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Trump Admin Moves to Weaken CRA, Lessen Bank Lending in Low-Income Areas

On Tuesday, the Trump Administration formally started work towards a long-held goal: weakening the Community Reinvestment Act (CRA).

The Office of the Comptroller of the Currency, one of the federal entities in charge of enforcing the CRA, announced that it is seeking input about how to “modernize” the legislation and reduce the “burden” imposed by its requirement to lend to low- and moderate-income borrowers.

Here’s a quick refresher on the CRA from an earlier post. Feel free to skip down if you’re already familiar.

The CRA was written after several decades of growing pressure for Congress to reverse damage done by the legalized racism of the mid-20th century. Between 1934 and 1968, the Federal Housing Authority effectively required that private mortgage institutions avoid lending to non-white communities by refusing to back loans that did not comply with their rules.

In the practice known as “redlining,” detailed city maps were distributed by the Authority to mortgage companies with neighborhoods color-coded to determine their desirability for lending based on how homogenously white the neighborhood was.

A map of redlining in Philadelphia

A map of redlining in Philadelphia

This policy and others like it are in large part responsible for our present day racial wealth gap. The CRA attempts to correct this by monitoring the volume of loans banks make to low- and moderate-income communities, as well as the number of branches and ATMs they have in these areas.

Financial institutions that do significant lending in low- and moderate-income neighborhoods are more likely to be approved to open new branches and merge with other banks, whereas noncompliant institutions may be denied or required to make a plan for investment with community groups before being given approval.

But all that could be a thing of the past if the Trump Administration gets its way. The public request for comment includes a number of softball questions offered up for the banking lobby to knock out of the park. Based on these questions, we can gather a picture of the chances the Trump Administration has in mind.

One of their key goals seems to be to weaken the importance of assessment areas and physical bank branches.

Since the CRA’s primary purpose is the undo the effects of redlining, it places a heavy emphasis on the location of bank branches and the neighborhoods that banks are lending in. Having more banks and making more loans in low- and moderate-income neighborhoods gets banks more CRA credit.
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The Administration (and, coincidentally, the banking lobby) have argued that online banking services have made physical bank branches irrelevant for serving low-income communities.

But that’s clearly not true.

Residents in low-income communities are less likely to have high-speed internet or own a smartphone, making online banking harder for them to access.

Additionally, the relevance of bank branches is evidenced by their continued existence and expansion in more affluent neighborhoods. Many large banks still make more than half of their loans through traditional brick-and-mortar locations, and they’re not closing “irrelevant” branches in these wealthier locales.

Another Trump Administration goal appears to be expanding the categories of loans that count for CRA credit to the point that they are meaningless. Providing financing for the construction of a new hospital, for instance, has been floated as a possible expansion.

While financing a new hospital in Ward 8 is a worthy goal, adding yet another hospital to Northwest DC is not.

There are meaningful updates and expansions to the CRA that could be helpful, and many good ideas have been proposed by the National Community Reinvestment Coalition. But with the Trump Administration’s list of questions released yesterday, it’s clear that their only goal is to satisfy the banking lobby.

MANNA and other DC nonprofits depend on funding incentivized by the CRA to offer affordable housing and homeownership counseling services. So do low- and moderate income families looking to buy a home.

If the incentive goes away, that funding won’t last long. A recent review of changes to CRA designations in Philadelphia found that lending to lower income borrowers fell a whopping 20% when a neighborhood no longer qualified for CRA credit.

Now is the time to weigh in. Click here for information about how your organization can submit a comment in support of the CRA’s low- and moderate-income lending requirements.

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