Gotham Gazette

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The Death of the Community Reinvestment Act

The Community Reinvestment Act died prematurely this month, at the age of 26. The federal legislation was intended to force financial institutions that operate in neighborhoods of low and moderate income to address the credit needs of people in those communities.

If I were writing its obituary, I would say that, in 1999, CRA (as it was commonly known) fell into a coma and was placed on life support after being struck by the disease known as the Financial Modernization Act, a lethal form of federal legislation which allowed for the merging of the banking, securities and insurance industries. A complication rising from chronic deregulation, acute obsolescence and rising levels of corporate power was cited as the cause of death.

The Community Reinvestment Act was widely regarded as landmark legislation which helped found the modern community reinvestment movement in New York and nationwide. It represented one of the first federal acknowledgements that the discriminatory banking practice known as "redlining" was common among financial institutions.

By creating regulatory criteria and standards for how banks conducted business in poor areas, and by providing public access to this information, the law established the basis for a bank's accountability to low-income areas. In doing so, it almost single handedly created the idea that banks have financial responsibilities, if not moral obligations, in poor neighborhoods.

The legislation thus in effect sparked the entire movement known as community banking. It prompted more than an estimated trillion dollars in loans in low- and moderate-income neighborhoods and billions of dollars in community development grants and donations throughout the country. Arguably, the Community Reinvestment Act shaped every retail bank community relations, community development and philanthropic division in the country.

In New York alone, an entire generation of community development professionals - including those who provide alternative financial services, attempt to build wealth, promote "financial literacy" about the banking industry and advocate for discrimination-free financial services in poor communities in New York - had taken its cue from CRA.

At the peak of its prominence, the law became an important, if not blunt, instrument, for community-based groups who monitor bank community reinvestment track records and the CRA performance ratings that are assigned to depository institutions by regulatory agencies. Because a bank's CRA performance was considered when it applied for regulatory approval for an action such as a merger with another institution, community advocates would sometimes seize this modest window of opportunity to challenge a bank's application and "encourage" banks to become better corporate citizens. And while the vast majority of such challenges were rejected, they at least led to rare meetings of the minds between bankers and community groups.

But the law had powerful enemies, particularly in the form of the banking lobby who blamed it for hampering banks with unnecessary compliance burdens and red tape. By the mid 1990s, the law came under repeated attack. Senator Phil Gramm, the prime sponsor of the 1999 Financial Modernization Act, once accused community organizations of being "extortionists" because they used CRA challenges to win concessions and services from banks.

As its detractors gained ground and the banking industry underwent a dramatic transformation, the law's original provisions were diluted and its influence waned. Perhaps most importantly, with the merging of the banking, insurance and securities industries and an explosion in the growth of high-cost, non-depository consumer credit institutions that are not regulated by CRA, the lion's share of lending and financial activity in low-income neighborhoods is no longer subject to CRA scrutiny, even as complaints of lending discrimination and abuse have skyrocketed.

CRA is survived by the federal Civil Rights and Voting Rights Acts and by the Home Mortgage Disclosure Act, which was enacted by Congress in 1975 and requires lending institutions to report public loan data.

Technically, CRA is still on the books and banks still have CRA compliance departments. But as far as the financial services industry is concerned, it has effectively swatted away a regulatory irritant and has never looked back.

As for those who consider themselves community reinvestment watchdogs, I suspect they are neither anxious to concede defeat nor have the luxury to complain about the genie that has already escaped the bottle. Just as the financial services industry has been “modernized”, so, too, will activists have to create new, modern tools that will allow customers and lay people to compel banks to put a little something back into the areas where they have taken so much.

Mark Winston Griffith, a writer whose work has appeared in the New York Times, Essence and Spin, is also founder of the non-profit Central Brooklyn Partnership, which organizes people to build economic power.










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