Exclusive: US can give banks bonus points for low income loans amid coronavirus crisis – source
WASHINGTON (Reuters) – U.S. regulators plan to grant banks additional regulatory points for lending to middle to low-income Americans affected by the coronavirus, as they seek to mitigate the economic impact of the pandemic, said to Reuters a manager of a bank branch.
Federal bank branches are exploring a number of tools to obtain credit for U.S. individuals and businesses, fearing the devastation caused by the coronavirus could see millions of low-income Americans lose their jobs, putting them in default on auto loans, mortgages and credit cards debt.
Among the measures being discussed is a plan to offer additional regulatory credits – bonus points – to lenders through the Community Reinvestment Act (CRA), a critical fair loan law that dictates a range of regulatory scores to banks. The 1977 law attempts to encourage lending to low- and moderate-income Americans by rating banks on, among other measures, their effectiveness in meeting the credit needs of those communities.
Banks strive to get a good credit rating, because in the event of failure, bank regulators can dramatically curtail their activities, including preventing them from proceeding with mergers and acquisitions or opening new branches.
The measures could allow banks to gain additional credit if they can show that they have helped low-income borrowers suffering from the virus by extending them new loans, the official said. The official said they are also considering pushing banks for leniency on loan repayments for homes and cars.
“This crisis is tailor-made for how the CRA could be used or reallocated to put money where it’s needed,” said one lobbyist who lobbied for the movement.
The Federal Reserve and the Office of the Comptroller of the Currency declined to comment.
Regulators on Friday urged banks in a statement to be lenient with borrowers, but failed to identify specific measures they would take to encourage lending.
Such measures are typically used in localized areas in response to natural disasters such as floods or hurricanes, but regulators believe they could also be applied to nationwide disruptions caused by the virus outbreak.
After Hurricane Maria of 2017 caused extensive damage and displaced scores of people in the U.S. Virgin Islands and Puerto Rico, federal banking regulators said they would give “favorable consideration” to any community development activity in the United States. banks aimed at revitalization across the country, not just now. local community.
Reporting by Chris Prentice; Editing by Michelle Price, Lisa Shumaker and Tom Brown