Tell the Federal Reserve System How to Modernize & Strengthen
the Community Reinvestment Act (CRA)

The Community Reinvestment Act (CRA) is a critical civil rights tool for preventing redlining and promoting bank investment in low-income communities, especially disinvested communities of color, and for the minority-owned small businesses in these areas.

The importance of the CRA has become even more clear as COVID-19 lays bare the inequities that already existed in urban, suburban and rural communities, with higher infection rates and occurrences of other health issues in historically redlined neighborhoods.

Right now, we have the chance to speak up and influence changes that one of three federal regulatory agencies—the Federal Reserve Bank—makes to the CRA rules.

This is a key opportunity that may not occur again in the foreseeable future.

Comments are due by February 16, 2021.

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Create a Tougher Rating Process
A fundamental historic shortcoming of the CRA is that nearly every bank receives a passing rating, even though many communities—particularly communities of color—suffer from disinvestment, and many homeowners and small business owners with good credit lack access to lending and banking services. Until the evaluation process is tougher, based on whether investment is increasing in communities with historically low levels of lending and other factors (e.g., reduction in the number of unbanked households), many banks will not take their CRA responsibilities seriously.
 
Explicitly Focus on Racial Equity
The CRA evaluation process should include an explicit focus on promoting racial equity. For example, CRA exams could include performance measures assessing services to marginalized people of color and historically disinvested communities of color, such as lending and investing in majority-minority census tracts outside of core assessment areas. In addition, scoring on exams should separate and heavily weight findings from fair lending analysis of disparate lending patterns. When banks are found to have a pattern of disparate lending in consumer and small business banking, especially compared to non-Latinx white communities and customers, their scores should be lowered. When banks participate in activities that address racial disparities in lending (e.g., working with community lenders to create mortgage products that increase home ownership rates among low- and moderate-income people of color), that bank should see an increased score.
 
Target Financial Education to Those Most In Need
CRA credit should not be awarded for providing financial education to households at any income level. The CRA is intended to increase access to credit for low- and moderate-income consumers, and to address historic redlining that impacted their ability to get home and business loans and credit. Because of this, only financial education for low- and moderate-income households and small business owners should count for CRA credit.

Evaluate Based on Community Engagement, Investment and Support
The CRA should also more meaningfully require community engagement by banks with community-based organizations, including 501c3 nonprofit economic development, entrepreneurship and business service organizations, in regional and local community development planning, financial education, housing counseling efforts and other activities. This engagement must show that the bank has committed the time and resources necessary to understand and respond to local needs, and must be matched with actual investment and financial support to be meaningful.
 
Reduce the Racial Wealth Gap by Supporting Home Ownership
Considering how important home ownership is to creating household wealth and the long-standing disparities in home ownership rates by race and ethnicity, the CRA evaluation process should include a core component that examines whether banks are providing mortgage and home equity loan that offer a path to affordable, sustainable home ownership. Banks need to do better in overcoming barriers to home ownership caused by overly stringent underwriting criteria, appraisal bias, lack of down payment assistance, and other factors. Moreover, promoting home ownership is a strategy for revitalizing communities suffering from disinvestment in their single-family housing stock.

Reduce the Racial Wealth Gap by Supporting Small Business Ownership
Given that small business ownership is also a critical means to create household wealth, the CRA evaluation process should also take into account whether banks offer affordable and flexible small business credit, savings and loan products that create a foundation for sustainable small businesses development and success in historically disinvested communities of color. The lack of access to capital―rooted in lending discrimination and the racial wealth gap―is the greatest barrier to small business ownership and success in Black and Brown communities. The CRA can be an effective tool for addressing barriers to access to capital, such as lending discrimination, by providing a strong incentive to financial institutions to increase their lending to Black and Brown entrepreneurs.  
 
Support Affordable Rental Housing That Promotes Long-Term Affordability
Providing CRA credit for financing naturally-occurring affordable housing is a worthwhile idea; however, it is key to ensure that such housing actually increases the overall long-term housing affordability in a community and does not promote gentrification and displacement. Often, only rental housing subsidized through project- or tenant-based funding actually meets the needs of people with the lowest incomes. Affordable rental housing also will complement local community businesses that provide reasonably priced goods and services for diverse households.
 
Maintain Focus on Place-Based Services
National assessment areas should not be used for online or similar non–brick-and-mortar–based banks. These entities should have their evaluations tied to a place-based review of the geocoding of customer addresses and other factors. As we expect continued lessening of reliance on physical bank branches in the future, banks need to be better evaluated in terms of how well their marketing practices, financial products, and non-branch physical services (e.g., ATMs and loan production offices) meet the needs of low- and moderate-income communities—particularly communities with a large number of unbanked people and low levels of lending.

About the Illinois CRA Coalition

The Illinois CRA Coalition is a group of organizations dedicated to protecting and strengthening the Community Reinvestment Act as a tool for building more equitable communities.

Want to learn more? Interested in joining? Email Housing Action's Housing Policy Organizer, Sheila Sutton »

Please Personalize Your Comment

Individualization matters. As a rule of thumb, try to make at least 20% of your comment unique so it gets through content filters and the agency will respond to your individual concerns. Your comment will have more impact if you share your own perspective or story about the importance of the Community Reinvestment Act to you, your organization, and your community.

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