WASHINGTON — Working-class communities could lose billions of dollars in financing for affordable housing, small businesses and jobs under a new federal proposal that would weaken banks’ obligations to serve low- and moderate-income neighborhoods, the National Community Reinvestment Coalition warned in a press release Friday.
The proposal, jointly announced by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., would significantly revise the 1977 Community Reinvestment Act. It would be the first major revision to the law in three decades, according to the Rutland Herald.
The civil rights-era law requires banks to meet the credit needs of local communities — a protection enacted to combat systemic redlining and prevent the economic decline of low- and moderate-income neighborhoods. NCRC argued that the proposed changes would undermine this goal by reducing banks’ obligations to invest in underserved communities.
“Banks will face weaker exams, get credit for projects with little connection to low- and moderate-income communities and gain more control over where and how they are evaluated,” NCRC President and CEO Jesse Van Tol said in the statement. “CRA is supposed to put a thumb on the scale for working-class people; now it lets hundreds of banks off the hook, and dramatically reduces the obligation for others.”
In a news release, the OCC said the proposal would exempt banks with “$10 billion or less in assets” from certain data collection, maintenance and reporting requirements while providing more flexible supervision. NCRC, however, argued that the changes would weaken community investment obligations, stating that banks with less than $1 billion in assets would have “no community investment obligation at all.”
“Bank capital drives the creation of affordable housing in this country, and they do it because of CRA,” Van Tol argued. “Now hundreds of banks won’t have the obligation to do so, and hundreds more will have a weaker requirement, which will further deepen our housing crisis.”
The effect on available low- and moderate-income jobs is equally troubling, according to the advocacy group. Under the proposed changes, banks will get credit for financing small businesses owned by wealthy people with “no requirement to create any jobs for working-class people.”
“This proposal would likely shift billions of dollars in financing away from the small businesses that drive working-class job creation,” Van Tol contended.
The banking proposal also spells trouble for the 21st Century Road to Housing Act, the announcement said. According to the National Low Income Housing Coalition, the bipartisan federal law includes 43 provisions related to “housing supply, financing, homelessness, veterans’ housing and disaster recovery.”
Federal regulators have argued that the proposed changes are intended to provide a more consistent framework for evaluating banks. The OCC said the framework would “better align with the statutory mandate” and reduce the burden on banks.
“The proposed rules announced today seek to increase the focus on lending and ensure that community development grants and donations reach the communities they are intended to benefit instead of being diverted to other activities or excessive operating costs,” the OCC said in its news release.
The last major changes to the CRA were implemented in 1995, according to the Rutland Herald. Administrations from both sides of the aisle have repeatedly attempted to update the rules, but those revisions have “repeatedly failed” because of opposition from banks, regulators and community groups.
The proposed changes will undergo a public comment period for the next 60 days before the OCC and FDIC decide whether to finalize them. Existing CRA regulations will remain in effect until regulators issue new requirements.
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