The Community Reinvestment Act turns 40

In 1977, New York City was hit by a 25-hour blackout caused by multiple lightning strikes. Queen Elizabeth II celebrated her 25th year on the throne. The Medal of Freedom was posthumously awarded to the Rev. Dr. Martin Luther King, Jr. “Star Wars” was released. The Community Reinvestment Act (CRA) was passed by Congress to ensure that financial institutions carry out their “continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered.” Though perhaps the least immediately notable, the latter event has had the most enduring effect. The Association for Neighborhood and Housing Development (ANHD), founded three years before the CRA, released its annual report last week showing just how far equitable lending practices have come since 40 years ago.

Jaime Weisberg, a senior campaign analyst at ANHD who wrote and researched the report, said that while progress has been made, still more is necessary. “We’re finding year after year that [bank] branch distribution remains inequitable,” she said. “You see we have a lot of banks in Manhattan but not so many in the outer boroughs. They’re still banking deserts. That’s definitely something that comes up again and again.” According to Nicole Smith, deputy director of the city’s Office of Financial Empowerment, 360,000 households did not use a bank in 2015, and another 780,000 had a bank account but still used alternative financial services. “New York City was higher than the national average in terms of unbanked and underbanked,” Smith said.

Additionally, bank access is still a challenge for immigrants, who often face issues providing the required identification. Weisberg said fewer banks are accepting the IDNYC, though Smith said the number has stayed at roughly 13 financial institutions. However, Weisberg noted that “more banks are offering products that don’t allow overdraft,” calling this a “positive move” for lower-income residents who might not be able to afford a bank account otherwise. By studying both public and internally collected data on 25 New York City banks, the ANHD report seeks to monitor these institutions’ adherence to the CRA by gathering more granular data. “It’s really a transparency tool,” she said.

It also illustrates the way gaps between banks and communities are bridged by, for example, community development funds. Thomas Yu is strategic development officer at Asian Americans for Equality, a nonprofit founded in 1974 that offers financial services like micro-loans to small business and home owners. “We look at the neighborhoods we work in ... and whether our clients have access to capital,” he said. “[Homes and businesses] are the things that really build wealth and assets in a community ... and break a poverty cycle or integrate into American society.” The ANHD report found increase in community development lending “across the board, including affordable housing loans, loans to nonprofits in general, and loans to nonprofits for affordable housing.”

However, there is plenty of room for improvement. The study recommends numerous ways banks can increase support for their neighbors, such as having community development teams, dedicating at least five percent of local deposits to investments that will benefit low- and moderate-income communities, and offering accounts with a minimum deposit of $25 or less. The report also makes clear the impact of not following its guidelines. “We are ... less than 10 years out from the latest financial crisis, which was a direct result of irresponsible behavior by financial institutions that targeted and misled poor and minority communities with expensive and unsustainable loans,” it states.

But banks aren’t solely to blame. Weisberg pointed out the crucial role policymakers have in protecting these communities, and had recommendations for them as well. “Restrictions to protect rent-regulated tenants is one really important thing,” she said. “Making sure rezonings are done equitably, because once there’s a rezoning there’s so much tension on that neighborhood and speculation is bound to happen... Invest[ing] in non-profit developers.”

The future of the CRA is in question now, as President Donald Trump recently promised sweeping financial legislation reform that could affect the bill. Earlier this month, Treasury Secretary Steven Mnuchin produced a report that said Congress should consider rolling back regulations on certain financial institutions. In another 40 years, if it’s still around, the CRA could look like something else entirely.

Madeleine Thompson can be reached at newsreporter@strausnews.com