I grew up in Boston in the 1960’s, in public housing, across the street from a full-service bank branch. The bank was critical to the neighborhood until bank executives in downtown-Boston decided to discriminate against poor and working-class whites and racial minorities. Known as “redlining,” banks condemned whole neighborhoods and refused to make loans to people who lived there regardless of their credit worthiness.
Try to imagine what occurs if residents and small businesses in your neighborhood can’t get loans to buy homes or repair and improve their properties. Small businesses close and jobs disappear.
‘Redlining’ decimated the working class in poor and moderate income neighborhoods.
Leaders in Washington, DC, who once thought of citizens’ interests first and corporate interests second, decided in 1977 that capitalism wouldn’t work very well if we didn’t ensure all creditworthy people had fair and equal access to bank products and services. The antidote to this ‘redlining’ was the Community Reinvestment Act (CRA) passed in 1977. Today is the 40th anniversary of this stunningly impactful and wise legislation.
Today, a blue-collar, working-class person can walk into banks and know that the CRA requires banks to make mortgage and business loans to creditworthy working-class borrowers in the communities where the banks take deposits. So, if a bank collects deposits from the people of Roxbury, where I grew up – a historically redlined and underserved mixed-race community – CRA requires federal bank regulators to verify that the bank meets the credit needs of residents in the working-poor parts of the city and not just the affluent areas of Boston.
CRA has motivated banks to do better, and federal regulators keep an eye on them. Since CRA’s inception, banks have invested over $20 trillion into neighborhoods previously excluded by our financial institutions.
Last year alone, The National Community Reinvestment Coalition (NCRC) signed commitments between banks and community advocacy groups totaling $62.4 billion.
Big and small banks have attacked this law since the beginning, not wanting to loan to credit-worthy working-class borrowers and not wanting their record of lending performance to be known by the public. But CRA has turned out to be one of the most effective pieces of legislation coming out of Washington, DC. Nothing has helped working-class Americans more to help them climb the economic ladder. If you cannot get a mortgage, you cannot escape being rent burdened or utilize the equity of a home loan to send someone to college or start a business. Most Americans start to build wealth ‘the old-fashioned way’ by borrowing it. But those loans need to be accessible to all hard-working Americans and at fair and competitive rates. CRA made that the law.
CRA lending has turned out to be profitable for banks and very low risk to taxpayers. Studies from the Federal Reserve Bank and US Treasury have shown CRA to be safe and sound and helped the banks avoid the predatory lending debacle that toppled the independent mortgage companies and Wall Street firms (both currently not covered by CRA). Without CRA we would be discussing the second Great Depression rather than a Great Recession.
It is hard to imagine how these banks would treat working class communities without the guarantees of the Community Reinvestment Act. Millions of Americans now own businesses and homes thanks to CRA. This is a fabulous and wonderful cause for celebration in the law’s 40th year.
While the CRA is law of the land, it depends on having a sheriff who wants to enforce the law. Despite its storied history, the CRA is currently not being fully enforced as it was intended. Every few years banks are examined by regulators to confirm compliance with this law. Don’t get caught only loaning to the rich! Yet over 98% of banks are given passing grades by their regulators.
This suggests that the CRA is due for an overhaul to ensure compliance and expand its obligations to credit unions, mortgage companies, fintech companies and others. There is no reason that we should require banks to lend responsibly to working –class families but allow other financial institutions to not do so.
I am so thankful to have been born in the United States and to have the opportunities I have had. I am proud that the overwhelming majority of Americans believe in fairness and equality for all people, regardless of race, gender, disability and other reasons. We are still the land of opportunity, not racism, misogyny and hatred.
The work of the National Community Reinvestment Coalition is to ensure that all Americans are empowered by financial institutions to follow and achieve their dreams and pursue happiness for themselves and their families.
In honor of this historic day, CRA’s 40th birthday, I wish to announce yet another group of Community Benefit Agreements, made possible by CRA, in which four banks have pledged in writing to invest over $22 billion in blue-collar, working-class and poor neighborhoods. The impacts of these investments will result in more families paying on a mortgage rather than rent and more small businesses having the opportunity to start or expand. This private sector investment, free of any government subsidy, will strengthen the microeconomies of a plethora of communities. This not only helps those neighborhoods, but our nation as well, as more taxpayers and income earners contribute to our overall economy.
CRA is about making sure our country prospers when people on Main Street benefit as well as those highly compensated wheeler-dealers on Wall Street. It is time to stop talking about helping average Americans and instead make it a reality. Expanding CRA and having rigorous enforcement and oversight of that and the fair lending laws will help all credit-worthy borrowers realize their dreams.
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