Community Development Banking and Financial Institutions Act of 1994 (Major Acts of Congress)
Michael P. Malloy
The Community Development Banking and Financial Institutions Act of 1994 (CDBFIA) (108 Stat. 2163) constitutes an integral part of the Riegle Community Development and Regulatory Improvement Act of 1994 (Riegle Act). Enacted on September 23, 1994, the Riegle Act pursued a wide range of objectives. According to section 102(h), Congress's objective was "to create a Community Development Financial Institutions Fund to promote economic revitalization and community development through investment in and assistance to" so-called community development financial institutions (CDFIs). In part, this effort addressed an increasingly controversial issue in bank regulatory policyo what extent should the law require banks to involve themselves in the economic well-being and development of local communities served by their operations?
The CDBFIA authorized financial incentives for depository institutions to participate voluntarily in community-developmentoriented banking programs and activities. CDFIs receiving incentives are expected to focus on financial activities and transactions intended to promote community development. However, such legislative efforts are relatively specialized, and they avoid, rather than resolve, the underlying controversy: If "full-service" banking enterprises enjoy a competitive advantage in aggregating credit by taking in deposits and dispensing resources in the form of loans because of their relatively exclusive government charters, should they not be required to serve their local communities?
The CFDI program is available for banks and other depository institutions, including credit unions. Periodically, regulators announce the availability of incentive funds for the program. In 2000, the National Credit Union Administration, as federal regulator of federal credit unions and federallyinsured state credit unions, published an interim final rule with respect to its Community Development Revolving Loan Program. Overall, CDFI resources seem relatively limited, and voluntary participation in community development under the CDBFIA is not pervasive among institutions.
Awarding funds for community development, however, was not the sole purpose of the Riegle Act. According to the conference report accompanying the act, a second major objective of the Riegle Act was "to reduce administrative requirements for insured depository institutions to the extent consistent with safe and sound banking practices." The Riegle Act accomplished this by requiring regulators and other depository institutions to review their rules periodically and to eliminate or modify provisions that imposed regulatory burdens on depository institutions. The task of amending federal regulations in light of this mandate is a continuing obligation for the federal bank regulatory agencies.
A third technical objective of the Riegle Act, eliminating obsolete provisions from federal banking legislation, is of related importance. Many experts viewed this effort as long overdue, and the technical amendments included in the act in this regard are extensive. Thus in February 2003 the Community Development Financial Institutions Fund revised its rules to replace semiannual reporting requirements with an annual reporting requirement. It also achieved regulatory economy and efficiency by deleting references to the required contents of CDFI applications, since these matters were addressed in various application forms themselves. In March 2003 the Federal Reserve Board amended its rules implementing the Equal Credit Opportunity Act to create an exception to its rules that prohibited a bank from inquiring about a loan applicant's national origin, race, age, or similar characteristics, so that a bank could collect such data for the purpose of conducting a self-text of its compliance with nondiscrimination requirements.
See also: COMMUNITY REINVESTMENT ACT.
Malloy, Michael P. Banking Law and Regulation. 3 Vols. New York: Aspen Law & Business, 1994 & Cumulative Supplements.
Malloy, Michael P., ed. Banking and Financial Services Law: Cases, Materials, and Problems. Durham, NC: Carolina Academic Press, 1999 & 2002-2003 Supp.
Malloy, Michael P. Bank Regulation Hornbook 2d ed. St. Paul, MN: West Group, 2003.