This week, comments close on a Community Reinvestment Act Interagency Question & Answer ("Q & A") announcement. The comment generally focuses on how the CRA exam procedure should adapt to arrival of mobile banking and other technology-driven innovations. My reading of the announcement is that regulators are challenging the historical basis for the determination of assessment areas. Since the CRA's inception, examiners have surveyed the lending, investments, and services provided by banks in areas where those institutions had retail branches. But the Q & A hints of change. The query broadly asks if the provision of borderless services could complement or even replace the branch, and if so, could it replace the branch as the basis for assessment.
That is a big change.
But halfway through, the Q & A shifts to the question of how CRA might fit with the prepaid card. There is this language:
As innovation means a constant re-constitution of retail banking, it seems important to focus on empirical achievement of goals rather than execution of plans for pre-ordained activities. The important questions are all about the extent that banks serve LMI constituencies. Less important, in our opinion, is how they do it. We only want to see results. Certainly, the CRA has always been a system that examined banks for its results. But that approach needs to be specifically re-affirmed in the light of so much change.
This issue holds relevance to our ongoing concern about how prepaid debit card issuers are treated in a CRA exam. An empirical approach helps to keep the CRA fresh in this rapidly changing field.
For example, we think that issuers should be rewarded when they can demonstrate that LMI consumers are building up reserves in savings accounts or purses. They should get credit for offering this functionality. They should get more credit when they can show that their accounts are working. In our opinion, the list of factors mentioned above could easily serve as a framework for gauging the quality of a savings program. There are other possible ways to deliver services to LMI households. We believe that a financial literacy program, a credit-building program, remote deposit, or examples of greater functionality could be other areas of interest to examiners.
I could not have written it better. This is perfectly said.
The CRA places an affirmative obligation on banks to make loans, investments and to provide services in communities where they have branches. Banks must show that they are bringing those products to low-income households and communities. But prepaid cards don't use a branch network. Green Dot Bank, one of the largest issuers, currently fulfills its CRA obligation with efforts in the Provo, Utah metropolitan statistical area. That might be a boon for Provo, but it does little for Green Dot's 4.7 million active cardholders. This mis-alignment may be about to change.