(Updated April 27, 2021)
American banking has a dark history of discrimination against Blacks, immigrants and other minorities. The Community Reinvestment Act (CRA) was passed in 1977 to end that discrimination, known as redlining. But discrimination is still a problem in lending across the nation.
Banks earn profits by investing the money deposited in them by individuals, businesses and governments. Historically, most of those profits came from interest paid on mortgage and small business loans. CRA requires banks to meet the credit needs of the communities where they take deposits, including low- and moderate-income (LMI) neighborhoods. The law requires banks to reinvest deposits back into their communities in ways that are responsive to the community’s needs.
Government agencies that regulate banks periodically review bank compliance with CRA rules. In recent years, nearly all banks have earned passing grades from the government. That’s not new to the Trump Administration. Nearly all banks passed under President Obama too.
In rare cases, when banks fail their CRA exams, regulators may stop the banks from growing or entering new markets until they address their CRA problems.
Regulators also look closely at CRA performance when banks want to buy or merge with another bank.
Community benefits agreements (CBAs) are a way for banks to spell out, in writing, how they will satisfy CRA requirements when they merge. The agreements are between banks and community groups.
CBAs open doors for LMI communities and communities of color, and they increase lending, investments and philanthropy for underserved borrowers and neighborhoods compared to prior practices. CBAs boost financial support for small businesses and a variety of other community development initiatives.
Since 2016, the National Community Reinvestment Coalition (NCRC) has facilitated the creation of CBAs worth $298 billion with 15 banking groups. The largest-to-date plan, finalized in April 2021, was a four-year, $88 billion agreement with PNC Bank, one of the largest banks in the country. PNC committed $47 billion towards home purchase lending to people of color and LMI communities. It dedicated $26.5 billion in lending to small businesses in communities that are majority people of color and/or experiencing LMI, and $14.5 billion in community development lending and investment (CDLI) that will include investments into housing tax credit programs, Opportunity Zone investments, economic empowerment and social justice initiatives, as well as loans and investments to CDFIs.
In addition to the monetary obligations of the agreement, PNC Bank pledged to increase its spending with diverse suppliers by 20%, while also increasing the number of suppliers of color the bank works with over the plan’s four-year period. PNC will also form a sixteen-member Community Advisory Council that will meet semi-annually to review and discuss PNC’s progress towards the goals and objectives of this plan, as well as emerging areas of community need during the plan period.
When it brings banking and community group leaders together to negotiate a CBA, NCRC plays the role of facilitator and negotiator on behalf of community groups that are members of NCRC. Our first step is to analyze local lending and community development data and review it with NCRC member organizations to identify gaps in services and how a bank merger would affect LMI constituents. We also compare community development loans and investments (CDLI) to banks of a similar size. Due to relaxed enforcement of CRA rules, many banking institutions have fallen behind in reaching the appropriate CDLI level.
NCRC also looks at the Herfindahl-Hirschman Index (HHI), which measures how concentrated a banking market is. Federal regulators use it to evaluate whether a merger will create anti-competitive effects. This information is important in ensuring that merger agreements contain a forward-thinking commitment to the community.
With data in hand, NCRC seeks commitments from the banks to participate in a series of local market meetings, where NCRC members discuss their experiences and views on their community needs and propose improvements to the bank’s community reinvestment plans.
CBAs depend on collaboration between banks and community organizations. That starts with dialog and negotiation on the scope and scale of a bank’s CBA commitment, and it continues after an agreement is signed through community councils set up to advise on implementation and monitoring of the agreement.
Completed CBAs are:
- KeyBank in March 2016 for $16.5 billion.
- Huntington Bancshares in May 2016 for $16.1 billion — completed in 2020. A second plan was announced in September 2020 for $20 billion.
- Fifth Third Bank in November 2016 for $30 billion.
- First Financial Bank in October 2017 for $1.7 billion.
- Santander Bank in November 2017 for $11 billion.
- IBERIABANK in November 2017 for $6.7 billion.
- First Tennessee Bank in April 2018 for $4 billion.
- Wells Fargo & Company (DC) in October 2018 for $1.6 billion
- Fifth Third updated agreement in October 2018 for an additional $2 billion.
- Truist in July 2019 for $60 billion.
- CIT Group in November 2019 for $7.75 billion.
- First Merchants Bank in June 2020 for $1.4 billion.
- Morgan Stanley in September 2020 for $15 billion.
- First Citizens Bank in February 2021 for $16 billion.
- PNC Bank in April 2021 for $88 billion.
Alexandria Robinson was a 2019 summer intern at NCRC.