Changes to the Community Reinvestment Act to Ensure Equity in Credit Access

The Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corporation recently announced in a joint statement a proposal for the first significant reform to the Community Reinvestment Act (CRA) in over 25 years. Prosperity Now recently released a comment letter highlighting the benefits of the new proposed rulemaking, while advocating for important provisions that will be necessary to ensure that the CRA is able to achieve its goal of guaranteeing fair lending standards and access to credit for all communities, regardless of race or economic status. 

The CRA, first passed in 1977, was intended to increase investments by financial institutions into historically underserved communities. It sought to combat the systemic impacts of redlining by requiring banks to serve all neighborhoods they receive deposits from and incentivizing investment in low- and middle-income (LMI) communities. Yet despite these efforts, systemic discrimination still impacts entrepreneurs and prospective homeowners of color. Black business owners are half as likely to have bank loan requests accepted as White business owners, and when they are accepted, they on average pay higher interest rates. Recent analysis of Home Mortgage Disclosure Act (HMDA) data also found that Black applicants were denied a mortgage at an 84 percent higher rate than White applicants in 2020. Yet despite these facts, 98% of financial institutions are annually given a ‘satisfactory’ or ‘outstanding’ grade in their CRA report. 

"In order to adequately address the systemic factors that cause lending discrimination, the CRA must set specific benchmarks for investing into Black and Latinx communities."

The notice of proposed rulemaking would help address these challenges by adapting the CRA to modern banking practices. Improvements in geographic standards will help regulators properly evaluate banking practices in the age of digital finance. Further, more rigorous CRA exam standards, complemented with improved data collection, will certainly lead to less leniency in the evaluation process. The proposed reforms would also update outdated definitions and classifications.  

However, as we discuss in our comment letter, these reforms are not enough to ensure equity in credit access for communities of color. In order to increase the efficacy of these reforms, the CRA must explicitly evaluate lending to racial minorities in their assessment criteria. While it is incredibly important to incentivize investments into LMI communities, this alone does not guarantee that banks will stop race-based lending discrimination. In order to adequately address the systemic factors that cause lending discrimination, the CRA must set specific benchmarks for investing into Black, Latinx, and other communities of color. In addition, more specific standards regulating digital banking based on these racial criteria will also be necessary to prevent racial discrimination in digital banking. 

The economic legacies of segregation and redlining are still felt by BIPOC communities, which continue to face barriers to economic opportunity. Despite the CRA having the stated goal of addressing these historic inequities, failing to set specific standards to target communities of color will ensure that the vision of the CRA is never fully carried out. While Prosperity Now applauds many of the provisions in the new notice of proposed rulemaking, it does not go far enough to ensure fair lending practices and credit access equity to all communities. 

Related Content