s campaign that he would push for the law to be extended to non-bank mortgage and insurance companies, which would require legislation.
The 1977 Act requires banks to serve borrowers of all income levels in their branches or risk limiting their growth. It was originally created to counter the practice of redlining (or the refusal of banks to serve poor and minority neighborhoods).
According to a study by the Urban Institute, non-bank mortgage companies accounted for about 80 percent of all government-backed mortgages in December, up from about 50 percent at the end of 2014. Currently, these firms are not required to comply with the CRA rules.
Although Congress must decide how to modernize the law, Powell said consumers must be protected and low- and moderate-income communities need credit assistance, regardless of the type of lending institution.
Banks are currently assessed for CRA compliance based on a complex formula that includes loans to homebuyers and small businesses, as well as the number of branches in low-income areas. A poor rating may deter banks from merging or opening new branches.
Separately, Powell said Monday that the economic outlook has improved but has slowed for low-wage workers, underscoring the need for continued policy support.
The Covid 19 pandemic has a huge impact on minorities and female workers, Powell said, citing a Fed survey to be released later this month. He says that by 2020, 22 percent of parents will stop working or work less because the pandemic has affected child care or school, but that figure will rise to 36 percent and 30 percent for black and Hispanic mothers, respectively.
The Fed is targeting these long-standing disparities because they are straining the productive capacity of our economy, Powell said in a prepared speech to the National Community Reinvestment Coalition.
In his opening remarks, he barely touched on the general economic situation, noting that while the economic outlook has improved, we are not out of the woods yet.
Last week, Fed officials voted unanimously to keep interest rates at zero and to continue monthly purchases of Treasury and mortgage bonds to a minimum of $120 billion. This policy, which has been in place since the first half of last year, is designed to promote economic recovery by keeping borrowing costs down.
Recent changes in the Federal Reserve’s monetary policy framework may improve the outlook for marginalized groups. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said. (Video 12/17/20)
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Published in the print edition of 4. May 2021, as they look to renew low-income loans.
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