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Trump might cut low-income lending. Here’s how DC needs to respond.

In November of 2017, DC Councilmember David Grosso (At-Large) introduced a bill that would likely increase affordable housing investments and low-income lending by banks that do business with the District government. That bill—and the work it looks to accomplish—have always been important. But recent moves by the Trump administration have made its passage more important than ever.

What’s in the bill?

The bill is actually an update to an earlier responsible banking law, the Community Development Amendment Act, or CDAA. The CDAA set standards for banks that do business with the District government, as well as making their past commitment to low-income lending a part of their score when applying for District contracts. If a bank is benefitting from DC tax dollars, the thinking goes, then that bank needs to be benefitting all DC taxpayers.

But that law, passed in 2014, has never had the impact that its supporters hoped. A loophole in the way the law was written allows DC’s Chief Financial Officer to renew District banking contracts without putting banks through the evaluations specified in the law. That means that as long as DC doesn’t change banks, the CDAA’s responsible banking requirements are meaningless.

The new bill from Councilmember Grosso, entitled Strengthening the CDAA, would close this loophole by requiring that any bank up for a contract renewal be put through the full evaluation process. It also adds to the CDAA by raising the importance of a bank’s past lending activity when that bank is applying for a District contract. The bill was introduced with the support of Councilmembers Bonds (At-Large), Robert White (At-Large), Trayon White (Ward 8), Gray (Ward 7), and Silverman (At-Large).

With this kind of evaluation in place, banks that want to compete for District contracts will have more incentive to serve all of DC’s neighborhoods. Banking services in certain parts of the city, especially Wards 7 and 8, are scarce. Residents have few options when looking for a loan, and many are forced to turn to predatory payday lenders. Getting access to non-predatory home loans and other financial services is a crucial part of increasing racial equity in DC.

One of the ways that both the current law and the new bill evaluate banks is their score from the Community Reinvestment Act. The Community Reinvestment Act was passed by Congress in 1977 as an antidote to decades of racist lending policies. It scores banks on their lending in low income communities and allows community advocates to point out racist lending patterns that exist to this day.

Banks care about their score on this test because it determines their ability to do big money-making deals like mergers with other banks. (The Community Reinvestment Act is worth its own blog post, and you should read the one linked above!) The CDAA and Councilmember Grosso’s new bill both bring extra leverage to the work that the Community Reinvestment Act does.

Why this matters now more than ever

As with most programs that support low-income Americans and people of color, the Community Reinvestment Act is under threat by the Trump White House. Reports emerged earlier this year that the Trump administration is planning to significantly weaken the Community Reinvestment Act, allowing banks to get away with less lending to deserving low-income individuals.

That could create even bigger gaps in access to mortgages and other lending in low-income communities. And those communities are already hurting. Reports from last year indicated that banks were already starting to further limit their lending in low-income communities, even before rumors of a Community Reinvestment Act rollback started.

Local governments will need to fill the hole created by lost Community Reinvestment Act lending, and Councilmember Grosso’s bill to strengthen the CDAA is a great step in that direction. If the DC government really wants to support access to lending for all Washingtonians, Strengthening the CDAA is a must.

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