Changes proposed by the Trump administration to the Community Reinvestment Act (CRA) would threaten the very heart of the law and result in substantial consequences for community developers. The Office of the Comptroller of the Currency (OCC) released its proposed rule changes suspiciously right before the holiday break. See OCC’s statement.

This is a call to action. All who care about holding banks accountable to lend and provide services equitably and support community development in the communities where they do business are urged to inform themselves and write individual and organizational letters to the OCC and their representatives in Congress.

“These rule changes will have a major, long-term impact on the investments, loans, and services banks provide in lower-income and minority communities,” according to Frank Woodruff, Executive Director of the National Alliance of Community Economic Development Associations (NACEDA). According to Bloomberg financial news, banks could get CRA credits for financing upgrades to sports stadiums.

This is a “deeply misconceived proposal that would fundamentally undermine and weaken the Community Reinvestment Act,” according to former FDIC Chairman Martin Gruenberg.

What is the CRA?

The CRA, passed in 1977, was in direct response to generations of systemic redlining and discrimination. The law essentially banned redlining directing banks to be responsive to the lending, investment and financial service needs of communities in which they are charted to do business, including low-and-moderate income (LMI) neighborhoods. Federal regulators, including the OCC, Federal Reserve, and Federal Deposit Insurance Corporation (FDIC) assess a bank’s community development activity with a focus on addressing the credit needs of LMI neighborhoods in their geographic markets.

What is being proposed?

The proposed changes focus on three topics according to NACEDA:

  • What counts – Redefining what is CRA eligible, moving away from LMI
  • Where it counts – Changing assessment areas
  • How it counts – New scoring system.

What Counts

There would be a shift from local communities defining what their development needs are to the OCC deciding. The OCC would provide a list expanding the range of eligible development projects, essentially redefining the definition of community development to include many things not directly targeted to low-and-moderate income neighborhoods such as infrastructure, luxury housing and stadiums in Opportunity Zones, financial literacy targeted to anyone regardless of income, and agricultural activity.

A “single-metric” approach would be used to rate banks on their total volume of reinvestment activities as compared to deposits. Quantity over quality would lead to simpler and larger deals over smaller and more complex deals that could be more impactful. For CDCs this could lead to a shift focusing on financing for mission-driven nonprofit developers to build and improve deep and permanently affordable housing to more large-scale deals with for-profit developers. In addition, this could lead to fewer grants to support neighborhood and community-based organizations.

Current Proposed
Resources targeted at a community identified need A ‘non-exhaustive’ list to include public infrastructure, roads, and stadiums
Primary purpose to serve LMI communities Primary or partial purpose to serve LMI communities
Robust service tests (volunteerism and products) Virtually eliminated
Separate lending, investment, and service considerations “One ratio” + pass/fail version of lending test

Source: National Alliance Community Economic Development Associations

Through a racial justice lens the changes get away from what low-income communities and communities of color need like more bank branches, affordable banking products, quality jobs, and financing for deep and permanently affordable housing. Expanding what counts for CRA credit will benefit larger businesses and higher-income families at the expense of communities served by mission-driven CDCs.

According to the National Community Reinvestment Coalition (NCRC), affordable housing would be redefined as “That is likely to partially or primarily benefit low- or moderate-income individuals or families as demonstrated by median rents that do not and are not projected at the time of the transaction to exceed 30 percent of 80 percent of the area median income.”

The Association for Neighborhood and Housing Development’s (ANHD) analysis finds this includes allowing financing for multifamily buildings with affordable rents, but no evidence that lower-income people live in those apartments, and regardless of incidents of harassment or displacement. Tests for providing services, such as free or low-cost checking or volunteering, would virtually be eliminated.

Where and how it counts

Currenty, banks have an obligation to assess and meet community credit needs reinvesting within geographic areas around their branch locations. While CRA reform must address the issue of “assessment areas,” as banks shift more to an online presence and fewer or no neighborhood branches, groups like NCRC believe the proposed changes are unworkable and would reduce transparency.

The proposal expands where banks can get credit for investments and creates so many loopholes that allows investing outside these assessment areas, according to AHND, that it disincentivizes banks from focusing on local community needs and partnerships. Banks that gather 50% or more of their deposits from outside a traditional branch network would be required to create additional assessment areas in communities that account for 5% of more of their deposits, based on physical addresses of depositors.

A bank could fail to meet its reinvestment targets in 50% of its assessment areas and still pass its exam. “As long as a financial institution is meeting its eligible activities in at least half of their assessment areas, its ok to ignore the other half,” says NACEDA’s Frank Woodruff. “That to me is the definition of redlining.”

The concern is the change will likely lead to a concentration of investments in larger and wealthier urban areas like New York and Los Angeles to the detriment of smaller financial markets like Oregon, and negatively impacting rural areas.

As for transparency, the proposal hinges on collecting the physical addresses of depositors, data that is not currently available. Groups like NCRC, feel the changes would make it impossible for outside stakeholders to know what new assessment areas are and industry would likely cite privacy concerns at making such data available.

Taking Action

Its important for all advocates for affordable housing and community economic development submit comments. Housing Oregon will coordinate actions in the next two months with the National Alliance of Community Economic Development Associations (NACEDA) and National Community Reinvestment Coalition (NCRC).

Submit letters

The official comment period will not begin until the Notice of Proposed Rules are published in the Federal Register. But its not too early to start drafting your letter.

Sample letters – Click on or scroll down to Take Action

CC:     To make sure Oregon’s elected officials

Social media

  • Tell Congress: to combat rising inequality and placed-based disparities in economic opportunity, we need a vital CRA. #TreasureCRA #JustEconomy https://ncrc.org/treasurecra-4/ via @NCRC
  • We can’t allow banks to cherry-pick where they lend – and where they don’t lend at all. We can’t allow a simple fraction to substitute for investment in local communities. #TreasureCRA

To get involved

If interested in coordinating with Housing Oregon please contact Brian Hoop at brian@housingoregon.org or 503-475-6056.