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The Community Reinvestment Act not only prohibited redlining but required banks and thrift institutions to take affirmative steps to show that they were investing in communities.
The Community Reinvestment Act of 1977 was one of the last pieces of progressive financial regulation to pass Congress before the political tide turned disastrously in favor of deregulation. CRA was the offspring of the anti-redlining movement. It not only prohibited redlining but required banks and thrift institutions to take affirmative steps to show that they were investing in communities they were chartered to serve.
And the law had teeth. If a bank got a low CRA score in periodic examinations, it could be denied certain things that it wanted, like branches or mergers.
CRA is also a community organizer’s dream because it creates leverage for community groups to make demands on banks, and then organize around the demands. Thanks to CRA, a whole subset of bankers internalized its values and specialized in community development lending, and the process caused more credit to flow to low-income and minority communities.
I confess a certain fondness for CRA because I wrote it. But that was only because I was in the right place at the right time, working as an investigator for the Senate Banking Committee under its great progressive chairman, William Proxmire. The concept came from a coalition of community groups.
Fast-forward several decades. Republican administrations kept trying to weaken it. Democrats kept it alive. Despite explicit language in CRA requiring lending consistent with sound banking standards, the wise guys on Wall Street and their allies in government invented new predatory strategies such as the subprime scam. And the damage done by subprime more than wiped out decades of progress facilitated by CRA.
Now, Biden’s progressive regulators, led by FDIC’s Martin Gruenberg, Rohit Chopra of the Consumer Financial Protection Bureau and a member of the FDIC board, and Governor Lael Brainard of the Fed, have proposed new and ingenious regulations to enhance the reach of CRA.
Among other requirements, these rules would give lenders CRA credit for investing in low-income communities to address climate change.
Lenders would also be required to demonstrate that their loans to lower-income communities actually served low- and moderate-income people, rather than promoting gentrification. Some fake forms of income targeting, such as so-called enterprise zones, merely reward location rather than the target population. Purported loans to small businesses would get closer scrutiny.
As the Prospect keeps pointing out, even without a reliable working majority in Congress, this administration has a lot of power to help people via executive action. The new CRA draft rules, which are due to be finalized in August, are a fine example.
