Testimony of Stella Adams before the New York State Senate Democratic Conference

June 8, 2018

Senator Sanders, members of the Committee,  my name is Stella Adams, and I serve as the Chief of Equity and Inclusion for the National Community Reinvestment Coalition, more commonly known as NCRC.

NCRC creates, implements, and supports long-term solutions and strategies that build community and promote individual economic well-being. The programs of NCRC seek to empower, organize and support economically vulnerable, individuals, communities and small businesses. By combining advocacy, organizing, technical assistance and direct services NCRC promotes economically, socially and environmentally viable, sustainable, and inclusive communities for all Americans free from discrimination.

The Community Reinvestment Act (CRA) is key to driving better basic banking services, increased mortgage and business lending, and improving community development in low- and moderate-income communities. Research from NCRC’s research department highlights the level of financial disinvestment and the need for strong enforcement of CRA and improvement in CRA exams and ratings.

Small business lending data collection Under Section 1071

The CRA requires small business lending be reported by each institution for low, moderate, middle, and upper income areas. This CRA small business Disclosure dataset allows lending by each reporting institution to be quantified at the county level. The CRA small business Aggregate dataset provides information for lending for each individual census tract for the aggregate of all reporting banks, excluding detail for each individual lender. While these datasets  provide a picture of lending by neighborhood, the data lacks demographic information regarding race/ethnicity or gender of individual borrowers.

Section 1071 of the Dodd-Frank Act requires that the Consumer Financial Protection Bureau (CFPB) centralize the collection and public reporting of small business lending data. It also requires the collection and reporting of new data on the race and gender of the small business owner.

The purpose of Section 1071 is to “facilitate the enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses.”

Currently, the collection of small business lending data is spread across a number of federal agencies, is not comprehensive, and is not readily available to the public. Currently advocates must cobble together data from four publically available data sources  to allow an overall analysis of small business lending patterns to businesses located in low-to-moderate and middle-to-upper income (LMI and MUI), and with less accuracy, minority census tracts. For example, the Small Business Administration (SBA) dataset includes data on all financial institutions and borrowers receiving loans under the 7(a) and 504 loan programs. This does not include loan level demographic data, but does provide some demographic data at a county level. While this dataset provides some demographic detail, it only represents about 3% of number of small business loans made nationally. The survey of Small Business Owners (SBO) dataset is comprehensive, but completed only every 5 years, with the last available survey conducted in 2012. Finally, the Annual Survey of Entrepreneurship (ASE) provides select demographic information on businesses and their ownership at the state and metropolitan area levels, but does not include any information on lending.  This is why the Section 1071 data is needed as a comprehensive and annual database of lending patterns to businesses.

Small business data for the New York City MSA

The New York MSA is demographically diverse. However, analysis of small business lending shows that lending disparities exist for Black and Hispanic small business owners.  The two groups are dramatically under-represented in the number of firms operated by Black and Hispanic owners, and in the proportion of small business lending received. Both groups operate much smaller numbers of businesses than their population size would suggest. Black-owned businesses comprise a little over 2% and Hispanic-owned businesses comprise just under 7% of businesses, while the MSA population is about 25% Black and 29% Hispanic. Non-Hispanic White-owned, and Asian-owned businesses, on the other hand ,are over represented in the market comprising 72% and 18% of businesses, while representing only 49% and 13% of the population, respectively.

In addition, Asian and Non-Hispanic White-majority neighborhoods receive the greatest portion of loans in the MSA with 39% of White and 24% of Asian neighborhoods in the top quartile (75% and over) of small business loans received, while 48% of Hispanic and 70% of Black neighborhoods were in the lowest quartile (25% and below).

The disparity in small business lending by both income level and race/ethnicity indicates capital constraints for minority neighborhoods of low socioeconomic status. However, NCRC did find that larger proportions of lending in LMI neighborhoods of Brooklyn (57%) and the Bronx (69%), than in MUI neighborhoods.  For example, in the Bronx the overall number of small business loans made ranks fourth of the five boroughs, slightly more than Staten Island. Proportionally however, small business lending in low to moderate income (LMI) areas of the Bronx is the highest of the five boroughs. This is because so much of the Bronx is classified as LMI, 72% or 248 out of 344 of its census tracts qualify, and 69% of small business loans went to LMI areas. Aside from increased small business lending in Riverdale, there was no discernible pattern in the neighborhood distribution of small business lending in the Bronx.

In Brooklyn, 36% of census tracts qualified as LMI in 2017 (436 of 1208), and small business lending to these areas is robust, with 57% of loans going to LMI tracts. The small business-lending pattern in Brooklyn has several factors: 1)   more robust small business lending in census tracts located on major transportation routes. 2)  gentrifying tracts (from 2000-2013) show greater small business lending than surrounding tracts, but the gentrifying tracts are often along major transportation routes, and finally, 3) greater small business lending activity in tracts with lower percentages of minority residents.

Small Business Lending Test Results

Small, women-owned, and minority-owned businesses (SBEs, WBEs and MBEs) drive economic and job growth. Small businesses accounted for approximately 60 percent of net new jobs created from mid-2009 through the third quarter of 2016.

Nationally, women, African-American, and Hispanic entrepreneurs represent a larger share of small businesses than ever. Between 2007 and 2016, the number of women-owned businesses increased by 45 percent, compared to just a 9 percent increase among all businesses.

Despite their significant role, small, women-owned, and minority-owned businesses struggle the most with access to safe and sustainable credit. Bank balance sheets showed a 20 percent decline in small business lending by 2014, while loans to larger businesses had risen by about four percent over the same period. Also, small businesses, women-owned, and minority-owned businesses face lower approval rates on loans than male-owned and non-minority-owned businesses. For example, available research on minority business lending generally indicates that African-American business owners were denied loans more often or pay significantly higher interest rates than white-owned businesses with similar risk characteristics.

Access to credit is necessary for any business to succeed. For small businesses, the inability to access credit can be particularly detrimental because it restricts these businesses from expanding. The Federal Reserve Bank’s 2016 Small Business Credit Survey highlights that 64% of small businesses who apply for credit do so to expand business opportunities and that 55% of these applicants are looking for financing of $100,000 or less (Federal Reserve Banks, 2017).

NCRC, in conjunction with researchers from Brigham Young University, Rutgers University and Utah State University, conducted fair lending tests using a matched-paired mystery shopping methodology to test for racial discrimination in small business lending. The purpose of this mystery shopping research, commonly known as “testing”, was to determine the baseline customer experience that minority and non-minority mystery shoppers received when seeking information about small business loans. We investigated the potential for disparate treatment of small business customers during the pre-application (or loan inquiry) stage of the loan application process at a bank.

The tests were designed to present the African American tester as the most creditworthy. Despite this fact, on several measures the matched-paired mystery shopping study revealed that the African American testers underwent a higher level of scrutiny and received a lower level of assistance than their less-creditworthy Caucasian counterparts. Also, African American testers were asked significantly more often about their marital status and their spouse’s employment, which marks another and even illegal differential experience for these minority entrepreneurial consumers compared with the Caucasian shoppers.


By holding banks accountable for serving local communities, the Community Reinvestment Act (CRA) has leveraged trillions of dollars of responsible loans, investments, and services for traditionally underserved communities.[1] The federal bank agencies are considering changes to the CRA regulation and examination procedures. The agencies must not undermine the effectiveness of CRA by designing new exams that do not effectively hold banks accountable for meeting credit needs of local communities. The following are principles of reform; if the agencies contradict or contravene these principles, NCRC will oppose the reform efforts.

These principles were directed at regulatory reform. NCRC has always advocated for applying CRA broadly throughout the financial industry. This expansion would require an act of Congress. While this is discussed briefly below, the focus of these principles are areas we expect the federal bank agencies to consider in reforming CRA. Reforming CRA must not become a pretext for relaxing CRA. NCRC’s recommendations are as follows.

  • Assessment Areas Must be Preserved and Expanded – CRA exams must retain a local geographical focus. Congress passed CRA in response to redlining of communities. Currently, CRA exams judge bank performance in assessment areas or geographical areas that contain bank branches and deposit taking ATMs.[2] These assessment areas work for many banks that do most of their lending through branches. However, other banks make loans through non-branch means such as the internet. Also, financial technology companies (fintechs) have recently applied to the federal banking agencies for bank charters and fintechs make all of their loans through the internet. Assessment areas can expand to include geographical areas where banks and fintechs are gathering deposits or making loans outside of their branch networks.  Rural areas and smaller metropolitan areas must receive more attention on CRA exams. However, it is not acceptable to obliterate assessment areas in CRA exams as some contemplate. This would be contrary to the purpose of CRA to prevent redlining. Moreover, removing assessment areas from CRA exams would decrease lending to low- and moderate-income communities since research has found that assessment areas have bolstered lending in modest income communities.[3] CRA must continue to adhere to its original purpose to ensure that local community needs are met. Do not remove “community” from CRA.
  • Public Participation Must be Safeguarded – The heart and soul of CRA is public participation. The public has the right to comment on CRA exams and merger applications. No stakeholder has better insights into local community needs than community residents. If banks and regulatory agencies do not consider seriously the comments of community residents, they will not effectively respond to local credit needs. Any attempts by the regulatory agencies to truncate public participation requirements is not only counterproductive but is contrary to the intent and purpose of CRA.
  • Maintain the Importance of Branches – Currently, the CRA service test places primary emphasis on bank branches while still considering alternative service delivery. Some have proposed deemphasizing branches on CRA exams.[4] A large body of research documents that home and small business lending increases to low- and moderate-income borrowers in areas with more branches.[5] Deemphasizing bank branches on CRA exams would cause banks to pay less attention to neighborhoods where they receive deposits and therefore would increase instances of redlining. Moreover, lending and bank services to low- and moderate-income people would likely decline.
  • Focus Must Remain on Low- and Moderate-Income Neighborhoods – Some have proposed expanding the range of activities that can qualify on CRA exams to include financing initiatives that may have city-wide benefits but that are not necessarily focused on low- and moderate-income neighborhoods. For example, some talk about providing favorable consideration to financing the construction of hospitals regardless of where they are located.[6] No one disputes the necessity for these institutions but health facilities located in affluent parts of metropolitan areas do not significantly benefit low- and moderate-income people. CRA must not be diluted to divert resources away from neighborhoods that were the original impetus for CRA.
  • Discrimination and Violations of Consumer Protection Law Must be Penalized on CRA Exams – The Office of the Comptroller of the Currency (OCC) has issued a memo that dilutes the negative impact of discrimination and violation of consumer protection law on a bank’s CRA rating.[7] Instead of being emulated by the other agencies, this approach must be rescinded. A bank is not serving credit needs in a responsible manner if it is engaging in illegal and harmful activities on a large scale, behavior which now results in ratings downgrades.
  • Bank Activity to People of Color and Communities of Color Must be Considered on CRA Exams – Bank lending, investing, and service to people and communities of color must also be considered on CRA exams, which now only consider low- and moderate-income borrowers and communities. Communities of color were the original communities redlined when Congress passed CRA and remain disproportionately victimized by predatory lending and a lack of prime, conventional lending.[8]
  • Banks Cannot Be Allowed to Merge after They Fail CRA Exams – The OCC has also made it easier for banks with failed CRA ratings to be allowed to merge or engage in other activities that require an application to federal agencies.[9] Since only about two percent of banks fail on an annual basis, these institutions are exceptionally poor CRA performers.[10] Currently, the only penalties for failed CRA ratings is the possibility of denial of merger or branch applications. This is one of the few sticks that motivates banks to pass their CRA exams. A presumption that applications will be denied for failed CRA performance must remain the regulatory practice.
  • Avoid Simplistic Measures of Performance – The existing CRA examination criteria have been developed over several years and reflect a careful balance regarding the importance of various activities for low- and moderate-income communities. Some have suggested a radical overhaul of examination criteria such as reducing CRA performance to a simple formula such as comparing the sum of CRA activities to bank assets. While this ratio is useful as one performance measure, making it the totality of a CRA exam would throw out current examination weights which judge activities such as loan originations to be more important than purchasing loans on the secondary market. It would also be another attempt to eliminate the focus of CRA exams to local needs that vary across a bank’s footprint. While objective measures of performance can be improved on CRA exams, a reduction of CRA to only a few formulas would contradict the original local focus of the law.
  • Affiliate Activities Must be Considered – A number of banks own mortgage companies that are included now on CRA exams only at the option of banks. This approach can lead to manipulation of CRA exams and the exclusion of mortgage companies when they engage in abusive practices or do not lend to low- and moderate-income borrowers. Affiliates must be automatically considered in CRA exams. In addition, NCRC believes that CRA must be applied broadly throughout the financial industry to include mortgage companies, credit unions, insurance companies, securities firms, and investment banks. The broad expansion of CRA would require an act of Congress while these principles as discussed above are devoted to regulatory reform.
  • Refine CRA Ratings – Only about 2 percent of banks fail their CRA exams annually while about 90 percent are judged to have Satisfactory performance and close to 10 percent are judged to have Outstanding performance. This rating system fails to identify banks with various levels of CRA performance. The agencies should either introduce another rating category to the current four ratings or supplement the ratings with a point scale that can reveal more distinctions in performance. This would not only be fairer for communities but would also reward banks that are currently doing better than their peers but whose performance is not reflected adequately in the ratings.
  • Community Benefit Agreements Must be Recognized – Community benefit agreements (CBAs) are negotiated between banks and community groups and commit banks to specific levels of loans, investments, and services to low- and moderate-income and minority communities over a multiple year time period. Banks have signed CBAs in the context of merger applications or to improve lackluster CRA performance. The agencies must not act to discourage CBAs and should recognize them as a valuable means to improve CRA performance.


CRA is key to driving better basic banking services, increased mortgage and small business lending, and improved community development in low- and moderate-income communities in the great state of New York and nationwide. Across the country, numerous examples of financial disinvestment highlight the need for strong enforcement of CRA and improvement in CRA exams and ratings. There is a sizable segment of U.S. households going unbanked and under-banked and relying on alternative financial services (e.g., money orders, check cashing services, pawnshop loans, auto title loans, paycheck advance/deposit advances, or payday loans). Many communities in New York State lack adequate small business lending. In addition, recent investigations have exposed ongoing redlining despite these facts, over 98 percent of banks examined by federal agencies from 2012 to 2014 received a passing grade on their CRA exams.[26] In comparison, in the 1990s – a period of significant investment in low- and moderate-income communities – many more banks failed. When ratings first became public in 1990, around 10 percent of banks failed their CRA exams. During the first five years of the public availability of CRA ratings, more than five percent of banks failed their CRA exams every year. That number has steadily trended downward, but the higher ratings do not reflect the experiences of low- and moderate-income, economically distressed, or rural communities.

We hope that you will join NCRC in protecting the Home Mortgage Disclosure Act, the Community Reinvestment Act and the provisions of Dodd-Frank that require Banks to begin collecting additional data on mortgage loans and  small businesses.

Finally, we to thank our New York State members  for the work they do everyday to promote economically, socially and environmentally viable, sustainable, and inclusive communities free from discrimination for the people of the great state of New York. Thank you for the opportunity to testify on behalf of the National Community Reinvestment Coalition.


[1] NCRC, The Community Reinvestment Act: Vital for Neighborhoods, the Country, and the Economy, June 2016, https://ncrc.org/the-community-reinvestment-act-vital-for-neighborhoods-the-country-and-the-economy/. See also, Josh Silver, The Community Reinvestment Act at 40: A Careful Review of the Reviews, September 2017, https://shelterforce.org/2017/09/14/community-reinvestment-act-40-careful-review-reviews/

[2] CRA regulation, see §25.41 assessment area delineation, viewed at https://www.ffiec.gov/cra/regulation.htm

[3] Joint Center for Housing Studies at Harvard University, The 25th Anniversary of the Community Reinvestment Act: Access to Capital in An Evolving Financial Services System, March 2002, http://www.jchs.harvard.edu/research/publications/25th-anniversary-community-reinvestment-act-access-capital-evolving-financialAlso, see Elizabeth Laderman and Carolina Reid, Federal Reserve Bank of San Francisco, “CRA Lending during the Subprime Meltdown” in Revisiting the CRA: Perspectives on the Future of the Community Reinvestment Act, a Joint Publication of the Federal Reserve Banks of Boston and San Francisco, February 2009, https://www.frbsf.org/community-development/files/cra_lending_during_subprime_meltdown11.pdf

[4] Memorandum for the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation from the Department of Treasury, Community Reinvestment Act – Findings and Recommendations, https://home.treasury.gov/sites/default/files/2018-04/4-3-18%20CRA%20memo.pdf

[5] Access to Capital and Credit in Appalachia and the Impact of the Financial Crisis and Recession on Commercial Lending and Finance in the Region, a NCRC report for the Appalachian Regional Commission, https://ncrc.org/access-to-capital-and-credit-in-appalachia-and-the-impact-of-the-financial-crisis-and-recession-on-commercial-lending-and-finance-in-the-region/

[6] For a discussion of the hospital example, see Rachel Witkowski, Will CRA Finally Get its Makeover, American Banker, March 9

[7] OCC, Impact of Evidence of Discriminatory or Other Illegal Credit Practices on Community Reinvestment Act Ratings, October 2017, https://www.occ.gov/news-issuances/bulletins/2017/bulletin-2017-40.html

[8] NCRC, Home Mortgage and Small Business Lending in Baltimore, https://ncrc.org/home-mortgage-and-small-business-lending-in-baltimore-and-surrounding-areas/ and NCRC Foreclosure in the Nation’s Capital, https://ncrc.org/foreclosure-in-the-nations-capital-how-unfair-and-reckless-lending-undermines-homeownership/

[9] OCC, Impact of CRA Ratings on Licensing Applications, November 2017, https://www.occ.gov/publications/publications-by-type/other-publications-reports/ppms/ppm-6300-2.pdf

[10] NCRC analysis of CRA ratings. The ratings can be found on the FFIEC webpage via https://www.ffiec.gov/craratings/default.aspx

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Redlining and Neighborhood Health

Before the pandemic devastated minority communities, banks and government officials starved them of capital.

Lower-income and minority neighborhoods that were intentionally cut off from lending and investment decades ago today suffer not only from reduced wealth and greater poverty, but from lower life expectancy and higher prevalence of chronic diseases that are risk factors for poor outcomes from COVID-19, a new study shows.

The new study, from the National Community Reinvestment Coalition (NCRC) with researchers from the University of Wisconsin–Milwaukee Joseph J. Zilber School of Public Health and the University of Richmond’s Digital Scholarship Lab, compared 1930’s maps of government-sanctioned lending discrimination zones with current census and public health data.

Table of Content

  • Executive Summary
  • Introduction
  • Redlining, the HOLC Maps and Segregation
  • Segregation, Public Health and COVID-19
  • Methods
  • Results
  • Discussion
  • Conclusion and Policy Recommendations
  • Citations
  • Appendix

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