Banking regulators proposed the first changes to the Community Reinvestment Act (CRA) in more than 25 years to increase lending in low- and moderate-income communities.
CNBC reports the changes would tailor the CRA’s approach to ensure banks are not engaging in redlining or racial discrimination in housing. The Act was passed in 1977 and updated in 1994, but it has rarely stopped real estate agents and banks from committing housing discrimination.
“The CRA is one of our most important tools to improve financial inclusion in communities across America, so it is critical to get reform right,” Lael Brainard, the Federal Reserve vice chair, told CNBC.
“It evaluates bank engagement across geographies and activities to ensure the CRA is effective in supporting a robust and inclusive financial services industry.”
The changes will implement clear public benchmarks for evaluating banks. They will also allow smaller banks to continue to operate under the previous rules.
Larger banks have been pushing against changes to the CRA for years, alleging that the new rules will add significant costs to their bottom line and are an overreach.
Federal Reserve member Michelle Bowman said she is generally open to changes to the CRA but expressed concerns about the proposed changes. One of the issues she cited is that banks with assets greater than $10 billion would be subject to several disclosure requirements concerning car loans, mobile and online banking services, and community development funding.
The proposal will take public comment through early August with anticipation that the new rules will take effect several months after publication in the Federal Register.
While banks and real estate agents may not want to admit it, redlining is an issue that continues today.
In 2019, Newsday uncovered widespread housing discrimination by real estate agents on Long Island. The investigation analyzed more than 5,000 home listings on Long Island and conducted interviews with more than 90 real estate agents, and found that Asian men and women were discriminated against 19% of the time, Hispanic people looking for a home were discriminated against 39% of the time. Black men and women were discriminated against almost half of the time (49%).
Additionally, a Bloomberg investigation found that Wells Fargo bank rejected half of its Black applicants trying to get their mortgages refinanced during the COVID-19 pandemic to lower their payments. The situation has led to a class-action lawsuit against the bank.