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Can CRA meet its original goals?

By John William Templeton  Executive Editor

BMWorldwide–WASHINGTON– On my first job as a newspaper editor, I would walk around downtown Winston-Salem during the lunch hour.  One day, I went to the Wachovia Bank headquarters skyscraper to enter the bank branch at the front.  Innocently, I asked why there were two branches in the same building — one at the front entrance and another at the rear next to the garage level.

Someone said, “That’s the colored branch at the back.”    Although it was 1978 and I had lived through some segregation, desegregating a junior high school 12 years after Brown v. Board of Education, I was still stunned.

But, it made a story I covered three years earlier in Washington make sense–the Community Reinvestment Act.    Banks couldn’t exist without government assistance. In fact, the National Banks Act was passed in 1863 along with the Emancipation Proclamation to help win the Civil War with a unified currency.  So in 1975, Congress decided that all banks should lend to all parts of their service area.   The Equal Credit Act had shown that just ending discrimination wasn’ t enough.

So, the next time I came to the bank, I asked for their Home Mortgage Disclosure Act data, only to meet a blank stare.  Eventually, I got it as the first journalist to use the information and extended the request to North Carolina National Bank and First Citizens Bank.  There was a better chance of being struck by lightning than for an African-American borrower to get a loan in North Carolina.  The story created change, including a monthly meeting between Black newspaper editors and bank presidents.

But as we have seen in the past four decades, a law is no better than its enforcement.  In Come This Far By Faith: African-Americans 1980-2020, I traced the progress of Black neighborhoods only to see the systemic redlining grow even worse.  Destin Jenkins excellent book Bonds of Inequality shows how municipal finance made the situation even worse as Black communities were denied public infrastructure too.

So, today’s news of new CRA regulations is cause to spend the next two months scrutinizing the details. Bank lobbyists have prevented the Build Back Better Act which would have put real dollars in the hands of Black-owned banks and institutions.  We’ll need to watch how they try to shape these regulations: 

Federal bank regulatory agencies today jointly issued a proposal to strengthen and modernize regulations implementing the Community Reinvestment Act (CRA) to better achieve the purposes of the law. CRA is a landmark law enacted 45 years ago to encourage banks to help meet the credit needs of their local communities, including low- and moderate-income (LMI) neighborhoods, in a safe and sound manner.

Building on feedback from stakeholders and research, the agencies invite public comment on their joint proposal, which has the following key elements:

  • Expand access to credit, investment, and basic banking services in low- and moderate-income communities. Under the proposal, the agencies would evaluate bank performance across the varied activities they conduct and communities in which they operate so that CRA is a strong and effective tool to address inequities in access to credit. The proposal would promote community engagement and financial inclusion. It would also emphasize smaller-value loans and investments that can have high impact and be more responsive to the needs of LMI communities.
  • Adapt to changes in the banking industry, including internet and mobile banking. The proposal would update CRA assessment areas to include activities associated with online and mobile banking, branchless banking, and hybrid models.
  • Provide greater clarity, consistency, and transparency. The proposal would adopt a metrics-based approach to CRA evaluations of retail lending and community development financing, which includes public benchmarks, for greater clarity and consistency. It also would clarify eligible CRA activities, such as affordable housing, that are focused on LMI, underserved, and rural communities.
  • Tailor CRA evaluations and data collection to bank size and type. The proposal recognizes differences in bank size and business models. It provides that smaller banks would continue to be evaluated under the existing CRA regulatory framework with the option to be evaluated under aspects of the new proposed framework.
  • Maintain a unified approach. The proposal reflects a unified approach from the bank regulatory agencies and incorporates extensive feedback from stakeholders.