The Wall Street Journal: Trump team’s rewrite of low-income lending rules falters

The Wall Street Journal, August 24, 2018: Trump team’s rewrite of low-income lending rules falters

Talks have faltered among banking regulators on how to start rewriting requirements for banks to make loans in poorer neighborhoods, prompting one of the agencies—the Office of the Comptroller of the Currency—to move on its own as early as next week.

If the discord continues, it could imperil the Trump administration’s push to rewrite the law, which affects billions of dollars of bank loans and investments in lower-income neighborhoods.

Much of the money flows to geographic areas around bank branches—and policy makers haven’t yet resolved how to change that requirement in an age of online banking.

The Community Reinvestment Act of 1977 requires banks to serve borrowers of all income levels around their branches or face growth restrictions. It was initially created to address the practice of redlining—or banks failing to serve poor and minority neighborhoods. The rules implementing it haven’t been significantly changed since the 1990s.

Changing the CRA rulebook is a priority for Comptroller Joseph Otting, who grappled with the law during his former career as a banker. He had been seeking consensus with the Federal Deposit Insurance Corp. and Federal Reserve, the two other regulators charged with implementing the law, but has expressed disappointment at the pace of those talks, according to people familiar with the matter.

Those regulators aren’t expected to sign on to the OCC’s preliminary step, which will be structured as a series of questions to the public and industry and reflect Mr. Otting’s priorities. Questions are expected to be published next week, and the OCC hopes the Fed and FDIC will join a formal rule proposal later, an OCC spokesman said.

If that doesn’t happen, it would limit the impact of Mr. Otting’s efforts, since each agency oversees only part of the U.S. banking sector. Changes by a single agency would also be easier for future regulators to reverse.

The OCC’s questions are expected to solicit ideas on expanding lending and investment activities that count for CRA credit and grading banks based on the dollar amount of those activities relative to their size, potentially making the evaluation of a bank’s activities near its branch locations less important.

“We are already seeing an unusual level of discord among the regulators,” said Jesse Van Tol, chief executive of the National Community Reinvestment Coalition, a fair-lending advocacy group. “I think there is a significant risk that the whole effort will backfire, unless a more careful and consensus-driven approach is taken.”

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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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