Years in the making, community groups call the joint Community Reinvestment Act Rules a ‘lost opportunity to close racial wealth gaps, while acknowledging reinvestment advancements’
SAN FRANCISCO, Oct. 24, 2023 — After a lengthy multi-year review process and a lawsuit led by Democracy Forward on behalf of Rise Economy (formerly the California Reinvestment Coalition) and National Community Reinvestment Coalition (NCRC) against the national bank regulator, a final version of the Community Reinvestment Act (CRA) rule was announced today by federal banking regulators.
In May of 2022, the FDIC, Federal Reserve and the OCC jointly proposed substantial updates to the CRA rules for the first time since 1995. While the proposed changes were welcome at the time, Rise Economy, its members, allies and other advocate groups argued the law should more explicitly address race — not just income — to rectify historical harms like redlining and mortgage and small business lending discrimination. The proposed updates followed a rescission of the disastrous 2020 CRA rule by the OCC that Rise Economy and allies filed a lawsuit to halt, and a subsequent commitment by the agencies to collaborate on new rules.
Rise Economy CEO Paulina Gonzalez-Brito notes that the final rule released today represents a failure to advance support for Black, Indigenous and People of Color communities and uphold the original anti-redlining purpose of the CRA.
“While we are proud of our efforts in steering the final CRA rule away from the flawed OCC proposal we initially contested, we can’t help but feel deeply disappointed by the final rule as it does not align with the statute’s anti-redlining heritage,” Gonzalez-Brito said. “This final rule is a significant oversight and underscores the pressing need for a state-specific response to bridge the gaps in coverage and objectives.”
The final rule falls short of expectations as it misses several important opportunities, including:
- Failure to incorporate race in any meaningful way into the CRA framework despite it being the consensus recommendation of community group commenters in California and nationally.
- Regulators’ decision to combine community development lending and investment tests may discourage banks from investing in affordable housing projects through the use of Low Income Housing Tax Credits (LIHTC).
- The rule failed to prioritize bank branches in low-to-moderate-income communities of color and to make it harder for merging banks to close branches in those neighborhoods.
- The rule fails to promote deposit-based assessment areas and scales back the proposal to create retail lending assessment areas, both of which would encourage banks to reinvest in local communities beyond where they have branches but where they collect deposits, conduct business and profit.
- Regulators missed an opportunity to truly promote community participation and impact by favoring or requiring Community Benefits Agreements between community groups and banks.
- Under the final rule, rural communities are positioned to be disproportionately affected by raised asset thresholds that reduce the number of community banks held to higher standards for reinvestment.
While the final rule misses the mark on many critical recommendations proposed by advocates, its framework still serves as a marked improvement on the CRA rules of the past several decades. These improvements include:
- A more objective evaluation process that might combat the rampant CRA grade inflation of the last few decades. For many years, virtually no banks failed their CRA exams.
- A greater focus on the smallest businesses which are most likely to serve their communities, hire local residents, and support owner families. The rules now encourage banks to disclose their lending and support to businesses with less than $250,000 in gross revenue. Prior CRA implementation focused on loans of $1 million or less, which could include loans to very large businesses.
- Provisions to begin to combat displacement by not allowing certain bank activities that lead to displacement to count toward CRA. This has been an issue highlighted by past Rise Economy advocacy, comments and campaigns.
- The encouragement of banks to develop programs such as Special Purpose Credit Programs that can target loans to particularly underserved borrower groups. Rise Economy has prioritized SPCPs.
- Clarification and encouragement that banks that invest in climate resiliency, digital equity and broadband, CDFIs and support of Native American communities and tribal lands will receive CRA credit. These are key priorities of Rise Economy.
“As we review the final rule, we’re met with mixed emotions, much like many other California-based community groups. Now, after 25 years with the same rules, enduring more than a decade of reform discussion, and witnessing nearly five years of dedicated efforts by the regulators on these rules, the question arises: is this the result we expected? It’s hard to ignore the missed opportunity to provide systematic change for our communities through substantial alterations to a rule designed to combat systemic redlining issues. Nonetheless, we’re committed to, amplifying the positive, advocating for what is needed, and working toward improving and supporting our communities.”
About Rise Economy
Rise Economy, formerly the California Reinvestment Coalition (CRC), is a member-led alliance focused on creating a more equitable society where Black, Indigenous, and People of Color have access to resources and opportunities to build generational wealth. As the largest statewide community reinvestment alliance in the country, Rise Economy advocates for policies and practices that promote racial and economic justice and that address the root causes of inequality, redlining, and systemic racism. Learn more about Rise Economy.