More than 40 years after the Community Reinvestment Act was put in place to undo racist policies in banking, the racial wealth gap persists. New CRA regulations cannot continue to be color blind.
Enacted in 1977, the Community Reinvestment Act (CRA) came out of the civil rights movement. The CRA affirmatively obligates banks to serve the entire community in which they are located. In passing this law, Congress acknowledged the banks’ failure to serve the whole community in the past, and the essential need for banks to do so. Line drawing is not permissible.
But the CRA wasn’t about arbitrary line drawing. Years of federal, state, and local policies had systematically and deliberately excluded individuals who were Black, Brown, Asian American and Pacific Islander, and immigrants from participating in the economy. Banks drew maps, in a process known as “redlining,” excluding these communities from home mortgage and business loans, as well as other financial services. The drafters of the CRA understood that they were creating an anti-racist piece of legislation, intended to remedy this systemic oppression.
Somewhere along the way, the CRA stopped being about race. CRA certifications do not look at data about the ethnicity of the borrowers. In fact, banks are not even required to collect such data. Instead, the regulations implementing the CRA focus solely on income, and look at whether banks serve low and moderate income borrowers. So how do we know we are meeting the mission the CRA was meant to serve?
Meanwhile, the racial wealth gap persists, and in fact has worsened during the life of the CRA. According to 2019 survey data, White families had a median wealth of $188,200 and a mean wealth of $983,400; Black families’ median and mean wealth was $24,100 and $142,500, respectively.
Modernizing community finance
We optimistically awaited an opportunity to update the CRA regulations, which had remained largely the same since the 1990s. Like many CDFI leaders focused on racial equity, we saw this as an opportunity to re-center the CRA’s original civil rights purpose. Unfortunately, the regulators have not yet met the moment. The notice of proposed rulemaking, issued last month, with comments due in August, while providing many necessary upgrades to address concerns of modern banking, once again fails to take a race-conscious approach.
The one nod to race-conscious data collection – the consideration of Home Mortgage Disclosure Act (HMDA) data, which includes a racial breakdown – does not actually factor into the CRA exams.
This is not acceptable. We are in a critical moment. Black small business owners were hit hardest by the Covid-19 pandemic, in addition to already facing a 99% denial rate from banks pre-pandemic. A lack of access to income building means that these entrepreneurs don’t have a safety net, a role the CRA and CDFIs like ours were meant to fill. This situation today is a direct result of the exclusionary policies of the past. Financial institutions like ours can’t remedy a wrong when we haven’t been given the right tools to do so.
We need to collect data for CRA exams that include the racial and ethnic makeup of borrowers, like the CFPB started requiring a couple of years ago. We need banks to be able to show that they are serving the entire community, which includes the Black and brown community members who have been most excluded.
We cannot allow banks to speak about their commitment to racial equity, as many do through their corporate social responsibility obligations, without data to back up that commitment. A bank should not pass their CRA exam until they can show how they are fulfilling this mission.
Certainly, many banks and CDFIs are doing the work and serving these communities. But they are doing so not under sufficient scrutiny from federal regulators. The CRA was the federal government’s way to show that banks could not discriminate. Regulations that fail to hold banks accountable for racial discrimination fail this purpose.
We need to shrink the racial wealth gap and triple investments in communities of color – that will create jobs and income across our local economies. The CRA is an incredible tool to make this happen, but only if its implementation serves that original purpose.
Bulbul Gupta is president and CEO of Pacific Community Ventures. Lenwood V. Long, Sr., is president and CEO of the African American Alliance of CDFI CEOs.