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Some Banks Join Chorus of Voices against Proposed CRA Reforms

Danielle Holly
November 26, 2018
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“Hundreds of Voices Take the Stage at COD During Illinois American Choral Directors Association Conference 2017,” COD Newsroom

November 19, 2018; ValueWalk

The Independent Community Bankers of America has joined a growing and multifaceted response to the proposed reforms to the Community Reinvestment Act (CRA), the 1977 federal law that encourages national banks to invest in low-income communities in the regions in which they operate.

Under the Trump administration, the Office of the Comptroller of the Currency (OCC), a bureau of the Treasury, is conducting an assessment of CRA effectiveness with the administration’s goal of “streamlining” regulations that national banks need to comply with CRA. The end? To reduce compliance to a single ratio that assesses a bank’s overall “community lending” against its overall financial health. Critics suggest that the ratio is far too summative and would allow for the concentration of lending in some areas while leaving lending deserts in others.

CRA was established to eliminate the practice of redlining, in which banks would shy away from lending to entire communities, particularly low- and moderate-income areas. The CRA demands that banks lend to each ZIP code, covering their operating territory with “safe loans,” or loans that are of equal credit risk to other areas. This proposed reform would eliminate the ZIP code requirement and instead look across the CRA-covered areas to provide an aggregate assessment.

The resistance to this reform comes from two primary groups. The first are community advocacy groups, who are concerned about deepening the unfair lending practices amongst the areas that CRA covers. In a letter to the OCC, one prominent group, the National Community Reinvestment Coalition (NCRC), states:

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The OCC’s proposals would undermine CRA’s pillars of public input and local accountability and would thus result in significant declines in CRA-related loans, investments, and services. NCRC estimates that the OCC’s dilution of assessment areas and local accountability would result in a dramatic loss in home and small business lending over a five-year time period that would range from $52 to $105 billion.

Another group, community banks—which the ICBA represents—has a similar concern with the reform favoring big banks over the community, but for different reasons. Its concern is anchored in the increasingly challenging competitive landscape that national and online banks have brought as they extend their reach into communities once primarily served by community banks. The ICBA argues in its own letter to the OCC that the examination currently done by regulators provides unclear expectations and makes it challenging for smaller community banks to understand and implement CRA regulations.

While there are many different arguments against this current proposed CRA reform, there is resounding agreement that the CRA needs reform. NPQ has shared its own perspective on reforms that would strengthen the CRA’s ability to meet its primary goal of increased economic vitality in low-income neighborhoods, namely (1) redefining “investment” from what has primarily been exercised as homeowner loans to a broader definition based on what local communities say they need and (2) evolving the “assessment zones,” or those areas covered by CRA, beyond the physical locations of banks to recognize the accessibility of online banking.

An undercurrent to all of these arguments is an urgency to pay attention to regulation and laws that, while technical, underpin some of the nation’s deepest challenges and divergent political philosophies.

Jessie Van Tol, CEO of NCRC, closed her New York Times op-ed earlier this year by stating, “These laws define where money flows in the richest nation on earth and where it doesn’t. And the flow of capital determines, in turn, who has access to affordable housing, to good public education, to small business loans and to financial services that aren’t abusive and predatory. Discrimination, in the past and continuing today, is at the core of the wealth gap between whites and people of color. We can’t allow banks to cherry-pick where they lend.”—Danielle Holly

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About the author
Danielle Holly

Danielle Holly is dedicated to strengthening the capacity and leadership of the nonprofit sector through meaningful, value-driven partnerships. Over the past two decades, Danielle has worked with hundreds of nonprofits and companies to support the conception, design and implementation of cross-sector approaches that address community challenges. She is a frequent contributor to several social sector publications on nonprofit capacity building, governance and corporate social responsibility, as well as a member of the NationSwell Council and host of the Pro Bono Perspectives podcast. Currently, Danielle is the CEO of Common Impact, an organization that designs skills-based volunteer, pro bono and corporate community engagement programs. She has served on the Board of the Young Nonprofit Professionals Network and Net Impact NYC, and most recently as a fellow with the Presidio Cross-Sector Leadership initiative. Danielle lives in Brooklyn, NY and loves to explore the nooks and crannies of NYC’s endless neighborhoods, and end the days cooking with her husband and two children.

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