The Trump administration is proposing major changes to the Community Reinvestment Act — a law first enacted in 1977 — that experts believe could mean big changes for the rules that govern lending to poor borrowers. According to Wall Street Journal reports, the net effect of those changes could make it easier for banks to meet certain lending requirements and lower penalties for compliance problems.
The news comes as a point of some concern for supporters of the law, who worry that the long-term cost of any CRA revision could be poor and working class customers having less access to necessary funds. In the aftermath of the Great Recession, for example, banks have increasingly shifted their priority to affluent customers, but the CRA has generally prevented banks from fully shifting their attentions.
The CRA was initially put into place to stop redlining, a practice by which banks would not lend money to make purchases in certain poor and majority minority neighborhoods. In recent years, however, the CRA has been the locus of arguments between those who want to see its rules enforced more stringently and its opponents, who say the regulations are running behind the innovations in the field and punishing bankers for activities that are only minimally connected with banking.
The CRA is widely accepted to have been a help to low-income workers and communities — but how it can best be improved is a contentious topic.
“Community groups don’t like the way CRA is today, the banks don’t like the way CRA is today, and regulators don’t like it,” said Comptroller of the Currency Joseph Otting, whose agency is also planning changes to the way it regulates banks’ compliance with the law. “I have a very strong viewpoint of how to fix this.”
The law, as written, has a built-in and extensive litmus test used to evaluate how many loans, branches and investments a bank has to have to serve the poor. And a “bad grade” has consequences in the form of restrictions on the bank’s activities, including mergers.
“Banks spend billions and billions and billions of dollars fulfilling their CRA obligations,” said Treasury Secretary Steven Mnuchin at a congressional hearing last June. “I want to make sure [it] is absolutely going to help communities and isn’t just a check the box to satisfy regulators.”
It is still unclear what many of the administration’s proposed changes will be, but some important potential changes, as well as some already enacted, make it easier for banks to pass the exam.