After a tumultuous two years of unraveled reforms, the Community Reinvestment Act, known as the CRA, has a real chance of being modernized during the call for comments through October 29th. Anyone who believes in the mission of meeting “the needs of borrowers in all segments of their communities” stated in CRA needs to be active in ensuring that reforms address the intent of the regulation, particularly where there has been too little progress: racial economic inequality.
To understand why and how CRA matters, every American should know the history that brought it about. CRA was one of several important pieces of legislation passed in the late 1960s to early 1970s that sought to address the impactful consequences of racial economic discrimination and marginalization of the African-American community. Following years of Black urban rebellions, from the Watts riots of 1965 to the hundreds of uprisings that followed the assassination of Dr. Martin Luther King Jr., the Fair Housing Act, part of the 1968 Civil Rights Act, was passed. The Fair Housing Act was designed to address housing discrimination and, in turn, advance Black homeownership.
CRA, passed in 1977, was designed to go beyond simply preventing discriminatory lending practices. It was written to encourage investment in all communities, targeting low to moderate-income neighborhoods.
But ongoing economic inequality continued – and continues to repeat. In 2019, the median Black wealth, not including depreciating assets, was $9,000 compared to white wealth of $160,000. There has been a decline in African American business revenue from 1% to .5% of total revenue between 1992 and 2012, despite an almost threefold increase in Black businesses. The Black homeownership rate is at a low 42%, as low as before CRA was implemented, while at the same time, whites have record-high homeownership rates of almost 73%.
Although many have associated CRA with efforts to undo systemic, racist practices, half a century later, we continue to see that the results of the law have never lived up to its intentions.
It is no secret why. As I often state, the foundation of racial inequality is racial economic inequality, and the foundation of racial economic inequality is the racial wealth divide. Wealth inequality derives from historical discrimination, exploitation of African Americans, and the concentration of wealth amongst whites. This asset poverty of African Americans re-enforces itself in our current financing system, where few financial products or investments are designed to address the low wealth reality of African Americans, Latinos, and Native Americans.
Illegalizing racial discrimination is not enough. There must be mass financial investment in communities that were economically marginalized for so many generations.
For over the last 50 years, the nation has failed to address racial economic disparities adequately. The legislative pillars of economic anti-discrimination have to be transformed into pillars that economically advance communities with a history and current reality of economic marginalization. Modernizing CRA to include race-conscious provisions is a critical component that can help move the country in the right direction.
None of these insights are new. In 2009, long-time Fair Housing Advocate Stella Adams wrote an article “Putting Race Explicitly into the CRA,” where she argues: “The explicit inclusion of race in the CRA offers us an opportunity to correct these government and market failures, and would allow us to do more than just reduce the concentration of poverty and spatial isolation in neighborhoods of color. It would allow us to create opportunities for building real transgenerational wealth for minority families….”
Almost 10 years later, on the 50-year anniversary of the Fair Housing Act, Fred Mcghee said it again in a Shelter Force article:
This civil rights law failed because of its race and class neutrality, also a weakness of the predecessor civil rights laws enacted in 1964 and 1965. Perhaps the single most important lesson the past 50 years should have taught us by now is this: we cannot fix discrimination in housing via an anti-discrimination framework. Conscious race and class measures are needed that tackle the inherent problems of American inequality at their root.
Today, we have a chance to listen to and act on the wisdom of leaders who came before us or have been underhead as the racial wealth gap has continued to grow.
Race conscious approaches
Building upon this history, the National Community Reinvestment Coalition recently partnered with Relman Colfax and mapped out in detail how race-conscious approaches to addressing racial economic inequality can be written into CRA, with accountability front and center.
The paper calls for demographic and lending benchmarks focused on people and neighborhoods of color. Part of a race-conscious CRA would include reaching demographic thresholds in the subtests of CRA evaluations, including in retail lending, retail services, community development financing, and community development services.
NCRC’s report also calls for creating full-time research positions dedicated to studying the racial components of banks’ varying performance contexts, drawing on the work done by the Federal Reserve Bank of San Francisco.
Also, in selecting assessment areas for CRA review, racial inclusion should be a factor to ensure that minority areas are not excluded in assessment areas. Finally, banks should be required to work with organizations serving neighborhoods of color when developing a strategic plan to address CRA requirements.
Institutionalizing our racial reckoning
As we reform the 50 year old Community Reinvestment Act, we must do so with the focus of eliminating the disparities it was designed to address decades ago. Racial economic inequality in finance is at the heart of America’s ongoing economic inequality. A race conscious CRA is a substantive step forward in explicitly addressing the racial inequality that we have failed to address through race blind measures.
Many have hoped that the protests over the murder of George Floyd and so many others have helped awaken the country to the reality of ongoing deep racial inequality. A race conscious CRA is an important step in institutionalizing the “reckoning” that the country is hopefully still engaged in. The institutionalization of a racial reckoning is something that must be echoed throughout US financial institutions.
Dedrick Asante-Muhammad is chief of membership, policy and equity at The National Community Reinvestment Coalition.