New President, New CRA

It's hard to express how wildly absurd the right-wing suggestion is that the Community Reinvestment Act (CRA) created the subprime crisis.

According to the FDIC "In 1977, Congress enacted the Community Reinvestment Act (CRA) to encourage federally insured banks and thrifts to help meet the credit needs of their entire community, including low- and moderate-income neighborhoods, consistent with safe and sound operations. The CRA requires each federal bank regulatory agency to assess each federally insured institution's record of helping to meet the credit needs of its entire community, consistent with safe and sound lending."

As vital as CRA has been in the fight to force banks to invest in low-income communities -- for example, it was the inspiration for a bank donating one of it's branches to the credit union I co-founded in Bedford-Stuyvesant -- the CRA has been far too weak in ensuring that financial institutions return the wealth that they routinely strip out of low-income areas and neighborhoods of color.

With their attacks on the CRA, the right-wing is obviously trying to preempt lawmakers from reaching the conclusion that the subprime crisis nonetheless made abundantly obvious: this nation doesn't need a weaker CRA, but a re-conceived, far stronger, and more reliable tool in the effort to ensure ready access to quality, non-discriminatory, financial services in all communities.

There is no hope that a McCain administration would be remotely supportive of community reinvestment goals. Given the attacks on community organizing, ACORN and the CRA inspired by John McCain's campaign, and given McCain's relationship to Phil Gramm -- no one has worked harder in their lifetime to destroy the substance and spirit of the CRA -- we'd have an easier time getting Dick Cheney to denounce the war in Iraq.

On the other hand, given the discredited and weakened position of those who had been calling for de-regulation for years, an Obama administration could possibly help usher in a new fair lending agenda.

Without falling into regulatory minutiae, I will take the opportunity to suggest a few practical themes for a new, potentially Obama-led, community reinvestment framework:

• More than banks

There must be reinvestment and fair lending obligations for non-depository institutions doing business in historically redlined communities.

The most obvious response to the claim that the CRA was the cause of the subprime loan meltdown is that the CRA only applies to depository institutions; the vast majority of subprime loans were made by non-depository mortgage companies. (However it's worth noting that many "reputable" banks have corporate relationships with or own non-CRA bound corporate subdivisions that traffic in high cost products like subprime mortgages, refund anticipation loans and other abusive, traditionally "fringe," product lines.)

Focusing on depository institutions carries a compelling logic, because bank deposits represent investments from ordinary people and communities, and are insured by taxpayer dollars.

However, the financial landscape has changed dramatically since 1977 and depositories are no longer necessarily the center of economic action in American communities. What's more, mortgage redlining is not the only vehicle of community wealth depletion and discrimination in the financial services industry. Mortgage brokers, check cashing operations, payday lenders, tax refund anticipation lenders and other high-cost forms of banking and credit services are the norm. Because of their wide presence in historically redlined communities, mortgage companies, and perhaps other financial actors that provide banking and credit functions, must be held accountable to the areas where they make their profit.

• Ratings that mean something

The bar for community reinvestment has to be raised substantially. Right now banks receive one of four CRA ratings on their reinvestment performance and only on rare occasions do banks receive anything lower than "Outstanding" or "Satisfactory". Providing credit and services with "safety" and "soundness" is explicitly mandated by the CRA. If brokers, mortgage companies and banks were doing this in an "outstanding" or "satisfactory" manner, we wouldn't have had a subprime crisis.

Qualitative standards -- like the affordability, suitability, non-abusiveness and non-discriminatory marketing of products, just to name a few -- should be included in a new CRA era.

• Bigger sticks

If the federal government can't get financial institutions to respect the CRA, then maybe the government should get banks to fear it.

The idea, suggested by some right wing commentators, that bankers forced through bad loans because they feared they would go to jail for CRA infractions is ludicrous. The ugly truth is CRA is toothless. While it can create the context for a community or advocacy group to have constructive conversation with banks, it carries no punitive punch.

Failure to meet high CRA standards should come with penalties that the financial institutions would feel.

• Proactive Enforcement

Regulatory bodies must police community reinvestment obligations and not put the onus on community groups to enforce them.

Community reinvestment obligations only become relevant or even theoretically enforceable when banks are seeking approval from their regulator for a business transaction, like a merger or acquisition. Even then, it's up to an outside group to raise objections, and, as a matter of actual practice, bank mergers are rarely slowed down, much less paused or challenged, because of their CRA record.

Regulators routinely grease the wheels of bank mergers and the power imbalance between banks and community reinvestment groups is too overwhelming for most groups to overcome. This has led to the dynamic where groups -- like ACORN for instance -- have been accused of using extortion when they have no other choice but to publicly shame banks or try to reach community reinvestment agreements with them.

Unfortunately, many community groups, advocacy groups and activists -- like me -- that used to routinely show up at bank merger hearings, issue CRA-based objections or mount CRA challenges, don't even bother any more, because we consider it a waste of time.

If regulators were vigilant in enforcing high community reinvestment standards, then most CRA-related opposition actions wouldn't even be necessary.

This is the beginning of a new CRA conversation upon which this nation is about to embark. It's possible that the right-wings attacks on the CRA may have resulted in economic justice advocates losing some precious yardage. But, if the voters usher in an Obama administration that can live up to some progressive expectations, then the path to a more robust community reinvestment framework will be clearer and straighter than ever before.

Comments

[Veev]

To quote Thomas Edison "Opportunity is missed by most people because it is dressed in overalls and looks like work."
But what would good old Thomas know? He was just some "dumb" white guy.......

How about another "dumb" white guy...
Abraham Lincoln said "I will prepare and someday my chance will come."

And just to quote a "dumb" black woman Oprah Winfrey "Luck is a matter of preparation meeting opportunit­y."

(Please note the sarcasm about the "dumb" people.)

[Veev]

That is a very racist, wordy piece of writing.
"I co-founded in Bedford-Stuyvesant -- the CRA has been far too weak in ensuring that financial institutions return the wealth that they routinely strip out of low-income areas and neighborhoods of color."

Economic status has nothing to do with it. Credit score has nothing to do with it. Employment has nothing to do with it. It is all about "color" and that white man "stripping" those savings accounts away from you by stealing your money that you..... Haven't saved..... Oh dang..... Otherwise you would have a down payment and be credit worthy....

I am sorry, we need to wake up to the fact that your credit application does not say black or white. It says can pay back, cannot pay back. Why should the Government guarantee loans to people that cannot pay them back, be they white, black, Native American, Asian, Hispanic or a purple person from my imagination?
If someone wants something work for it. You want a loan go out, get a job, save money and build up a down payment and raise your credit score. *warning* this will mean some life chages. It will mean sacrifice and as I said that nasty cuss word "work". Make a solid budget, stick to it and save, save, save.....

[sail]

Very informative and very important. Keep up the good fight!

[Pdubya]

"Allow me to issue and control a nation's money and I care not who writes its laws!" Amshell Rothschild.

regulation vs. deregulation is a moot debate when structured within a keynesian, centralized, private banking cartel that prints fiat currency or borrows fiat currency. credit comes from savings, not more credit.

it is akin to arguing over whether or not the gaping chest wound was caused by the mortar or its shrapnel.

Want regulation? Rule of law? Audit the Fed and end it. Audit the Presidential Working Group on Financial Markets. Audit the currency exchange trust. Allow failure for re-investment and clearing bad debt. Use anti-trust laws and fraud laws on the books.

Then, get out of the way.