Frank has said he will make the bill his top priority for the House Financial Services Committee after the November elections. A vote on the American Community Investment Reform Act of 2010 could occur during a lame duck session.
“By expanding CRA to Wall Street, members of Congress can promote small business lending and create jobs for their constituents without spending tax dollars. This is one way to get Wall Street to repair the damage to local economies caused by the financial crisis,” said Taylor.
“Blame for the foreclosure crisis and the loss of trillions of dollars of family wealth can be placed right at the doorstep of Wall Street. Every financial institution should have an obligation to meet the credit needs of creditworthy small businesses and consumers. Instead, they’re holding capital that could be put to work financing growth and economic recovery. Chairman Frank’s committee should be commended for doing something about it,” said Taylor.
Signed in 1977, CRA requires some banks to address the unmet capital, credit and basic banking services needs of creditworthy individuals and businesses, in towns, cities and rural areas, with a focus on working class communities. CRA leverages a private sector commitment to lend, invest and provide financial services, so the law is deficit neutral.
CRA has encouraged over a trillion dollars in community development, housing and small business lending in the past 13 years. Original sponsors of the bill are U.S. Representatives Luis V. Gutierrez, Chair of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit; Maxine Waters, Chair of the Subcommittee on Housing and Community Opportunity; Eddie Bernice Johnson and Al Green.
At the urging of NCRC and other community groups, Frank’s bill expands CRA coverage to investment banks, security firms, mortgage lenders, non-bank lenders, and bank affiliates. The bill would encourage Wall Street investment banks to invest in tax credits and investment tools targeted at community and economic development in low-to-moderate income neighborhoods.
A coalition of civil rights, community development, housing and advocacy organizations announced their intention to work together to help move the legislation reforming CRA. In a recent letter sent to Chairman Frank, over 260 organizations called for an expansion of CRA to “rebuild neighborhoods and small businesses decimated by the Great Recession.” The letter with signatories is available at www.expandcra.org.
Frank’s bill will not only expand CRA to other financial institutions but also will close loopholes and gaps in the law, improve enforcement, enhance systems to measure performance and expand transparency and accountability.
Taylor cited two weaknesses of the bill: credit unions are not brought under CRA coverage, and the bill makes it easier for banks to merge without public scrutiny.
Expanding CRA is critical because:
Lending is down, while profits are up. Overall bank lending was down 7.5% from 2008 to 2009, the largest annual decrease since the 1940s. Recent reports show that banks’ loan-to-deposit ratio has gone down; many banks’ deposit levels and profits are up, but lending is down.
Small businesses can’t get loans to create jobs. A congressional report issued in June said the value of large banks’ loans to small businesses shrank 9% from 2008 to 2009. And in July, the Federal Reserve said only 40% of small businesses that tried to borrow in 2009 had their needs met. Small businesses create 2 out of every 3 new jobs; a paucity of small business lending will not help bring down the current unemployment rate of 9.5%.
Neighborhoods have been destabilized. More than eight million homes experienced a foreclosure since 2007, and we face 7-8 million more foreclosures in the next two years. Meanwhile, most Americans’ wealth is shrinking. More than $6 trillion in home equity wealth was eliminated in the last four years. For the first time, banks own a greater share of residential housing net worth than all Americans put together.
Millions don’t have access to good banking services. Nearly 10 million households have no relationship with a mainstream financial institution, and some estimates put the number of under- banked households at 40 million. In the absence of widely accessible, affordable banking services and products, pay day lenders and other abusive services will continue to thrive in underserved communities, despite the new consumer protections.
CRA lending is safe and sound. Federal Reserve research documents that 94% of the riskiest lending in recent years was not covered by CRA, and the loans under CRA are half as likely to end up in foreclosure. Lending done under CRA is profitable and by statute, does not threaten the safety and soundness of banks. CRA does not utilize quotas; the law allows banks to develop a profitable plan to meet their obligations.
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