Since the passage of the Gramm Leach Bliley Financial Modernization Act of 1999 (GLBA), insurance companies, banks, mortgage companies, and securities firms have been allowed to merge with and acquire one another for the first time since the Great Depression. Prior to that date, some insurance companies chartered savings banks as subsidiaries of the insurance company. Community groups have been especially interested in the implications of these changes for underserved populations, particularly for lower-income and minority families. This Alert discusses the community development implications of these changes. It also gives an overview of how insurance companies that have opened bank charters are performing in relation to the Community Reinvestment Act (CRA) and fair lending.
Insurance company banks and other banks sell their products in different ways. These differences have a significant impact on the application of CRA to the two types of institutions. Insurance company banks utilize the same platforms and people that the parent companies use to sell insurance. Insurance policies are sold directly through agents, telemarketing campaigns, the mail, or, increasingly, the Internet, and so are their banking products. In consequence, banks that are subsidiaries of insurance companies often have only one office or branch, which is the company's headquarters. CRA says that regulated financial institutions have a continuing and affirmative obligation to help meet the credit needs of the local communities, including low- and moderate-income neighborhoods. For the purpose of CRA examinations, local communities are aggregated into assessment areas that consist of one or more Metropolitan Statistical Areas (MSAs). CRA regulations stipulate that those MSAs may not reflect illegal discrimination or arbitrarily exclude low- or moderate-income census tracts. CRA regulations also outline that the assessment area should, inter alia, include the census tracts in which the bank has its main office, its branches, and its deposit taking ATMS, as well as the surrounding geographies in which the bank has originated or purchased a substantial portion of its loans. CRA activists have long argued that as banking practices have changed, these regulations should be appropriately interpreted to recognize those changes. In particular, the assessment areas of insurance company banks should include the areas where agents in fact do banking business and not just where the only branch, the headquarters, is located.