By Sara E. Teller
The Community Reinvestment Act, signed in 1977, was designed to combat against the effects of government-sanctioned housing discrimination, otherwise referred to as “redlining,” by requiring banks to make an attempt to lend to all types of neighborhoods and income levels. The Trump administration’s plans to overhaul the law would take away from its intended purposes, said Lisa Rice, the president and CEO of the National Fair Housing Alliance, and are therefore misdirected. “It will be a detriment to families and our nation if changes to the CRA fail to guarantee that banks are meeting the credit needs of people in the communities where they are located,” she said.
A 25-page report was drafted by the Office of the Comptroller of the Currency, which regulates the banking industry. The report outlines new ways banks could claim federal credit for lending to poverty-stricken and working-class areas. Office of the Comptroller of the Currency spokesperson Byard Hubbard said the report is still in the draft stages and is awaiting public comment. The public has until late November to respond. After that, the Office of the Comptroller of the Currency reviews submissions with the Federal Reserve and the Federal Deposit Insurance Corporation.
Joseph Otting, the former president and CEO of OneWest Bank, was sworn in as Comptroller of the Currency in November 2017. The U.S. Financial Services Committee asked him if he believed discrimination exists. Otting replied he “personally never observed it,” yet many of his “friends from the inner city across America tell me it is evident today.” He added, “I have also seen how limitations in the current CRA regulation can fail to provide consideration to a bank that wants to lend and invest in a community with a need for capital, including many low- and moderate-income areas.”
The American Bankers Association said the current law is outdated and misdirected. “The current framework is holding back investment in communities the law is intended to serve, while failing to account for significant innovations in the banking sector, including the opportunities presented by mobile technologies,” it stated.
Under the new rules, banks could claim credit for lending to poor and working-class neighborhoods in other places where they make a significant number of loans, even if they don’t take deposits in those areas. A single metric could be used – the total amount of money a bank invested in all poor and working-class neighborhoods in all its markets combined divided by the bank’s total assets.
“By opening up the door in every respect it just further and further weakens the accountability banks have in meeting local needs,” said Kevin Stein, a director at the California Reinvestment Coalition. Stein called the proposal a “Trojan horse.” Since the report is open to interpretation, “it opens the door to undermining the very heart of CRA,” he said.
Rawan Elhalaby, a manager at the Greenlining Institute, said these issues could be resolved if the law included a race and ethnicity clause. Currently, the Community Reinvestment Act also applies only to banks, leaving out independent mortgage companies and credit unions, so its efforts are misdirected. These institutions operate without the same level of oversight.