(STL.News) – Michigan Attorney General Dana Nessel recently joined a coalition of attorneys general in a concerted effort to combat banking discrimination as it pertains to affordable housing and small business financing.
Nessel and the coalition filed a comment letter urging the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) to withdraw a proposed rule that threatens to undermine the Community Reinvestment Act (CRA) and Congressional efforts to combat banking discrimination.
The CRA is a civil rights tool responsible for directing trillions of dollars in investments back to low- and moderate-income communities, and provides access to financial services and loans that incentivize the availability of affordable housing and support small businesses across the country.
“This proposed rule looks to remove safeguards that have been in place for decades and are intended to level the playing field for those in low- and moderate-income communities,” Nessel said. “This proposal would undermine the CRA, a program that provides critical resources to the people who need it most, and that’s reason enough to oppose it.”
The CRA was enacted in 1977 to tackle concerns around racially driven redlining and disinvestment in urban communities. A study by the Senate Banking Committee at the time uncovered that banks were diverting investment funds away from the low- and moderate-income communities they served despite ample local lending opportunities. For example, only 10 percent of money invested by District of Columbia residents was reinvested back in their communities. The same pattern was reported in neighborhoods across the country.
The CRA has worked to combat these issues by unlocking lending to small businesses and increasing access to affordable housing. Between 2010 and 2016, the CRA expanded the number of small business loans to underserved neighborhoods by 38 percent. In addition, the CRA is credited with facilitating between 15 to 35 percent of home loans to Latinos in low- and moderate-income communities. For multifamily rentals, the CRA has been instrumental in connecting banks with local organizations to work hand-in-hand on smaller, more involved projects that rely on state and local subsidies or public-private partnerships. The CRA has also incentivized banks to make bank accounts and other important financial products available to members of low- and moderate-income communities.
The coalition in its letter urges the OCC and FDIC to withdraw the proposal because of fundamental flaws that run counter to the purpose of the CRA. The coalition asserts that the proposal:
- Relies on arbitrary benchmarks in a CRA compliance rating system that ignores local realities;
Fails to appropriately downgrade banks’ CRA ratings when their actions harm low- and moderate-income communities;
- Radically decreases the importance of physical locations of bank branches without fully determining if online services are fulfilling community needs;
- Waters down bank obligations by expanding CRA-eligible activities, potentially gutting the important investment, loan and retail services banks currently undertake in low- and moderate-income communities;
- Inflicts real-world harms on the states and their residents by undercutting affordable housing efforts; and
Violates the law by putting forth arbitrary and capricious provisions that run contrary to Congressional intent in passing the CRA.