Two years ago, the regulator of the nation’s biggest banks moved alone to rewrite the Community Reinvestment Act (CRA), the country’s premier anti-redlining law.
That effort, under the Trump administration, ultimately fizzled. The Office of the Comptroller of the Currency formally rescinded its plan in December of 2021.
In an example of how dramatically the regulatory landscape has since shifted, top officials of all three banking regulatory agencies on Friday appeared together at an in-person event hosted by the Urban Institute, and they were aligned on the biggest revision to the Community Reinvestment Act in decades.
Federal Reserve second-in-command Lael Brainard, acting head of the OCC Michael Hsu, together with Martin Gruenberg, chair of the Federal Deposit Insurance Corporation, explained the thinking behind their nearly 700-page proposal.
“This is a once-in-a-generation opportunity for a substantive rewrite,” said Brainard.
Hsu summed up the aligned approach from the agencies under President Biden by saying, “Faster alone, farther together,” acknowledging the OCC’s past unilateral approach.
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He said that the new rule — if successful — will correct the racial discrimination it was first designed to solve.
“If it works, all the needs will be met,” said Hsu. “We want to root it back to the origin story. There would be no redlining, no discrimination.”
But meeting the spirit of the law remains a challenge, especially since the agencies’ proposal does not add a racial dimension to the groups that banks should serve, as some affordable housing advocates had hoped.
It’s difficult to square the spirit of the law, which had “clear roots in redlining, with the letter of the law, which is very specifically focused on [low- and middle-income] communities as the group that banks need to be attentive to serving,” Brainard said.
Instead of broadening the scope of the rule to include racial minorities — which could result in potential legal challenges, some have argued — the agencies offered some alternative avenues for meeting the needs of minority borrowers.
Provisions that Brainard said would have the effect of serving communities that have faced “systemic inequities” include giving CRA credit for special purpose credit programs, which allow lenders to tailor lending programs based on protected class. Other regulators, including the Department of Housing and Urban Development, have said that special purpose credit programs do not violate fair lending law, in the hopes that lenders will begin to implement them.
The proposed CRA rule would also ask banks to specify the racial and ethnic distribution of lending within their assessment areas, drawing from existing Home Mortgage Disclosure Data.
That approach does not satisfy fair housing advocate Lisa Rice, CEO of the National Fair Housing Alliance. Speaking in a subsequent panel on the same stage, she called the current proposed rule a “missed opportunity.”
“Focusing on income is not going to advance the ball on equity issues,” Rice said. “We thought this rulemaking would be an opportunity to really mold the CRA into being an effective tool for advancing racial equity. Right now, if the rule stays the way it is, we think it’s a missed opportunity.”
Stakeholders have until Aug. 5 to comment on the proposed rule.