Questionable Reforms To A Law Ensuring Banks Do Right By Low-Income Neighborhoods Are Moving Forward Amid The COVID-19 Pandemic
These communities will only be hurt further in the aftermath of the pandemic.
The Community Reinvestment Act (CRA), which was enacted in 1977 to combat redlining, forces banks to lend in the same communities they accept money and invest in low and moderate-income (LMI) communities. Advocates say this law will be extremely important in dealing with the lasting effects of the COVID-19 outbreak.The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (FDIC) proposed changes to the CRA before the coronavirus outbreak. Now, national and community organizations are calling for the suspension of the public comment period, which would allow citizens to weigh in on the proposal before it's finalized. The public comment period was slated to end April 8, but people are now asking that the period end after the crisis is over, Cleveland.com reported.
According to the FDIC, the proposed regulations, which were initially announced by the Treasury Department in 2018, would “modernize and update CRA regulations” that have not been changed in 25 years. They said the changes would make the CRA more “objective, transparent, consistent, and easy to understand.”
While many agree the act should be updated, advocates say parts of the reform would hurt LMI communities.
The reform would expand activities eligible for CRA credit such as investments in infrastructure projects as well as projects in LMI communities and census tracts.
“Those things are all fine, well and good, but they don’t have anything to do with community reinvestment,” said Nate Coffman, executive director of the Ohio CDC Association.
Banks would also get credit for providing financial education to someone of any income level, rather than just lower-income residents. They would also receive credit for investing in a middle-income rental unit even if it’s in a high-cost area, which would be of no assistance to lower-income families, according to WHYY.
The changes would also expand the geographical area in which banks could lend and still receive credit. Advocates worry that reforms to the scoring system will have banks focused on larger deals rather than smaller loans.
People are worried these changes will lead to a new era of redlining.
“We could go back to a time that allows the banks to cherry pick where they lend and where they don’t lend,” said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio.
The Cleveland City Council is “urging protection of [the CRA] by ensuring that current efforts to modernize regulations do not undermine the intent of the law and its mission to protect low and moderate-income communities across the country.”
Even some banks are worried that the amendments would only hurt already struggling communities.
“The need for community investment is tremendous right now,” a KeyBank spokesman said in a statement. “Many low and moderate income communities are struggling to keep the jobs they have and to create new ones, to help families buy homes and to provide options for affordable housing.”
Not all changes are unwelcome, though. Changes such as expanding the act to include non-bank lenders and adding language that requires lenders to serve all races and ethnicities are encouraged.
Some modifications to the CRA have already been put in place in the days of the coronavirus pandemic.
In early March, federal agencies expanded the list of activities that are eligible for CRA credit to include actions that will aid communities during the outbreak, such as waived fees and loan deferment, reports American Banker. They also advised banks that they would not be penalized for taking steps to help their customers, such as loan flexibility. This expansion will be in place for six months after the country lifts the national emergency declaration.