As a nation, we have a duty to end the lasting legacy of discrimination in housing and mortgage finance that lies at the core of the staggering and enduring wealth gap between whites and Americans of color. The Community Reinvestment Act, a historic civil rights law enacted in 1977 to stop banks from discriminatory lending practices, is one of our nation's most important tools for fighting such discrimination.
That's why it is so alarming that the Trump administration appears bent on changes that would badly weaken the CRA. The Office of the Comptroller of the Currency at the Treasury Department and the Federal Deposit Insurance Corporation have proposed a new CRA rule that would inflict significant harm on communities of color by making it easier for banks to shirk standards intended to undo discrimination in lending.
We're concerned the proposed changes would make lenders less, not more, accountable to the communities they are supposed to serve. These changes would allow banks to meet CRA standards with activities that are far removed from the lending - for people to buy homes, finance small businesses and build wealth - for which banks are chartered and insured.
The CRA was a landmark legislative achievement that forced banking regulators to monitor the lending practices of financial institutions and ensure they were not engaged in the once-government-sanctioned practice known as "redlining," where banks deliberately marked off areas on maps to avoid investments based on community demographics. The law requires banks to do business in all of the neighborhoods where they operate in order to be approved to open a new branch, or to grow by acquiring or merging with other banks. To determine whether banks are meeting those goals, they are graded on a range of activities.
Advocates at the Center for Responsible Lending warn that a weaker CRA rule could trigger as much as a 20% drop in lending in low- to moderate-income communities of color and a loss of as much as $105 billion in loans over five years - a staggering decline that would disproportionately impact communities of color.
While discrimination still clearly occurs, the law's beneficial impact is undeniable.
Since 2014, the CRA has facilitated 24% of home loans to low- to moderate-income Latinos and 25% of home loans to low- to moderate-income black families. In 2017 alone, the CRA contributed $1.7 trillion in lending to economically underserved areas, increased access to credit by 9%, and reduced the number of people with no credit scores or incomplete credit scores by 7%.
The lending increases driven by the CRA have made homeownership - a critical part of wealth building - attainable for millions, especially in communities of color. Any attempt to roll back hard-won civil rights protections and strip the CRA of its wealth-building impact must be opposed. To continue to fulfill its mission, the CRA must not be watered down.
Unfortunately, that's exactly what newly proposed rules would do.
The proposed changes would create loopholes that would allow financial institutions to skirt their responsibility of servicing the community. The new regulations would reward financial institutions for the total amount of dollars spent, rather than on the actual impact of their investments. This creates incentives for banks to make "low-risk, high-reward" investments. The better approach is to measure the impact that the dollars have in strengthening communities.
The proposed rules also would encourage online banking over physical branches in neighborhoods. While we recognize the benefits of online banking, for many in low- and moderate-income communities, physical access to a bank is still essential to get the services they need. Research shows that there is a direct correlation between the number of bank branches and ATMs located in a neighborhood and the credit opportunities available in a community.
The regulatory agencies are not united in rulemaking. The CRA designates the Federal Reserve, OCC and FDIC to oversee the implementation of the law jointly. However, the OCC and FDIC decided to move unilaterally, without the Federal Reserve, on this rule. Before they move forward to a final rule, we encourage these agencies to work with the Federal Reserve and reopen the rulemaking process to make it more inclusive, balanced and responsive to the communities that the banks they regulate are chartered to serve.
The CRA has room for improvement and even modernization, but any changes must be guided by practices that align with the spirit of the legislation.
These proposed rules don't pass the test.
ABOUT THE WRITERS
Janet Murguia is president and CEO of UnidosUS. Lisa Rice is president and CEO of the National Fair Housing Alliance. Wade Henderson is immediate past president of the Leadership Conference on Civil and Human Rights.
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