CRA reform amid coronavirus would fuel discriminatory lending

Access to credit is crucial for families and businesses trying to rebound from the coronavirus pandemic. Sadly, for millions of Americans, that access won’t just depend on their financial situation but also on the color of their skin.

Long before this public health crisis and the 2008 recession — in fact, for as long as financial services have existed — minority communities have been systemically denied that service. And during a time of crisis, those most vulnerable will stand to be the most hurt.

As the saying goes: When America catches a cold, black America catches pneumonia.

Redlining, when a lender denies service to a predominantly minority neighborhood, is still very much ongoing and well understood in the black community. Look no further than the Main Streets of minority communities where bank branches are noticeably absent. This isn’t just an anecdote; it’s a fact backed by startling new research.

Ahead of a field hearing I chaired on the subject of modern-day redlining, my office did an in-depth analysis of banking branch density in New York’s Queens area, considering key income and demographic factors.

The data (pulled from updated 2010 Census Bureau figures and Federal Deposit Insurance Corp. bank branch data as of January) shows a clear downward trend of bank branch density in Queens ZIP codes by black and Hispanic population density. Meaning, the more black and Hispanic a ZIP code, the fewer branches there are per capita.

The data shows that Queens ZIP codes with less than 25% black and Hispanic populations have a total of 193 bank branches, for a cumulative population of 609,655 people. This represents one bank branch for every 3,159 people.

By contrast, ZIP codes with more than 75% black and Hispanic populations have only 20 bank branches for a cumulative population of 458,727. This represents one bank branch for every 22,936 people, roughly seven times fewer banks branches per capita compared to the previously stated populations with less minorities.

To better understand how race and income interplay in determining whether a ZIP code is a so-called banking desert, ZIP codes were isolated to those with more than 70% black and Hispanic populations, and those with less than 30% black and Hispanic populations. The data was then ranked by income, keeping only the ZIP codes where the predominantly black and Hispanic populations have a higher median income than those where minorities represent less than 30% of the population.

Doing so starkly revealed that the predominantly black and Hispanic high-income ZIP codes have far lower bank branch density than the lower income nonblack and Hispanic ZIP codes. Further, three of the predominantly black and Hispanic ZIP codes have no bank branches at all, despite being high-income. Meanwhile, all the lower-income ZIP codes with predominantly nonblack and Hispanic populations had at least two branches per 10,000 people.

This last finding is especially disheartening, confirming that race — and particularly the density of black and Hispanic populations — is the main determinant of bank branch density and banking deserts. While these findings are specific to Queens, the sample analysis could easily be applied across the country, yielding similar findings.

As chairman of the House Financial Services Subcommittee on Consumer Protection and Financial Institutions, I’ve led a series of hearings on the Community Reinvestment Act and its relevance to the banking sector today. The CRA was enacted in 1977 as a direct response to the long, painful legacy of structural discrimination, financial exclusion and redlining that perpetuated disinvestment in minority communities across America.

At its core, the CRA is a civil rights bill. It was the fourth of a series of banking bills passed to address systemic discrimination in banking. The other bills included the Fair Housing Act of 1968, the Equal Credit Opportunity Act of 1974 and the Home Mortgage Disclosure Act of 1975.

Unfortunately, Comptroller of the Currency Joseph Otting and the FDIC have jointly put forward a proposed CRA reform which fundamentally undermines the law’s original civil rights intent. It is expected to worsen the prevalence of banking deserts and to further limit access to mortgage and small-business loans for low-income communities and communities of color across the country.

It is noteworthy that after extensive engagement in an interagency process, the Federal Reserve did not join their fellow agencies’ proposed rulemaking. Instead, the Fed put forward a thoughtful, data-driven framework for updating the CRA in a manner consistent with the law’s civil rights roots, while also seeking to make it more applicable to the realities of 21^st-century banking in America.

It is regrettable that these civil rights-era banking laws remain as relevant today as they were when initially passed. It is also deeply troubling that early data indicated that the inequities that already exist will compound the economic pain caused by COVID-19, as it did during the Great Recession.

These issues, which impact the economic prospects of millions of low- and moderate-income Americans across the country, must be addressed. As Fed Gov. Lael Brainard rightly stated in January, any reforms to the CRA will impact Americans for decades to come.

For the sake of Americans, especially those now facing a financial downfall, it matters that we get this right.