New rules slated to spur minority loans

April 19, 1995|By Los Angeles Times

WASHINGTON -- In a move designed to spur lending to minority groups and residents of low-income neighborhoods, the federal government was expected to announce new regulations today that would require banks and thrifts to collect and publicize detailed reports on business lending by neighborhoods.

Regulators will use the data, being assembled for the first time under government supervision, to decide whether financial institutions are serving all segments of the community in their business lending.

Though no formal quota or targets will be set, regulators may use the data to pressure lenders to make additional business loans in neighborhoods that they believe are being ignored. And they will use the lending performance as an important standard in deciding whether to approve bank applications for mergers, acquisitions and new branches.

Regulators and community advocates are hopeful that the new rules will have the same positive impact on business lending that previous regulations have had on home mortgage loans. Disclosure rules for home mortgage applications collect information by sex, race and ethnicity.

In a concession to bankers and their Republican supporters in Congress, the regulators decided against using the same type of report for business lending. Instead, however, they will gather information by census tracts, and that will allow them to measure with considerable precision the degree of lending activity in poor and minority neighborhoods, according to one consumer activist.

The federal Community Reinvestment Act says banks and thrifts must serve all segments of their communities, including the poor and minorities. Despite successes in the mortgage area, many members of Congress and the public felt there has been a notable lack of fairness in business lending.

CRA efforts too often were focused on "process rather than performance," according to the regulations to be published today after their formal approval by the Federal Reserve Board.

Traditionally, lenders often argued successfully that their outreach efforts were sufficient if they took such steps as visiting community centers, holding seminars, taking out advertisements in minority-owned newspapers or -- in at least one case -- sponsoring Boy Scout troops.

The new standard will consider the number of loans made as a part of the annual CRA review as well as on any applications to merge or expand.

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