CRA reform crucial for tackling rural poverty

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Federal Reserve Chairman Jerome Powell recently visited Mississippi Valley State University, a public, historically black university in the small town of Itta Bena. The trip marked the first official visit by a sitting chair of the Fed to the Mississippi Delta.

Speaking at an event hosted by Hope Enterprise Corp., Powell emphasized that many areas had not benefited from a strong national economy, including places like Itta Bena, where 43.5% of residents live below the federal poverty level.

During his remarks, Powell outlined steps for increasing economic mobility in communities plagued by persistent poverty, underscoring the importance of the Community Reinvestment Act, which is intended to meet the credit needs of low- and moderate-income communities in their service area.

As he explained, “access to safe and affordable financial services is vital, especially among families with limited wealth — whether they are looking to invest in education, start a business, or simply manage the ups and downs of life.” Powell further noted that increased bank consolidation “has led to a long-term decline in the number of community banks.”

Community development financial institutions often fill these gaps, providing safe, affordable financial services in areas not well served by traditional banks that are often overrun by payday lenders and other high-cost providers. Banks are the single largest source of funding for CDFIs, and this is driven in large part by the Community Reinvestment Act. The direction of CRA reform will play a major role in determining the level of investment that is made in rural areas of persistent poverty going forward.

In Itta Bena, Chairman Powell said that “revisions to the CRA's implementing regulations should more effectively encourage banks to seek opportunities in underserved areas.” To accomplish this, policymakers should place a priority on incentivizing investment in underbanked areas, and in high-poverty communities.

A bank’s CRA assessment area is largely based on the location of its branches. When banks close branches in persistent poverty areas, their CRA assessment areas shift, leaving vulnerable communities even more disinvested. This is the case even when the bank may actually continue serving the area, either with a less conveniently located branch farther away or via mobile banking services.

Recent research by the Housing Assistance Council revealed that rural America has lost over half of its banks in the last few decades, and that one in eight rural counties have zero or one bank left. The reduction, along with the recent rash of rural branch closures, has driven economic decline and isolation.

As CDFIs working to fill the financial service gaps in poor, rural communities, we have witnessed the devastation wrought on communities when banks close their branches. As Chairman Powell said, Fed research has found that “the loss of the branch often meant more than the loss of access to financial services; it also meant the loss of financial advice, local civic leadership, and an institution that brought needed customers to nearby businesses.”

To ensure that rural America can access and benefit from the nation’s mainstream banking system, we strongly encourage the following CRA reforms. First, CRA assessment areas should be expanded to include more rural communities, and to allow banks with little-to-no physical footprint or few branches in rural communities to obtain CRA credit for investments in areas of persistent poverty. Second, CRA credit should be provided to banks partnering with CDFIs to innovate solutions that build the capacity of communities, small businesses and individuals, in addition to extending them needed financial products. Finally, new forms of financial activity should be incentivized within areas that have limited access to capital by providing CRA credit for bank activity or investment in CDFIs serving remote rural areas.

Talent is equally distributed across the United States. Opportunity is not. Today, 21 million Americans live in 473 persistent poverty counties. Seventy percent of those counties are rural, and include black families in the Mississippi Delta and the Alabama Black Belt, Latinos along the southern border and the central valley of California, Native Americans residing on sovereign lands and white families in Appalachia. Many have deep roots in their communities, with families that trace back generations and a commitment to the area that remains unwavering. They don’t want to choose between their ties to their land and the economic prosperity for their children. Strengthening the CRA will help ensure they don’t have to.

The authors represent a coalition of community development financial institutions dedicated to advancing economic mobility in persistent poverty areas including Fahe, CDCB, RCAC, Opportunity Finance Network, Prestamos CDFI, Housing Assistance Council and LISC.

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