Testimony of Jesse Van Tol, CEO, National Community Reinvestment Coalition, April 9, 2019 – Consumer Protection and Financial Institutions Subcommittee
The Community Reinvestment Act: Assessing the Law’s Impact on Discrimination and Redlining
Introduction: Public input and accountability are the keys to CRA’s success
I thank Chairman Meeks and the members of this subcommittee for providing me the honor of testifying this morning regarding the Community Reinvestment Act’s (CRA) impact in combating discrimination and redlining. I am the CEO of the National Community Reinvestment Coalition (NCRC). NCRC and its more than 600 grassroots member organizations create opportunities for people to build wealth. NCRC members include community reinvestment organizations; community development corporations; local and state government agencies; faith-based institutions; community organizing and civil rights groups; minority and women-owned business associations, as well as local and social service providers from across the nation. We work with community leaders, policymakers and financial institutions to champion fairness and fight discrimination in banking, housing and business.
In this testimony, I will talk about how CRA has increased lending in redlined and underserved neighborhoods. I will provide data and review studies to support my belief that CRA’s emphasis on public input and local accountability has increased lending. I will also remark upon the current status of regulatory reform efforts and legislation to modernize CRA. Senator Elizabeth Warren and Representative Cedric Richmond have introduced the American Housing and Economic Mobility Act of 2019 (S. 787 & H.R. 1737), which includes updates to the CRA statute.
On a daily basis, NCRC and our member organizations use CRA. We comment on CRA exams and merger applications. We engage regulators, bankers and community stakeholders in conversations about how best to meet community needs for credit and capital. One major outcome of our CRA work has been negotiating community benefit agreements (CBAs) with banks totaling over $90 billion since 2016. Notable CBAs include those with Keybank, Fifth Third, Santander, IBERIABANK and First Tennessee. The CBAs are usually negotiated in the context of a merger application and help banks demonstrate the statutorily required public benefit in terms of increased lending, investments and services in underserved communities.
Our work is made possible by the CRA requirements of public input and accountability. CRA has worked best when it is enforced, and part of the enforcement mechanism is public engagement. When Senator Proxmireand other lawmakers were crafting CRA in 1977, their focus was on redlining in low- and moderate-income (LMI) communities and communities of color. As envisioned by the CRA statute, the antidote to redlining was CRA exams scrutinizing lending on a local level. The public release of CRA ratings is a powerful motivation for banks to improve their lending and investing in underserved communities. Federal Reserve Governor LaelBrainard stated in a recent speech at the NCRC Just Economy conference, “The public nature of CRA evaluations provides a strong incentive for good performance as well as a platform for public input on community needs.”
CRA works in tandem with the Home Mortgage Disclosure Act (HMDA) data to increase public accountability. Congress passed HMDA in 1975 to provide sunshine on banks’ lending patterns and ascertain whether banks were meeting credit needs or whether some banks were engaging in redlining. The racial and income disparities in lending revealed by the first year of HMDA data in 1976 helped motivate the passage of CRA. HMDA has been used in CRA exams ever since to identify and rectify gaps in banks’ meeting community credit needs. Other data, including small business lending and community development data, has also been used in CRA exams but we will describe below how this data needs to be improved in order to bolster bank activity in LMI communities.
Think of it this way: powerful institutions are unlikely to meet community needs if they do not need to seek regulatory approval for major activities and transactions, and if they and their regulatory agencies are not required to consider public comments about community needs. The genius of CRA is providing the public with a visible seat at the table so that their views are integral to the process. It makes intuitive sense that the victims of discrimination and redlining should have a key role in crafting solutions to this systemic injustice. Furthermore, residents of redlined and underserved communities also have the best insights into how their credit needs can be best met, which can vary significantly from one community to another.
Government and the banking industry played a major role in creating distressed and impoverished neighborhoods in prior decades. During the New Deal, the Roosevelt administration established the Home Owners Loan Corporation (HOLC). HOLC examiners classified neighborhoods on the basis of risk. Over time, banks did not lend in the riskiest and most hazardous neighborhoods, where a majority of residents were often people of color and also recent immigrants from southern and eastern Europe. The redlines on the maps delineating neighborhoods deemed risky by mortgage lenders was the origin of the term redlining. In subsequent years, the Federal Housing Administration (FHA) would not insure loans in redlined neighborhoods. The private sector—including banks—adopted and expanded the practice of redlining.
Redlining goes back to the 1930s and has been an insidious and destructive practice ever since. CRA has been instrumental in rectifying discrimination and increasing access to credit and capital in underserved communities. At the outset, however, I want to make clear that CRA by itself cannot overcome the impacts of decades of discrimination and segregation, which remain quite visible and harmful to the nation’s economic and social health. Persistent poverty and low levels of wealth in segregated communities must be addressed by a variety of public sector policies at the national and local levels, including vigorous fair lending/housing laws and zoning reforms.
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