Recently there has been national attention to “redlining” — a term coined in the 1960s when government agencies and banks would literally use a red pen on a map to mark off low-income and minority neighborhoods where banks would avoid lending and investments — as a result of resurfaced comments from 2008 by presidential candidate Mike Bloomberg.
Without getting into the politics, let’s make one thing clear: The nation needs strong laws to curb the still-real practice of redlining. Less than two years ago, a Minnesota bank settled with the Department of Justice and promised to expand banking services in predominantly minority neighborhoods in the Minneapolis area after being sued for alleged discrimination in home mortgage lending.
Weakening a tool that holds banks accountable
We must not let this issue fade after the campaigns move on, because we have a more immediate threat to equitable lending at our doorstep. Under the guise of “modernizing” current laws, Comptroller of the Currency Joseph Otting, a Trump appointee, is proposing weakening one of the few tools we have to hold banks accountable, potentially enabling and encouraging systematic discrimination against low-income households and communities of color by less community-minded financial institutions.
Since 1977, the Community Reinvestment Act (CRA) has required banks to equitably provide investments, loans, and services in the communities where they do business. CRA and other regulatory actions have made significant progress in stopping discriminatory behavior; changing how the law operates would slow down the progress already made.
More than 50 years ago, the Fair Housing Act banned racial discrimination in lending, and the community development field continues to work toward equity and fairness in the industry. However, borrowers of color continue to face difficulties in accessing credit. The Center for Investigative Reporting analyzed millions of records and found that racial minorities, especially African-Americans, are denied conventional mortgage loans at rates far higher than their white counterparts even when all factors are considered. We need the CRA.
As the officers of the board of the Metropolitan Consortium of Community Developers (MCCD), we believe in the benefits of CRA in our community. MCCD and its member organizations work with many financial institutions in the Twin Cities who are dedicated, long-time partners in the community development industry. The work that we have done has been meaningful: It’s helped start small businesses, given entrepreneurs support needed to expand, built homes, and stabilized communities.
Changes would reduce incentives
We take our charge to meet community needs seriously and prioritize serving disadvantaged communities. The administration’s push to relax the rules will significantly reduce the incentive for banks to meet the credit needs of low-income communities while maintaining a “good” CRA rating. It’s unfair to our community development partners that these proposed changes would enable institutions less invested in meeting the needs of our communities to receive a positive rating.
These changes have real implications. The National Community Reinvestment Coalition found that weakening CRA would result in a loss of 10-20% in the volume of loans made in low- and moderate-income census tracts. In Minnesota, that would mean up to a $1.9 billion decrease in lending to small businesses and home purchases over five years.
Financial institutions receive subsidized funding and in times of economic crisis are bailed out using tax dollars. The CRA was the government’s attempt to form a social contract of sorts between banks and the public to ensure all have equitable access to credit and financial services. We cannot ease burdens on banks on the backs of underserved communities.
The administration also wants to raise the threshold of lending to small businesses from $1 million to $2 million in revenue. This could lead to banks focusing on lending to more-established, larger businesses, leaving others with even fewer options than they currently have.
Why make it even harder to succeed?
Despite leading a significant portion of the nation’s small business growth, 79% of it from 2007-2017, minority-owned firms have a harder time accessing small business loans than their white counterparts, according to the Federal Reserve. When they get approved, minority-owned businesses are more likely to receive lower amounts and higher interest rates. Why would we make it even harder for qualified minority entrepreneurs to succeed?
There are numerous changes in the nearly 240-page proposal that are problematic. We implore you to join us in calling on the administration to shelve the current proposal and instead reopen the dialogue with community representatives. The community development field plays an important role in ensuring equity in fair housing and lending. We need all our tools to do so, and the CRA must be protected.
Kathy Wetzel-Mastel is the executive director of PRG. Nasibu Sareva is the executive director of the African Development Center. Jim Roth is president/CEO of the Metropolitan Consortium of Community Developers. All are officers of the MCCD Board of Directors. These officers of the MCCD board also contributed to this commentary: Laura Zabel, executive director of Springboard for the Arts; Jim Erchul of Dayton’s Bluff Neighborhood Housing Services; and Karen Reid, executive director of the Neighborhood Development Alliance.
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