Powell says low income lending rules should apply to all businesses offering consumer credit
WASHINGTON — Federal Reserve Chairman Jerome Powell has said rules on lending in low-income communities should be extended to cover all businesses providing consumer credit, not just banks.
“Similar activities should have similar regulations,” said Powell, speaking to the National Community Reinvestment Coalition, a group advocating for fair loans.
The remarks signaled Mr Powell’s support for efforts to revise a 40-year-old law called the Community Reinvestment Act to include non-banks which increasingly provide the bulk of credit to individual borrowers, particularly in the $ 11 trillion mortgage market. .
President Biden said during the election campaign last year that he would push to expand the law to cover non-bank mortgage and insurance companies, which would require legislation.
The 1977 law requires banks to serve borrowers of all income levels around their branches or face growth restrictions. It was initially created to fight against the practice of redlining or banks that do not serve poor and minority neighborhoods.
According to a study by the Urban Institute, non-bank mortgage companies issued about 80% of all government guaranteed mortgages in December, up from about 50% at the end of 2014. These companies are currently not required. to comply with CRA rules.
While it is up to Congress to determine how to modernize the law, Mr Powell said that “consumers need protection and low and moderate income communities need credit support no matter what. the nature of the institution “granting the loan.
Banks are currently assessed for compliance with the ARC based on a complex formula that includes loans to homebuyers and small businesses as well as the number of branches in low income areas. Bad grades can prevent banks from merging or opening new branches.
Separately on Monday, Powell said the economic outlook had improved but was moving more slowly for low-wage workers, stressing the need for continued support from policymakers.
The Covid-19 pandemic has had a disproportionate impact on minority workers and women, Mr Powell said, citing the results of a Fed investigation to be released later this month. While 22% of parents stopped working or worked less in 2020 due to the pandemic’s disruptions in child care or schooling, that figure jumps to 36% and 30% for black and Hispanic mothers, respectively, did he declare.
“The Fed is focusing on these long-standing disparities because they weigh on the productive capacity of our economy,” Powell said in a speech prepared for a speech to the National Community Reinvestment Coalition.
He included little comment on the wider economy in his opening remarks, saying that although the economic outlook has improved, “we are not out of the woods yet”.
Fed officials voted unanimously last week to keep interest rates close to zero and continue to buy at least $ 120 billion a month in treasury and mortgage bonds. These policies, in place since the first half of last year, aim to smooth the economic recovery by keeping borrowing costs low.
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Appeared in the print edition of May 4, 2021 under the title “Revamp in Low-Income Lending Sought”.