What if there was a law that told big corporations that they have responsibilities to the communities they serve? A law that told companies that if they take profits out of a community, they need to put some investment back into it, and treat that community's residents fairly?
There is. It's called the Community Reinvestment Act, first passed in 1977. And a fight over CRA's future is brewing in Congress.
CRA is directed at the banking industry, which once was notorious for failing to invest in low-income and minority communities. CRA has successfully encouraged banks to invest over $4.5 trillion -- yes, that's trillion with a 'T' -- in these communities. By any rational standard, it's among the most successful government programs ever.
Because of CRA, new, affordable housing has been constructed and businesses have gotten a start. Vital community services such as medical centers have been built. A good way to learn more about CRA is from this video that The Greenlining Institute produced a while back.
Some on the far right hate CRA, as they hate anything the government does to push businesses to help people or communities in need. And opponents have spread some out-and-out lies, like the false notion that CRA forced banks to make bad loans that helped bring about the housing crash and recession.
That's nonsense, as regulatory authorities have consistently stated. FDIC Chair Sheila Bair, for example, said earlier this year that such claims have "absolutely no basis in fact."
In fact, CRA has operated as a restraint, discouraging risky behavior by the banks it regulates. In contrast to the casino mentality on Wall Street, CRA requires banks' actions to be "consistent with... safe and sound operation." It's not an accident that seventy-five percent of subprime loans were issued by institutions not covered by CRA: independent mortgage brokers and lightly-regulated bank subsidiaries.
These institutions not covered by CRA were far more likely than banks to make high-cost, subprime loans, and far more likely to have those loans end up in foreclosure. If these independent mortgage companies had been covered by CRA, the subprime meltdown might have been averted.
According to recent reports, some Democrats in Congress want to strengthen CRA, and legislation may be introduced soon. That's a good idea.
It's time to give the law's enforcement mechanisms more teeth, and improve the quality and detail of CRA ratings that banks receive. And CRA should recognize how much the financial industry has changed since 1977: Vast amounts of activity are now handled by mortgage brokers, investment banks and other institutions not covered by CRA, and that should change.
On the other hand, some Republicans are itching to weaken the law or even repeal it altogether. They don't have a chance right now, but if the GOP makes big gains in the upcoming congressional elections, they could be emboldened.
CRA is that rare animal, a law that helps the most vulnerable among us and holds big corporations accountable. And it strengthens our whole economy by encouraging productive investment where it's most needed. It's worth protecting and expanding.
Expect the fight to begin soon.