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Rewrite the Community Reinvestment Act

September 14, 20223 Mins Read

Two years ago, the nation’s largest banks’ regulator went it alone in rewriting the Community Reinvestment Act (CRA), the country’s most important anti-redlining law.

Under the Trump administration, that effort fizzled out. The Office of the Comptroller of the Currency formally rescinded its plan in December of 2021.

In an example of how dramatically the regulatory landscape has since shifted, top officials of all three banking regulatory agencies on Friday appeared together at an in-person event hosted by the Urban Institute, and they were aligned on the biggest revision to the Community Reinvestment Act in decades.

Lael Brainard, second-in-command of the Federal Reserve, Michael Hsu, acting director of the OCC, and Martin Gruenberg, chair of the Federal Deposit Insurance Corporation, detailed the reasoning for their roughly 700-page plan.

“This is a once-in-a-lifetime chance for a significant rewriting,” Brainard added.

“Faster alone, further together,” Hsu said of the agencies’ unified strategy under President Biden, noting the OCC’s previous unilateral stance.

He claims that if the new regulation is successful, it will eliminate the racial prejudice for which it was created.

“If it works, it will meet all of our needs,” Hsu added. “We want to go all the way back to the beginning.” There would be no prejudice or redlining.”

However, complying with the law’s spirit would be difficult, especially since the agencies’ plan does not include a racial component to the groups that banks should serve, as some affordable housing activists had anticipated.

The spirit of the legislation, which has “obvious origins in redlining,” is difficult to reconcile with the letter of the law, which is “quite clearly focused on [low- and middle-income] areas as the group that banks need to be sensitive to servicing,” according to Brainard.

Rather than widening the rule’s reach to encompass racial minorities, which some have said may lead to legal issues, the agencies gave some alternatives for satisfying the requirements of minority borrowers.

Giving CRA credit for special purpose credit programmes, which allow lenders to modify lending programmes based on protected class, is one provision that Brainard claimed will help areas that have endured “chronic injustices.” Other authorities, such as the Department of Housing and Urban Development, have said that special purpose credit programmes do not violate fair lending laws, in the hopes that lenders will start employing them.

Using current Home Mortgage Disclosure Data, the new CRA regulation would also require banks to describe the racial and ethnic distribution of lending within their assessment regions.

That method does not satisfy Lisa Rice, CEO of the National Fair Housing Alliance, a fair housing advocate. She branded the current proposed regulation a “lost opportunity” in a following panel on the same stage.

Rice stated, “Focusing on income will not advance the ball on equality concerns.” “We saw this regulation as a chance to truly shape the CRA into an effective instrument for furthering racial fairness,” says the group. We believe that if the regulation remains unchanged, it will be a squandered opportunity.”

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