Proposed changes to Community Reinvestment Act spark fight

Proposed changes to Community Reinvestment Act spark fight

ST. LOUIS – Proposed changes to a federal law could leave parts of the city – and especially north St. Louis – with less, not more, service from financial institutions, critics say. 

The Community Reinvestment Act was enacted in 1977 to fight redlining and hold financial institutions accountable in serving the banking needs of people in low- to moderate-income neighborhoods. The law requires the Federal Reserve and other federal banking regulators to encourage financial institutions to extend credit to people in all the areas in which they do business – not just for wealthy areas or large projects. 

The administration of President Donald Trump announced in December what it described as reforms to the law.

The St. Louis Community Builders Network of Metro St. Louis has come out against the proposed changes in its February newsletter. The builders group, known as CBN, is an organization of diverse community leaders interested in promoting engaged and equitable neighborhoods.

The CBN is hoping to mobilize individuals and groups against changes that it predicts would overwhelmingly affect north St. Louisans negatively.

The group cites a recognition for the need for revisions to the CRA in order to account for “new realities” such as online banking. But it continues: “Many are also concerned, however, that the OCC [Office of the Comptroller of the Currency] and FDIC’s [Federal Deposit Insurance Corporation’s] proposed changes could weaken requirements for banks to invest in local neighborhoods.”

Its newsletter offers various voices and perspectives from around the country exploring the CRA and weighing in on the changes. 

The CBN is also asking area residents to submit personal comments on the proposed changes by March 9.

One respondent, Yvette Moore of north St. Louis, had this comment: “While CRA regulation was initially enacted to combat the ills of redlining practices by lenders, as long as underhanded moves like the ones in this new proposal, and larger depletion plans, like the so-called ‘Opportunity Zones,’ continue to discourage development in north St. Louis, the scarcity of funding will continue in the areas most in need.”

Qualified Opportunity Zones were established by the 2017 Tax Cuts and Jobs Act, enacted under Trump. The IRS describes the program as a way to spur economic development and jobs in distressed areas by giving tax breaks to investors who invest in those neighborhoods.

With census tracts drawn by each state’s governor, the program is supposed to focus on the most distressed areas in the state.

But chunks of north St. Louis were left out of the massive Opportunity Zone redevelopment funding equation.

A map issued by the St. Louis Economic Development Partnership shows that of the nine OZ districts in the city of St. Louis, only three are in north St. Louis. That’s if the National Geospatial Intelligence Agency, which is designated as an OZ district, is counted. Many distressed neighborhoods have not been included in an OZ.

The proposed changes to the Community Reinvestment Act are described by the OCC and the FDIC as intended to help distressed areas. The agencies say the changes will increase bank activity in low- and moderate-income areas where there is significant need for credit, more responsible lending, greater access to banking services and improvements to critical infrastructure. 

The OCC and FDIC also say the proposal would clarify what qualifies for credit under the CRA, enabling banks and their partners to better implement reinvestment and other activities that can benefit neighborhoods. 

Also, the agencies would set an additional definition of “assessment areas” tied to where deposits are situated – ensuring that banks provide loans and other services to low- to moderate-income people in those areas. 

Frank Woodruff of the National Alliance of Community Economic Development read into the proposal that in the federal agencies’ “attempt” to make compliance easier for banks, regulators are proposing to incentivize the very thing the CRA was written to fight.  

“There is a lot of dislike about the proposed rule,” Woodruff wrote on shelterforce.org, an independent, nonprofit publication that calls itself “The Voice of Community Development” and says it supports (and sometimes challenges) the community development field.

First, Woodruff pointed out about the proposal: “It dramatically and irresponsibly expands what activities would be eligible for CRA credit” with eligible activities “that now includes infrastructure, transportation, and even sports stadiums. Eligible activities would no long be required to primarily benefit low- and moderate-income communities.” 

Second, Woodruff said, the proposed rule shifts the way financial institutions are assessed on the goal of appropriately serving all communities where they do business to a single ratio: CRA-eligible dollars invested divided by deposits = CRA rating. 

Lael Brainard, who sits on the Board of Governors of the Federal Reserve System, spoke last month at the Urban Institute in Washington. She emphasized that any successful reform must be grounded in the origins of the CRA and its ongoing importance to low- and moderate-income neighborhoods. 

“The CRA was one of several landmark pieces of legislation enacted in the wake of the Civil Rights Movement intended to address inequities in the credit markets,” she noted. “By passing the CRA, Congress aimed to reverse the disinvestment associated with years of government policies and market action that deprived lower-income areas of credit by redlining – using red-inked lines to separate neighborhoods deemed too risky.”

Jaimie Weisberg of the Association of Neighborhood and Housing Development, based in New York, said the CRA should penalize banks that finance activities that cause displacement and harm. Weisberg joined CBN in urging stakeholding residents to give their input. 

The comment period opened on Jan. 9 and runs for 60 days. 

“Your voice matters,” Weisberg said. “Tell the regulators and your legislators what you want banks to do for you and your community and why that matters.”

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