The California Reinvestment Coalition (CRC) published a new report, titled Harnessing the Power of Banks: The Community Reinvestment Act and Building an Inclusive Economy. The report highlights the impact of the Community Reinvestment Act (CRA) and its role in encouraging fair mortgage lending, affordable housing development, small business lending, and similar activities. CRC recently surveyed banks operating in California and CRC nonprofit members throughout the state to understand the ways in which communities benefit from the banks’ CRA commitments.
“Our research shows that CRA plays an important role in ensuring that banks meet community credit needs. Banks should do more to fulfill their responsibilities to the communities they operate in,” said Paulina Gonzalez, Executive Director of the California Reinvestment Coalition. “The Treasury Department should encourage banks to work more closely with community groups, for example, to require banks to develop written CRA plans that outline win-win reinvestment strategies.”
Key findings of this report include:
1. Banks that responded to the survey lent over $27 billion in 2016 in low-to-moderate income (LMI) communities throughout California, and had over $31 billion in total CRA activity.
2. Non-profits and other groups that serve low-income populations highly value CRA for its ability to direct resources towards their work; they also appreciate the ability to dialogue with banks and regulators about how banks can best meet their communities’ and clients’ needs. They would also like to see banks better fulfill their responsibilities to communities.
3. There are a number of ways for banks to have a successful CRA strategy; lending (which includes affordable housing community development, small business lending, economic and community development, mortgage lending, and consumer lending), investing, and philanthropic activity all have a role to play in CRA.
4. Smaller banks perform better overall on CRA activity than their larger peers, of the surveyed banks in California. Mega-banks (above $50 billion in deposits statewide) are failing to meet community’ needs in California, as compared to small banks.
5. CRC-negotiated agreements lead to more reinvestment in low-income communities, with banks who have signed such agreements reinvesting roughly twice as much as banks without such agreements.
“CRA ensures that banks help meet the credit needs of communities in which they are located, and in doing so, they create affordable housing opportunities, create and preserve jobs, and direct investments into community and economic development programs that help build wealth in low-income households and traditionally disadvantaged communities, said Clemente Mojica, President and CEO of Neighborhood Partnership Housing Services.
The future of CRA is uncertain under the Wall Street-friendly Trump administration. “It is not the time to weaken this policy, which has resulted in trillions of dollars in reinvestment for low- and middle-income communities and communities of color. CRA ensures that banks make meaningful and much-needed investments and lending in communities, consistent with safe and sound operations,” said Gonzalez.
The report makes the following recommendations for strengthening CRA:
• Strengthen integrity of regulatory grading process.
• Require public, forward-looking, multi-year CRA plans with actionable goals.
• Use downgrading when appropriate.
• Broaden CRA assessment areas.
• Bring transparency to small business lending.
• Include non-banks in CRA coverage.
• CRA should explicitly consider race.
• Serve all segments of communities.
“Banks that discriminate, displace, and fail to protect consumers should be held accountable and see the consequences on their CRA examinations. CRA is meaningless without strong accountability. Banks should be a force of good in communities, not bad actors who prioritize profit over people,” said Gonzalez.
Kevin Stein, Deputy Director of the California Reinvestment Coalition, and one of the authors of the report, noted that “The integrity of the public participation process is at risk and must be strengthened if citizens are to influence bank CRA agreements and advocate for their own communities’ needs. At this time, we are concerned that CRA overhaul will result in fewer opportunities for citizens and communities to make their voices heard to regulators and banks.”