While long-awaited federal updates to a key nationwide economic justice policy are tied up in court, progress is continuing elsewhere: Illinois has finalized its state-level version of the Community Reinvestment Act (CRA).
Illinois lawmakers passed their state CRA law in 2021 and then spent more than two years designing its implementing regulations, which were formally adopted this May. That work is part of the state Legislative Black Caucus’s plan to dismantle systemic racism in the state through reform of four key pillars: criminal justice; education and workforce development; economic access, equity, and opportunity; and health care and human services.
The legislative agenda responded both to national condemnation of the murder of George Floyd and longstanding inequalities and disparities in their state. One of the opportunities for change that the lawmakers identified was unequal access to mortgage lending. The racial homeownership gap is a national problem with a stark local face: More loans were made in four different majority-White neighborhoods in Chicago than all the Black neighborhoods combined from 2012 through 2018.
For Illinoisans, the new state CRA is a big step in addressing those problems. For economic justice advocates elsewhere, the new rules offer a great example of how to fix gaps in the federal CRA and advance policies to address redlining.
The Illinois law offers several improvements over the federal CRA law. First, the law covers state chartered banks and credit unions, as well as state licensed mortgage companies that made 50 or more mortgages in the previous year. Federal CRA law only covers banks, even though non-banks account for over half of all home purchase and refinance loans, and the percentage of home purchase loans from banks has been steadily decreasing.
Second, Illinois created an opportunity to address racial and other discrimination directly in its CRA, a step federal regulators were unwilling to take in the new rules issued this fall.
During the recently completed legislative session, NCRC was able to work with the Illinois CRA Coalition to pass SB 3235, which will study disparities in accessing credit by race and other protected classes, as well as identifying specific communities of color that have significant gaps in loans, investments and branch locations. The purpose of the study is to ensure that the use of race and other protected characteristics under the Illinois Human Rights Act are narrowly tailored to the purpose of remedying the effects of past or present discrimination.
This method of incorporating race into CRA evaluations is designed to meet legal standards for using race to address ongoing disparities. This study can then be factored into the state’s CRA exams to assess how well banks, credit unions and mortgage companies are serving those that currently benefit the least from our banking system. Folding this careful consideration of explicit racial data into the exams process will motivate lenders and community organizations to work together on products and strategies to better serve Illinois’ Black communities, as well as any other groups the disparity study identifies.
The legislature’s success in taking these bold steps is especially noteworthy considering the opposition the study faced. Illinois’ state regulator originally added the study to the implementing regulations in response to comments from NCRC and the Illinois CRA Coalition, only to then have it removed after industry pressure. The long and delicate work that went into restoring the study through legislative means in SB 3235 – co-sponsored by state Senator Christopher Belt and state Rep. Sonya Harper – is a reminder to advocates everywhere of the power of creativity and determination in the face of corporate resistance.
SB 3235 gives Illinois’ financial regulator the ability to incorporate the disparity study into their state CRA examinations, but the exact nature of how this will be done is left to future rulemakings. This is a reminder that improving public policy is never-ending work, and that we must stay vigilant to preserve this victory and ensure it is implemented fully in order to effectively address the ongoing effects of redlining.
The Illinois state CRA law, with the addition of the disparity study, provides a model for other states to follow, as well as the federal CRA. Here is a fact sheet with more information on the details of Illinois’ CRA rules.
Which Institutions Are Covered? What Are They Evaluated On?
Illinois State Chartered Banks
- Very Small Banks ($25 million in assets and below, as well as banks with $100 million in assets and below that originated less than 50 mortgages in previous calendar year) – Simplified, narrative-style exam. Banks that receive “Substantial Noncompliance” ratings are ineligible for Very Small status on their next exam and will be evaluated instead based solely on asset size.
- Small Banks ($600 million in assets and below) – Lending Test
- Intermediate Small Banks ($600 million in assets – $2 billion) Lending and Community Development test
- Banks ($2 billion in assets and above) – Lending, Investment, and Service Test
- Ties asset thresholds of small and intermediate small banks to federal CRA definition.
- Allows for wholesale/limited purpose banks to just have CD test – same as federal CRA.
- Also a strategic plan option.
- Deposit based assessment areas.
Illinois State Chartered Credit Unions
- Very Small Credit Unions ($25 million in assets and below, as well as credit unions with $100 million in assets and below that originated less than 50 mortgages in previous calendar year) – Simplified, narrative-style exam. Same with banks, credit unions that receive “Substantial Noncompliance” ratings are ineligible for Very Small status on their next exam and will be evaluated instead based solely on asset size.
- Small Credit Union ($391 million in assets and below) – Lending test only, optional Investment test.
- Intermediate Small Credit Union ($391 million in assets – $1.564 billion) – Lending test and simplified Community Development test that looks at loans and services, will look at investments at request of credit union.
- Credit Union ($1.564 billion in assets and up) Lending test, Service test, optional Investment test that’s more similar to the federal CRA investment test than the intermediate small credit union CD test.
- Allows for wholesale/limited purpose credit unions to just have CD test.
- Also a strategic plan option.
- Assessment area, or field, is based on the credit union’s field of membership. Credit unions with community common bonds likely to also have place-based assessment areas based on branch locations.
Mortgage Companies
- Applies to state-licensed mortgage companies that made 50 or more mortgages in the last calendar year.
- Lending test and Service test for mortgage companies that made more than 200 mortgages in the previous year, just Lending test for mortgage companies with less than 200 mortgages in the previous year.
- Has a different definition of community development, includes mortgage products and other efforts to assist LMI individuals in acquiring or remaining in affordable housing, community services, as well as activities that revitalize or stabilize.
- Statewide assessment areas
How Is Race Incorporated?
Disparity Study
- Illinois law SB3235 establishes that the Illinois Commission on Equity & Inclusion will carry out a study to identify specific geographies, racial groups, and other protected classes that exhibit significant disparities in access to loans, as well as specific communities that have disparities in loans, investments, and retail banking services such as branches.
- SB3235 then gives Illinois financial regulator, the Illinois Department of Financial & Professional Regulation or IDFPR, the ability to incorporate the studies findings into their state CRA exam process.
- The specifics of how IDFPR will incorporate the study’s results will be determined by a future rulemaking, but creates an opportunity for race to finally be incorporated into how financial institutions are rated on CRA performance.
Special Purpose Credit Programs
- In response to NCRC and member comments, special purpose credit programs have been added as an example of innovative or flexible lending practices that would receive positive consideration for all institutions.
- Click here for more information on special purpose credit programs.
Other Features
Purchased Loans
- Only originated loans and initial purchases will count, if the loan is sold again, it will not count. Only counting initial purchases is an improvement over the federal CRA since it prevents multiple institutions getting credit for the same loan.
CDFIs, Financial Institutions Owned by People of Color or Women, and Low-Income Credit Unions
- Encourages banks and credit unions to partner with CDFIs, financial institutions owned by people of color or women, and low-income credit unions by giving positive consideration for activities done in cooperation with these institutions, such as capital investments and loan participations.
Kevin Hill is a Senior Policy Advisor at NCRC.
Photo by Kymberly Janisch via Flickr.
