It's been 29 years since Community Reinvestment Act (CRA) regulations have been updated. That's not surprising when you consider that the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency were all involved in the process of modernizing how they assess lenders' compliance. Even though the updated rules were effective as of April first, all aspects don't fully phase in until January 1, 2027; but even that date is in question after a federal judge in Texas issued an injunction the new CRA rules, blocking their enforcement until legal issues about the updated regulation can be resolved. Still, many industry and affiliated groups are committed to the principles and goals that the CRA stands for: meeting the credit needs of the people in the neighborhoods where they operate, including low- and moderate-income (LMI) communities.
Even though the CRA applies most broadly to banks, while credit unions and independent mortgage banks (IMBs) are exempt, fair lending laws apply to virtually all lending institutions. People in the LMI category frequently also fall into other categories covered by fair lending, such as majority minority census tracts (MMCTs), age, gender, familial status, et cetera. It's in the interests of banks, credit unions and IMBs to direct attention to and effort toward LMI communities to remain compliant and advance their own company missions in underserved markets. LMI consumers are a huge portion of our population, often referred to as "thin-file" due to their lack of credit history and low or zero credit scores; low credit and low income often go hand-in-hand. There are many ways lenders can be part of their journey to becoming established consumers and grow customers for life. One way to do this is to "start them when they're young."
Automotive lender Open Lending and credit reporting agency TransUnion recently published a study titled, "Financing the Future: Millennial and Gen Z Borrowing Habits and Credit Outlook," and it contains several revelations that lenders of all types should take note of. First, Open Lending and TransUnion found that Millennials and Gen Zers moved from thin-file status to established more than a full year faster than their Gen X and older counterparts, with the average timelines being 2.62 and 3.71 years respectively. Lenders of all types should make sure they have good, long-term lead nurture campaigns in place to stay in front of these credit newbies. The report also found that two out of every five Millennial and Gen Z thin-file consumers who get a car loan from a bank or credit union returned to the same type of institution for their next product. This finding is a warning to banks and credit unions that they must work to retain these consumers after their first product engagement and a challenge to IMBs to capture their mortgage business as they move toward the home buying phase.
While the legal wrangling continues over the updated CRA rules, the Financing the Future report contains many tangible reasons that banks, credit unions and IMBs should nurture younger LMI consumers beyond fulfilling CRA regulatory guidelines. These young people are motivated and their efforts to build their finances outperform their older thin-file counterparts. If creating customers for life is a goal, you'll want to be their go-to adviser and partner organization for as much of that life as possible.
Jeff Walton is CEO of InGenius. With over 35 years in home mortgage and as a CEO and President of large national mortgage companies, Jeff is focused on helping the industry achieve high performance using actionable intelligence. Interested in learning more? Book an intro call with InGenius Data.
