Outlawed in 1968 with the passage of the Fair Housing Act, redlining was the legal practice of denying critical financial services to borrowers based on a person’s race. Financial institutions drew red lines around communities, deeming those areas “hazardous” for investments. This led to the systematic denial of wealth building opportunities for low-income communities of color. At the same time, wealthier, Whiter communities enjoyed unfettered access to the financial services needed to build thriving communities. 

The legacy of redlining lives on in the persistent racial wealth gap that plagues our communities today. It has also resulted in neighborhoods that not only lack financial institutions, but also bear disproportionate environmental burdens due to lack of community investment, resulting in increased vulnerability to climate change.

The federal Community Reinvestment Act (CRA) enacted in 1977 was our country’s first attempt to correct the devastating impacts of redlining. The CRA requires traditional financial institutions, like banks, to help meet the credit needs of the local communities where they have branches. The CRA, while not perfect, was pivotal to broaden access to financial opportunities in low-income communities and communities of color where they were previously denied. 

However, this decades-old legislation has failed to keep up with the rise of nontraditional and fintech lenders–or nonbanks–that now dominate the lending market. Fintech lenders now write two thirds of U.S. mortgages, a 660% increase in market share since 2009. In California, the top three mortgage lenders are all nonbanks, like Rocket Mortgage. In 2020, we found that these nonbank lenders are more likely to make home loans to low-income borrowers than traditional banks in California. 

States throughout the country have enacted their own CRA legislation to fill this obvious gap in federal CRA protections. Despite the prevalence of nonbank lenders in California, and the glaring racial wealth disparities that still exist, our state’s financial regulators do not have the authority to evaluate whether financial institutions are effectively meeting the needs of underserved communities. In addition, the CRA doesn’t explicitly address racial disparities, nor compel financial institutions to track data on racial wealth gaps. While the CRA has certainly led to positive change, it’s clear that more is needed.   

SB 1176–authored by Senator Monique Limón–begins the process of filling in the gaps within the federal CRA. The bill directs the California Department of Financial Protection and Innovation to conduct an analysis of state-licensed financial institutions, including largely unregulated fintechs. Additionally, it closely examines how well state-licensed financial institutions are meeting the needs of underserved communities.

The Greenlining Institute has proposed an amendment to SB 1176 requiring additional analysis of the link between low financial investments and heavily polluted neighborhoods, which are disproportionately communities of color. This crucial analysis will help identify where community reinvestments could be used to achieve a “win-win” result of investment in underserved communities that also bolsters resilience against the economic impacts of the climate crisis.

After the decades of harm done to communities of color through redlining and its lasting impacts, California has an opportunity now, through SB 1176, to cement its status as a leader in protecting communities from financial discrimination and predatory lending. 

The Greenlining Institute is proud to support SB 1176, and thanks Senator Limón for her vision and leadership to protect Californians from discrimination. We are joined by our partners at the California Reinvestment Coalition, and the Office of Kat Taylor, in the fight to pass this crucial first-step legislation and to make California an affordable place to live for every resident.


Rawan Elhalaby is Greenlining's Associate Director of Economic Equity. Follow her on LinkedIn or Twitter.