The Community Reinvestment Act (CRA), a landmark legislation enacted in 1977 to combat racial discrimination in access to credit and financial services, has recently been revised by the federal government. However, some experts and advocates argue that the new guidelines are not enough to close the persistent racial economic gaps in the country.
The CRA and its impact on racial economic justice
The CRA was passed in response to the widespread practice of redlining, which denied or restricted loans and mortgages to people based on their race or neighborhood. The CRA requires federally insured banks to meet the credit needs of the communities in which they operate, especially low- and moderate-income (LMI) areas. The CRA also empowers regulators and community groups to monitor and challenge banks’ performance in serving these communities.
According to a report by the National Community Reinvestment Coalition, the CRA has leveraged more than $6 trillion in loans and investments for LMI communities since 1996. The CRA has also helped increase homeownership, small business development, and community revitalization in these areas. However, the report also notes that the CRA has not been able to fully address the structural barriers and historical legacies that contribute to racial economic disparities.
The new CRA rule and its limitations
The new CRA rule, which was issued on October 24, 2023, aims to modernize and strengthen the CRA to reflect the changing landscape of banking in the digital age. The rule introduces several changes, such as:
- Expanding the assessment areas to include areas where banks have a significant portion of their deposits or lending activities, not just their physical branches.
- Providing more clarity and consistency on how banks’ CRA performance is evaluated and rated.
- Increasing the transparency and accountability of banks by requiring them to disclose more data on their lending and investment activities, segmented by borrower income, race, and ethnicity.
- Encouraging banks to support minority depository institutions, community development financial institutions, and women-owned financial institutions.
However, some critics argue that the new rule does not go far enough to address the racial economic gaps that persist in the country. For example, Lenwood V. Long, Sr., the co-founder and CEO of the Black Economic Alliance Foundation, wrote in an op-ed for Forbes that the new rule “lacks the depth and muscle needed to meet the CRA’s goal of truly closing racial economic gaps”. He pointed out that the rule does not:
- Include a thorough examination of lending practices to address redlining concerns, nor hold the banks accountable for potential disparities evident in the data.
- Require banks to set specific goals and targets for serving LMI and minority communities, nor provide incentives or penalties for meeting or failing to meet them.
- Address the systemic issues that prevent Black households from building wealth at the same rate as white households, such as the racial wealth gap, the racial income gap, the racial homeownership gap, and the racial education gap.
The need for bold federal action on banking
Long and other advocates call for more bold and comprehensive federal action on banking to close the racial economic gaps in the country. They propose several policy measures, such as:
- Creating a federal agency or commission dedicated to advancing racial economic justice and overseeing the implementation and enforcement of the CRA and other relevant laws and regulations.
- Establishing a national fund or trust to provide direct financial transfers, grants, and subsidies to Black households and communities, as a form of reparations for the historical and ongoing harms of racism and discrimination.
- Implementing a heavy and progressive taxation system on the very wealthiest Americans, especially those who have benefited from the exploitation and exclusion of Black people, and using the revenue to invest in Black economic empowerment and development.
- Expanding and strengthening the support and funding for Black-owned and Black-led financial institutions, such as credit unions, cooperatives, and mutual banks, that can provide more accessible and affordable financial services and products to Black communities.
These policy measures, along with the revised CRA rule, could help create a more equitable and inclusive financial system that serves the needs and interests of all Americans, especially those who have been historically marginalized and oppressed.
