It wasn’t until civil rights activists led the national struggle for the adoption of the Community Reinvestment Act (CRA) in 1977 that banks had to invest in the communities they served. CRA now threatens to be dismantled in order to enable redlining in today’s world.
Lending to poor sections of the population is required for the rating agency, and banks are valued for their lending practices. Over forty years later, we can confidently say that the rating agency has made significant improvements to provide access to credit. The law has prompted lenders to make loans and billions of dollars in underserved communities for affordable housing, small businesses, and economic development.
We may go back in time to reverse the highly competitive progress. On January 9, the Office of the Currency Controller (OCC) posted a suggestion to dramatically revise the rules behind the CRA. The Federal Deposit Insurance Corporation (FDIC) has joined the OCC and the Federal Reserve disagrees. There is a lot to consider in the 240-page proposed technical regulation, but three points demonstrate the danger to communities across Ohio.
How it counts – Banks are currently being judged on the goal of serving all communities in which they do business. The proposed regulation would introduce an overly simplified valuation system (called a single metric), which does not take into account whether banks meet the local population’s credit needs. It provides incentives for large businesses to access credit for LMI mortgages and small businesses.
Where it matters – The new rating system would enable banks to disregard up to 50% of their rating area and still get a pass mark. This is not possible according to the current CRA regulations. This is an invitation to a modern form of redlining, in which you can imagine bank investments that are used to upgrade neighborhoods and to divest in historically disenfranchised neighborhoods.
What matters – It dramatically and irresponsibly expands what activities for CRA loans qualify for investments that are not related to CRA’s intent. For example, building stadiums or luxury boxes would count in many cases for the rating agency and reduce lending to small businesses and mortgages. Eligible activities would no longer be required to primarily support LMI communities that differ from the rating agency’s original intent.
Capital is the fuel for the American dream. Without access to capital, dreams of home ownership will remain unfulfilled, businesses won’t open, and our main streets will get worse. The National Community Reinvestment Coalition (NCRC) estimates that a small 10% decrease in CRA investment in Ohio would result in a $ 975 million loss in household and small business lending over a five-year period Period. That’s nearly $ 1 billion spent from Ohio communities for every 10 percent reduction in CRA loans.
Banks and municipal organizations like ours agree that the rating agency needs to be modernized and strengthened. Modernized to reflect the way mobile banking and online banking have changed and empowered the industry to reflect the economic needs of the community. This version of the reform is not the answer.
With this proposal, CRA is discouraged and we achieve a modern form of redlining. We need to encourage robust investment in fighting communities and not to rebuild the system against them.
Nate Coffman is the executive director of the Ohio CDC Association. To learn more about the CRA proposal and to make your own public comment, go to https://ncrc.org/treasurecra/,
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