The Community Reinvestment Act Is Under Attack

(Feb. 2018) A key piece of federal legislation that protects vulnerable consumers and disinvested communities has come under attack: the Community Reinvestment Act (CRA). Passed in 1977 as a response to discriminatory redlining in communities of color and working class neighborhoods, the CRA encourages banks to lend in these underserved areas by giving them a score based on the number of safe, sound loans they originate within the communities served by their branches.

The CRA ratings look at a bank’s lending, investing, and provision of banking services to low- and moderate-income (LMI) customers and in LMI census tracts. A bank’s size determines which activities are reviewed and rated. Among other things, the CRA ratings consider bank lending in the areas of affordable housing and community development. The community development test evaluates the amount and responsiveness of a bank’s community development lending, investing, and services, such as Low Income Housing Tax Credits (LIHTC), housing developments construction loans, or investments in small businesses finance organizations.

The current Administration began weakening CRA enforcement regulations in 2017, and officials recently announced the administration’s intentions to further loosen CRA examination and scoring requirements. Some proposed CRA changes – such as expanding CRA requirements to credit unions, mortgage banks and internet-based non-bank lenders that do not have physical branches – have support from both consumer advocates and industry alike. But other proposed changes will make it easier for banks to pass their CRA examinations and would reduce penalties for non-compliance.

One of the most troubling proposals thus far has been to expand the CRA’s definition of “community development” lending. Community development currently includes loans for and investments in affordable housing and infrastructure projects. The American Bankers Association wants to add small business lending as a type of community development lending. While support for small business is important to the economic recovery of disinvested communities, for-profit small business lending is already a scoring component in a bank’s retail lending CRA rating; double-counting it will disadvantage consumer lending and mortgage origination.

NCST’s Community Buyers consistently tell us that accessing credit – both for their own rehab work as well as for the ultimate owner-occupants of those homes – remains a struggle and hinders their community development work. Loosening CRA requirements and broadly redefining “community development” lending will likely make this problem worse, particularly in the neighborhoods that many of our Buyers are working to stabilize. Based on our experience, incentives for financial institutions to lend to low- and moderate-income borrowers should be strengthened, not watered down.

A national organization that has been leading the charge on defending and improving the CRA for consumers is the National Community Reinvestment Coalition (NCRC). In anticipation of these troublesome plans to change the CRA, NCRC sent a letter last week calling on Treasury Secretary Mnuchin and the Office of the Comptroller of the Currency to strengthen the CRA and to reject industry proposals that would dilute its impact. NCRC also has developed a manual entitled CRA 101, which is a powerful tool for understanding how the CRA works and how local advocates can leverage the CRA to hold banks accountable to better serve their communities. You can learn more about NCRC’s advocacy on this issue at their CRA Organizing portal.

If your organization has been working on local CRA advocacy in your community, or if you would like to discuss how your organization can benefit from more CRA engagement, please reach out to Julia Gordon.

This column was originally published in February 2018.