A primary goal of 1977's Community Reinvestment Act (CRA [1]) was to reverse the effects of redlining [2], a practice by which the federal government and banks actively avoided lending to borrowers from lower-income and minority neighborhoods.
Some housing advocates believe pending rule changes will weaken the CRA and that, though it could use some updates, now is not the time.
In her piece published earlier this week, Paula Melton from BuildingGreen.com [3]examines both sides of the issue and explores options remaining for entities hoping to halt the trajectory of recently proposed changes.
Although it’s not perfect, the CRA has been “a key driver of financial equity and helped spur hundreds of billions of dollars of investments,” Melissa Stegman, Senior Counsel at the Center for Responsible Lending (CRL), told Melton.
Seema Agnani, Executive Director at National Coalition for Asian Pacific American Community Development [4], added that "the CRA is one of the most important tools we have in the community development field to put pressure on the financial institutions to give back in the places where they are making profits—particularly in low-income communities.”
Researchers at the Urban Institute's Housing Finance Policy Center wrote last summer, "Even though the banking industry has drastically changed since the CRA was enacted, the current regulations are working reasonably well. Any modernization efforts should be rooted in data, and...[they added], there is no need for change in the middle of a pandemic [5]."
But prior to the stated changes proposed by the Office of the Comptroller of the Currency (OCC) last May, many agreed the act needed modernization to fit today's digital environment as well as to better address the racial-equality issue.
Josh Silver, Senior Advisor at the National Community Reinvestment Coalition, told BuildingGreen the CRA, in addition to needing updates that take into consideration the proliferation of electronic banking, could do more to benefit struggling communities. He added that the order has not changed at all since 1995.
“It has been really important for driving investments," he told BuildingGreen of the act, "but it hasn’t always reached the communities that are harder hit during times of economic uncertainty and crisis.”
And, wrote Melton, "there’s also the grading system, which banks have complained about for years, saying it’s not sufficiently standardized and is therefore too subjective."
Though many were on board with rule changes, many were not satisfied with the OCC's amendments, which opponents said diminished existing provisions.
"Critics argue ... the OCC has weakened the law under the guise of modernization, incentivizing large infrastructure projects instead of community needs and potentially bringing full-fledged redlining back," according to the BuildingGreen article.
“It took away the original spirit of the CRA,” Agnani told BuildingGreen. “There is really broad consensus around the nonprofit sector that it does not achieve what CRA is intended to do.”
Furthermore, “It would allow banks to ignore 20% of assessment areas and still pass,” Stegman reportedly said. “This could really result in unchecked disinvestment and a return to redlining.” Also, she said, “The rule disincentivizes investment in low- and moderate-income communities and communities of color. The activities of investment don’t have to primarily benefit low- and moderate-income communities.”
The outcome remains to be seen.
As is pointed out in the article, the OCC is just one of three regulatory bodies that oversee banks and assign their publicly available CRA grades. It is uncertain whether its final rule will hold up. Melton writes that she secured comment from OCC but that the representative did not follow through with an interview.
The Federal Reserve Board (the Fed) reportedly recently released a competing Advance Notice of Proposed Rulemaking (ANPR) for the CRA. (The third regulator, the FDIC, hasn’t engaged in rulemaking, according to the report.)
The Hosue Financial Services Committee Chair Maxine Waters also has sharply opposed [6] the OCC's proposed changes.
At the time of the article's publication earlier this week, Melton writes, "it’s unclear how the differences between OCC and the Fed might be resolved."
The article, which can be read in full here [3], details the ins and outs of the rulemaking and amendment process and where this issue stands.
Essentially, Melton concludes, "it’s not too dramatic to say that whole communities are waiting to have their fate decided for them amid this regulatory back-and-forth."