The Office of the Comptroller of the Currency (OCC) announced last week that it will propose rescinding the Community Reinvestment Act (CRA) rule issued by the Trump administration in May 2020, reversing changes that were widely criticized by investors, financial institutions and community advocates.
The OCC said it is committed to working with the Federal Reserve (Board) and the Federal Deposit Insurance Corporation (FDIC) to put forward a joint rulemaking that strengthens and modernizes the CRA.
“To ensure fairness in the face of persistent and rising inequality and changes in banking, the CRA must be strengthened and modernized,” said Acting Comptroller of the Currency Michael Hsu, who initiated a review of the Trump-era changes shortly after he took office.
Hsu was hand-picked by Treasury Secretary Janet Yellen, the former Federal Reserve Chairwoman who was appointed to her current post by President Joe Biden.
Critics accused Republicans of essentially gutting the CRA, by allowing banks to deprioritize investments in low- and moderate-income communities.
The Trump rule was finalized without the support of the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC), the other two agencies responsible for carrying out the CRA. The NAACP and Leadership Conference on Civil and Humans Rights also opposed this Trump Republican rule.
“The disproportionate impacts of the pandemic on low and moderate income communities, the comments provided on the Board’s Advanced Notice of Proposed Rulemaking, and our experience with implementation of the 2020 rule have highlighted the criticality of strengthening the CRA jointly with the Board and FDIC,” said Hsu. “While the OCC deserves credit for taking action to modernize the CRA through adoption of the 2020 rule, upon review I believe it was a false start.”
“This is why we will propose rescinding it and facilitating an orderly transition to a new rule,” said Hsu. “I look forward to working with the other agencies to develop a joint Notice of Proposed Rulemaking and building on the ANPR proposed by the Board in September 2020.”
The Community Reinvestment Act was enacted to put an end to redlining, and spur greater investment in our minority communities and lower income neighborhoods.
Many of America’s most impoverished neighborhoods are the same ones that were redlined decades ago but even today, they are still struggling with the consequences of decades of systemic financial discrimination.
The CRA was enacted to reverse the harmful effects redlining had on communities of color and low-income neighborhoods. The law ensures banks provide credit, mortgages, and small business lending to all members of their community, not just the richest.
The CRA also helps facilitate investments in community development financial institutions, minority depository institutions and in affordable housing. The number of federally insured depository institutions for which either 51 percent or more of the voting stock was owned by minority individuals; or the community served was predominantly minority and most of the board of directors were minority grew from 164 in 2001, to 215 in 2008 before the Great Recession struck.
Assets in those minority-owned banks increased from $82 billion in 2001, to $287 billion today. The term ‘minority’ includes Black, Hispanic, Asian or Pacific Islander, Native American and even multi-racial ownership.
“For more than four decades the Community Reinvestment Act was a central civil rights law that helped ensure banks doing business in low-and-moderate income communities actually invested in those communities,” said Lisa McCormick, a New Jersey progressive champion. “Trump’s gutting of the CRA was intended to revive redlining and decrease investment in economically distressed low-income communities, areas which have been disproportionately and unfairly devastated by the COVID-19 pandemic.”
Massachusetts Senator Elizabeth Warren recently introduced sweeping legislation that aims to expand housing opportunities, break down barriers to segregation and address the nation’s housing shortage by making robust investments to the National Housing Trust Fund and broaden the CRA to cover more financial institutions, promote greater investment in poor communities, and strengthen sanctions against institutions that don’t follow the rules.