The federal banking regulators are completing an update to a Carter administration-era legislation designed to erase redlining and secure more lending in lower-income neighborhoods by banks.
The Federal Reserve voted six to one today to complete the updating of the Community Reinvestment Act of 1977 (CRA), with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. expected to follow suit. Congressional approval is not required for the regulators to change the CRA requirements, but Capitol Hill would be involved if the rules were extended to nonbank lenders.
Under the CRA process, banks receive grades on the services they provide to low-income communities where they have branches. Under the update rules – which have been several years in the making – the grading of banks will be extended to determine how service low-income communities in areas where they originate mortgages and small business loans via online and mobile platforms.
“The final rule takes a critical step forward in modernizing the CRA regulations,” Michael Barr, Federal Reserve vice chairman for banking supervision, said in a statement.
Federal Reserve Governor Michelle Bowman, the lone dissenter in the vote for updating the rules, argued that supporters of the change did not prove banks were failing low-income communities.
“There is no evidence provided to support this premise,” she said.
Nikitra Bailey, executive vice president of the National Fair Housing Alliance, issued a statement expressing disappointment over the updated rules.
“Although the regulators have a statutory obligation under the Fair Housing Act to promote fair housing, they failed to explicitly incorporate race into the CRA, which means that White communities, including low-income communities, will continue to have better access to fair and responsible mainstream financial services while communities of color will continue to be disproportionately locked out,” she said. “Courage and intentionality are needed to disrupt the status quo, and the status quo in our country’s banking system is in dire need of disruption. This rulemaking is a missed opportunity to reform the banking system to increase inclusivity and expand credit access in underserved communities of color, which benefits those communities and the economy overall. Banks have a special responsibility to provide fair access to all communities, as they receive special public benefits to do so. We urge banks not to use the regulators’ failure with this rulemaking as an opportunity to retreat from their responsibilities, but instead to double down on their efforts to serve their entire communities fairly, including communities of color.”
Rob Nichols, president and CEO of the American Bankers Association, noted that his organization has “strongly supported modernizing the Community Reinvestment Act rules to reflect the realities of modern-day banking,” but opted not to pass immediate judgment.
“We are still reviewing the nearly 1,500-page final rule released today, including changes from the proposed rule, to assess whether it meets our criteria,” he said. “We are also closely examining whether the final rule can be reconciled with other major regulatory changes in play including the Basel III capital proposal. Feedback from our members will guide us moving forward.”
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