Lawmakers on the House Financial Services Committee on Wednesday held their first hearing on the Community Reinvestment Act (CRA) since regulators released a revamped version of the anti-redlining law in May.
Democrats expressed concerns that the rule’s focus on lending to low- and moderate-income (LMI) communities rather than on race does not do enough to address racial disparities. Republicans, meanwhile, questioned whether the proposal’s new data collection requirements and implementation period would be too much of a burden for some banks.
“We know that relying on data just around LMI communities does not address racial disparities and studies show that we need to make sure that it is addressed,” said Rep. Gregory Meeks, D-NY.
When asked by Meeks how the CRA revamp could better address redlining, Catherine Crosby, chair of the National Community Reinvestment Coalition (NCRC), proposed an interagency statistical study that would identify metropolitan areas and rural counties experiencing ongoing discrimination.
“In those areas, CRA exams would include metrics such as the percent of loans for African-Americans or Hispanics or Asians,” Crosby said. “The racial or ethnic subgroups on CRA exams would be based on the results of the statistical studies.”
Critics of the CRA revamp have taken issue with the rule’s emphasis on LMI. That focus, some say, doesn’t adequately address the racial wealth gap.
“Focusing on low- and moderate-income issues is not going to advance racial equity. It's not going to close the racial wealth gap or the racial homeownership gap,” Lisa Rice, president and CEO of the National Fair Housing Alliance, said during an Urban Institute panel last month. “It's just a reality — there are more low-income White people and there are more moderate-income White people in America by a large margin.”
Home Mortgage Disclosure Act data consistently shows high-income consumers of color don't get the same access to credit as low-income White consumers, Rice said.
“Just purely focusing on income is not going to really advance the ball on racial equity issues,” Rice said.
But an emphasis on prioritizing lending to minority groups could render the CRA unconstitutional, Rep. Blaine Luetkemeyer, R-MO, argued during Wednesday’s hearing, referencing the slew of lawsuits filed against the Small Business Administration over its prioritization of historically underserved groups in granting COVID-19 aid under the Restaurant Revitalization Fund.
“I think everybody needs to be aware that when you start prioritizing things like race, I think we're going down a rabbit hole,” he said, adding the proposal’s focus on geography adequately addressed the purpose of the CRA. “If we make the argument that the money needs to go back to the community that it has been taken from, I think we get to where we need to go.”
‘A double-edged sword’
Lawmakers questioned witnesses on the data collection requirements of the CRA proposal, asking whether the requirement would be overly burdensome or costly for some institutions.
Darryl Getter, a specialist in financial economics for the Congressional Research Service, called the CRA’s data collection requirements “a double-edged sword” for banks.
“There are a lot of complaints that banks aren't doing enough lending. So, at some point, the data will be needed to either confirm or deny how much lending is being done by the banking system,” he said. “It will be costly, but at least we can go off of evidence at some point once we have the data.”
Is one year enough time?
Following the publication of the final rule, banks will have a year to implement changes to comply with the CRA revamp.
When asked whether the time frame is sufficient for banks to make necessary changes, Quentin Leighty, CFO and president of First National Bank of Las Animas, said “extra time would certainly be helpful.”
“A lot of us wear a lot of different hats. There's very few of us that are siloed in community banking, and so it does take time to get our arms around it, especially legislation that has nearly 700 pages to decipher,” said Leighty, who testified on behalf of the Independent Community Bankers of America (ICBA), a trade group.
Implementing the changes under the new rule will be costly, he added.
“We're going to need consultants and lawyers and maybe even some software to make sure that we implement those changes correctly,” he said, adding a longer implementation period would allow the bank to digest the changes internally without needing to go to a third party.
The comment period for the proposed rule ends Aug. 5.