The ‘C’ in CRA should still mean something
The Community Reinvestment Act, a law that was put in place in 1977 to address redlining, is finally receiving the modernization that community groups and the banking industry have long called for. But with Main Street taking a beating by the Trump administration’s gutting of the Consumer Financial Protection Bureau and stripping of key Dodd-Frank Act provisions meant to reign in Wall Street banks, you can’t blame us for being skeptical of Treasury’s “modernization” recommendations.
After all, Wells Fargo dropped from an “Outstanding” to a “Needs to Improve” rating on its most recent CRA exam for illegal and discriminatory credit practices. Now Treasury is questioning if CRA exams should even downgrade banks for discrimination; the recommendations reference a recent OCC update in which discriminatory behavior or other illegal credit practices by a bank do not necessarily lead to downgrading. Treasury recommends a principle they refer to as the "logical nexus" to determine if such behavior is relevant to CRA before considering grade changes.
We are left wondering if this is truly a “modernization” effort or an attempt by the banking industry to change the rules of the game.
CRA was put into place to address the refusal of banks to lend to and meet the financial needs of low- and middle-income communities. Crucially, CRA brings together communities that have been historically marginalized and denied access to banking services, and the organizations that represent them, to sit at the table with banks and regulators. This ensures that bank investments, lending and financial services meet the needs of the communities where they do business. Due to the law’s effectiveness, the California Reinvestment Coalition has secured over $25 billion in commitments from banks for California communities over the past four years.
But several of Treasury’s proposed changes seem to be written by bankers, for bankers.
One recommendation, for example, expands the scope of activities that count for CRA credit. CRA already counts many different activities, making it easy for banks to score high on their exams. In fact, 96% of banks receive a “Satisfactory” or “Outstanding” score, despite evidence that many of these same banks have engaged in harmful behavior such as discriminating against people of color for home and small-business loans, providing loans that fuel displacement, and reducing access to bank branches. We shouldn’t make it even easier for bad actors to score high.
Additionally, Treasury would like to weaken punishment for bad actors. Currently, banks with low scores are not allowed to expand or merge. Changing this policy would let banks continue to perpetrate bad behavior. We teach our children that actions have consequences; why won’t Treasury punish wrongdoers?
Another recommendation is to de-emphasize the importance of branches as online banking becomes more common. This is problematic. Many low-income people and those who live in rural areas don’t have convenient bank branches available and may not have access to online banking tools. This increases the likelihood of using predatory financial services like check cashers or engaging in risky behaviors like keeping cash at home. Fewer branches means decreased access to credit for small businesses. This modernization hurts the people who need a strong CRA most.
Our recent report shows how effective CRA has been in the communities we serve. We favor a strengthened CRA that continues to prioritize the needs of communities, not a revamped CRA that places the needs of Wall Street banks before the needs of Main Street families.
Unfortunately, redlining, discriminatory lending and harmful consumer credit practices are alive and well in our country. Communities must be allowed to ensure that banks are held accountable. As CRA is brought up to date, we must guarantee that the communities we represent don’t lose their seats at the table.