My experience shows why CRA reforms are necessary
When I was 9 years old, the Community Reinvestment Act had just become "a thing" in 1977.
Back then, it was mostly about banks doing basic community outreach to underserved neighborhoods. Thankfully for me, it came in the form of a Bank of America employee who was ready to teach financial literacy, too.
The class was home economics. He was a Caucasian man, wearing a black suit with a crisp white shirt and a red tie. Perhaps he showed up thinking he was there to comply with a new federal statute. However, he left having changed someone’s life — mine.
There were no office buildings where I grew up in Compton, Calif. There were no white professionals roaming about in my community, and no one had a business card or a fancy corporate title. Few, if any of my neighbors, were on a salary.
And typically the only white men who came to the neighborhood were police officers or police detectives dressed in a suit.
Then, here came this suited-up banker.
I was fortunate to have a banker committed to teaching adolescents the "language of money."
A few sessions in, I recall asking this banker, “What do you do for a living, and how did you get rich legally?”
He gave a deadpan response: “Young man, I am a banker, and I finance entrepreneurs.”
I quipped, “Well, I don’t know what an entrepreneur is, sir. But if it’s legal, and you’re financing it, then I’m going to be one!”
Immediately after this, I began to learn everything I could about entrepreneurship. Within a year after that fourth-grade class, I started my first business, the Neighborhood Candy House.
Eventually I put the corner liquor store out of the local candy business. And John Hope Bryant, the entrepreneur, was born.
That experience being taught by a white banker trying desperately to comply with the CRA — now a 43-year-old law that regulators are revamping — has steered my career into helping communities the CRA was meant to serve.
CRA compliance actually empowers banks
Operation HOPE’s first loyal funders were banks insured by the Federal Deposit Insurance Corp. that were trying to comply with a newly revised CRA. Had the CRA not existed at the time, Operation HOPE would have never gotten off the ground.
Today, Operation HOPE is among the largest nonprofit financial inclusion organizations in the nation, having served more than four million clients in low-wealth, underserved communities.
There are 153 HOPE Inside locations in 22 states that have assisted clients in securing more than $3.5 billion in private capital for neighborhoods like the one I grew up in. The nonprofit has helped individuals raise their credit scores by 120 points within 24 months.
And then came the coronavirus pandemic.
Looking into the future of the most devasting pandemic in more than a century, I am working on the answer to Dr. Martin Luther King Jr.’s final public question and the beginning of his last book title: Where do we go from here?
The future of the CRA
Answering that question also involves determining where the CRA goes from here as regulators are finalizing a proposal to modernize the law.
Today marks the third time in my career that the CRA is being revised as a tool for systemic change. This is an opportunity to have a profound impact on the nation.
Comptroller of the Currency Joseph Otting is leading the change jointly with the FDIC. In a recent conversation I had with Otting, he described the proposed effort as reforming and modernizing the CRA — a vision that I support.
Life requires constant software upgrades to how we live it. Likewise, CRA modernization must provide support for, and investment in: internships (relationship capital needed for gainful employment and professional careers); apprenticeships (skills development for jobs); financial coaching of the underserved; support for well-priced debt; and accessible equity for small businesses.
Reforms should also focus on real credit for increasing individual and community credit scores, like the work Operation HOPE does in 22 states.
Also, when it comes to analyzing banks for CRA compliance, there needs to be a data-centric approach that requires banks to "show us the money." And an increased accountability around what qualifies for CRA credit and what does not. Meaning regulators providing a list of what a bank gets credit for in urban and rural America. These are things that I can get behind, a radical movement of common sense.
As Americans work to overcome the coronavirus crisis, they will need a so-called new Marshall Plan. This includes using the government’s Qualified Opportunity Zones as a potential gateway for community-based venture capital investments, and finally getting banks into the emerging-market business in America through CRA reforms. There should also be a wraparound package of local, state and federal policy updates that juices America’s future growth, from the bottom up.
The CRA modernization has fueled much criticism and calls to delay the rulemaking process.
However, it should be seen as simply the next software upgrade for where banking regulation and public policy need to go next. It’s about data and measurement, impact and outcomes, real lending and real investments at scale, sustainability, and finally, appreciating the business case for underserved America.
It’s about giving banks the tools — and holding them accountable and responsible — to view the communities that I love as legitimate places for their business development and customer growth. It could be part of the answer to "Where do we go from here?"