Compliance Bulletin

City of Los Angeles Responsible Banking Ordinance
May 21, 2012

In 2009 the City of Los Angeles first considered an ordinance to establish certain conditions on financial institutions that either provide or wish to provide services to the City.

 The first draft of the proposal was an unwieldy wish list that included vague and undefined terms, required extensive reporting of detailed activities by zip codes within the City, and even sought to influence underwriting standards, such as by requiring lenders to consider unemployed borrowers’ unemployment insurance payments when modifying long-term residential loans. After nearly three years of negotiations and revisions, the City adopted an ordinance (“2012 Ordinance”) that is more focused and that is more consistent with how banks collect and report information under existing federal laws and regulations.

Under the City’s existing Administrative Code (beginning at Section 20.93), banks that are seeking or already providing City business are already subject to annual disclosures regarding housing, consumer and commercial (including small business) lending activity by census tract; banking services; economic development lending; affordable housing development lending, and “any other information required by the rules and regulations adopted pursuant to this article.” These annual disclosure statements are subject to public inspection and copying.

The 2012 Ordinance establishes the “Responsible Banking Investment Monitoring Program,” the purpose of which is to spur community reinvestment by financial institutions and underwriters that provide services to the City. The requirements are more detailed than the provisions of the existing Code but are otherwise consistent with it. Required information will be submitted in a form to be developed by the City.

Any commercial bank that seeks to receive City deposits or to provide other commercial banking services to the City, or that already provides such services, is required to disclose a statement of “community reinvestment activities” specific to the City of Los Angeles including, but not limited to:

  • the number, size and type of small business loans; home mortgages; home improvement loans; community development loans; and investments within the City by census tract during the preceding year;
  • a description of the institution’s participation in the City’s foreclosure prevention and home loan principal reduction programs and any other similar programs, reported by census tract; and

  • the institution’s Community Reinvestment Act (CRA) score.

 

The statement must be filed when an institution applies to offer services (for prospective service providers) or by July 1st of each year (for existing providers) with the City Treasurer, who is required to make the statement available to the public on its official website within 60 days after it is filed. The statement must be updated annually as long as the institution continues to receive or seek City business. These requirements apply in addition to the existing ordinance.

Investment banks are subject to a separate standard. An investment bank is defined as an institution that provides “underwriting services including the buying and selling of stocks, bonds and other securities and other debt related services.” Investment banks are required to provide a statement of “corporate citizenship.” The statement must describe such information as the bank’s participation in charitable programs or scholarships within the City, and its policies on the retention of contractors that are owned by women, minorities, and the disabled. The statement is filed with a bank’s application to provide covered services or by July 1st of each year, as applicable, with the City Administrative Officer, and this statement is also made publicly available and required to be updated.

The City Administrative Officer or the relevant city department must produce a matrix of information received from investment banks “whenever a financial transaction is transmitted to Council for approval.” The 2012 Ordinance does not indicate or change the rules or practices governing what transactions are subject to Council approval. The type of disclosure applicable to an institution that provides both commercial and investment services is determined by the type of business provided or offered to be provided to the City. Investment banks are not subject to the City’s existing disclosure requirements. Consistent with the existing ordinance, information requested by the 2012 Ordinance must be signed by an authorized representative of the institution under penalty of perjury. It will become effective 30 days after it is published by the City clerk’s office following execution by the mayor.

On another note, the City of San Diego’s Rules Committee Rules Committee just passed a recommendation asking its City Attorney to draft a responsible banking ordinance.

Leland Chan


The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.

© This CBA Regulatory Compliance Bulletin is copyrighted by the California Bankers Association, and may not be reproduced or distributed without the prior written consent of CBA.

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