Share Facebook Twitter LinkedIn Email For decades, African Americans, immigrants and people with low wealth of all races and backgrounds couldn’t borrow money to buy homes or grow small businesses. Starting at least in the 1930s, banks, real estate agents, local officials and surveyors from the federal government labeled their neighborhoods “hazardous” and marked those neighborhoods with red lines on maps. The “redlining” of whole neighborhoods was devastating for millions of working families in virtually every city and town nationwide. They were intentionally and systematically excluded from the American dream, unable to get bank credit to make purchases that would have allowed them to accumulate wealth and pass it on to their children the way white families could. Congress took an explicit step against redlining when it passed the Community Reinvestment Act (CRA) in 1977, requiring banks to serve all communities, particularly low- and moderate-income ones. The law was simple. It required banks to lend money in the communities where they had branches and took deposits, including the poor ones. Banks could no longer siphon deposits out of low-wealth neighborhoods to reinvest in wealthier ones. The Community Reinvestment Act wasn’t designed to end racism, and it didn’t vanquish discrimination in lending. Even today, in many communities across the nation, loan denial rates for blacks and Hispanics are far higher than for whites with similar incomes. Recent tests with “mystery shoppers” in a handful of cities documented one way this discrimination happens. Put simply: Bank employees treated white customers better than black and Hispanic customers with similar or better qualifications. But CRA was designed to expand access to credit and capital in lower-income neighborhoods, and it did. Banks made $1.2 trillion in community development loans and $1.2 trillion in small business loans attributed to meeting CRA requirements to low- and moderate-income (LMI) communities from 1996 to 2018, and $2.2 trillion in mortgage loans to LMI borrowers and communities from 2009 to 2018. What CRA has meant is that banks have made the effort to understand lower-income communities. They have developed affordable loan products and services, worked more closely with community stakeholders and nonprofits that serve these markets, and developed lending and investing vehicles for affordable housing, renovation of commercial corridors and neighborhood revitalization efforts. Though profitable, this work may not be the most profitable in a bank’s portfolio and it may require more bank effort to execute. In January, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) published a plan to rewrite the rules banks must follow to comply with the CRA. The proposed rule changes are flawed in many ways. But the bottom line, for lower-income communities and foundations that seek to strengthen them, is that the proposal would significantly weaken a law that accounts for tens of billions of dollars of loans and philanthropic support every year. Although little known outside of banking and housing circles, the financial impact of CRA on communities and nonprofits that serve them rivals the $427 billion in annual charitable giving from all sources and for all causes in the U.S. (including $76 billion from foundations in 2018). Foundations should pay close attention not only because CRA is critical for community and personal well-being everywhere, but also because many local nonprofits supported by local and national foundations could face an existential crisis if their CRA-related grants decline or vanish. That’s likely in some communities if the proposed rules are approved. The new rules would give banks CRA credit for activities that have nothing to do with the needs of lower-income families and neighborhoods, like road and bridge projects, sports stadium construction and upgrades, luxury housing in Opportunity Zones, high-cost consumer lending, and “pro-rata” credit for bank activities that only partially benefit lower-income communities. The COVID-19 pandemic will undoubtedly exacerbate local needs and the fragility of local nonprofits. A Federal Reserve study in Philadelphia suggested the disappearance of CRA requirements in a neighborhood could lead to a 20% decline in bank lending and investments there. How much did CRA produce for communities you care about? Here’s an interactive tool to find out. For the organization that I lead, CRA is a critical tool we use to hold banks accountable to their local communities. We have pioneered an approach to lock in hard commitments and increases in lending, investments and philanthropy when banks want to grow or merge. For instance, when BB&T and Suntrust announced a plan to merge last year, to create a new bank called Truist, we convened and negotiated a historic $60 billion pledge from Truist to support LMI communities and services. In the past four years, NCRC has negotiated $159 billion in Community Benefits Agreements with 11 banking groups. A study by the National Community Reinvestment Coalition concluded that nearly all banks that earned passing marks under current CRA rules would be able to reduce their mortgage lending to low- and moderate-income (LMI) borrowers and communities under the proposed rules. The proposed changes to CRA rules would undoubtedly mean fewer microloans for small businesses and small farmers, fewer small mortgages in high need and rural communities, less reason to commit bank capital to finance affordable rental housing units or complex deals to revitalize a historic district or rehabilitate a neighborhood in the midst of a turnaround. Perhaps the most egregious detail in the proposed rules is a plan to allow banks to “fail” their CRA exams in nearly half of the local communities where they do business but still earn an overall satisfactory grade on the exam. In other words, the government is proposing a way for banks to choose to do business in some communities, and choose to do none in others. That’s exactly what happened when redlining was mapped and sanctioned by the government in the 20th Century. It’s the problem CRA was enacted to solve. Although bankers and community advocates urged regulators to issue new CRA rules to reflect changes in how people access modern banking services, and to make the rules clearer for everyone, instead the agencies came up with a plan to turn the clock back with a callous invitation for banks to behave badly and get away with it. There’s also cruel irony in the timing of the proposal. The largest U.S. banks earned record profits in 2018 – more than $120 billion, following corporate tax reform that greatly benefited them. Jamie Dimon, head of the nation’s largest bank, JPMorgan Chase & Co., last year led the Business Roundtable to “redefine the purpose of a corporation” to be better corporate citizens. The OCC and FDIC CRA reforms would enable banks to be worse corporate citizens. That’s not good, and the banks shouldn’t want that either (and it seems some of them do not). There is no doubt that the rule changes proposed by the government would diminish the effectiveness of a law that was desperately needed when it was enacted and which remains essential to ensure banks meet the credit needs of all communities where they take deposits, not just the wealthy ones. That’s wrong, entirely counter to the purpose of CRA — and it threatens families, entire communities and nonprofit grantees that foundations care about. To learn more about CRA and how to submit a comment to the agencies, visit TreasureCRA. Jesse Van Tol is Chief Executive Officer of the National Community Reinvestment Coalition (www.ncrc.org).