The Community Reinvestment Act (CRA) has been transformational to the community development industry over the last four decades. The law has encouraged successful public-private partnerships and elevated best practices in the delivery of critical community assets like affordable housing, community health centers, access to fresh food, and much more.
Despite the importance of CRA, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) are pushing forward with a proposed rule that portends a significant decrease in private and government investment into U.S. communities. The proposed rule raised serious threats to community development and racial equity even before the ravages of COVID-19, which has only exposed even more dramatically the consequences of under-investing in essential community facilities and services.
LIIF submitted a comment letter to the OCC and FDIC opposing the proposed changes and urging the agencies to re-publish a proposed rule with another opportunity for public comments.
The OCC and FDIC have signaled their desire to increase investment levels in low- and moderate-income (LMI) communities through CRA, yet the proposed changes threaten to do the opposite.
- Banks would be eligible to receive CRA credit for activities that they may have already completed in the normal course of business.
- The agencies would provide full CRA credit for activities that do not have a primary benefit to LMI people and places.
- The agencies would remove any obligation for a bank to make community development equity investments, which includes critical programs like the New Markets Tax Credit (NMTC) and Low Income Housing Tax Credit.
- Banks would be able to receive a passing CRA rating even if they do not adequately serve a significant number of their communities.
These changes – in addition to many other threats articulated in LIIF’s comment letter – are a dangerous dilution of the law that threatens to reduce the overall amount of community development activity completed by CRA-motivated banks. It also dilutes the impact of the community development efforts that banks may continue to support.
For instance, LIIF and our bank partners financed the renovation and expansion of the Lafayette Family YMCA in Lafayette, Indiana in 2017 using NMTC and a LIIF loan as part of the $28.7 million project. The Lafayette Family YMCA has transitioned operations during the COVID-19 crisis and is now providing child care for medical professionals and essential staff and considering additional efforts that would allow their facility to support the community as it responds to the emergency situation.
Under the proposed CRA changes, the entire community development ecosystem that made the Lafayette Family YMCA possible is at risk – from the strength of the NMTC program to the capacity of CDFIs to support this work.
There are also serious racial equity implications to the proposed changes. CRA was enacted to address redlining, a racially discriminatory practice that has left legacies of disinvestment in communities of color across the country. Changes to CRA regulations should seek to strengthen our collective ability to deliver impactful products and services to communities of color and other disinvested areas of the country. Unfortunately, many of the agencies’ proposed changes threaten to put the industry further behind in efforts to address longstanding racial inequities.
At a time when fewer Americans can afford to rent or own a home and disinvested communities fall further behind on measures of education, health and employment, any changes to CRA that intentionally or unintentionally reduce impactful community development activities should be immediately halted. LIIF remains committed to working with the agencies on a productive and effective CRA regulatory framework that builds on the law’s many successes.