The CRA Under Attack

The federal Community Redevelopment Act helps create jobs, businesses, affordable housing and homeownership in minority and poor neighborhoods that had been redlined by banks. The act has encouraged good and fair business practices, and it deserves strong and continued support.

The CRA allows federal regulators to measure a bank or thrift’s record of loans, services and investments in low-income and minority areas. Roughly 97% of banks receive a rating of “satisfactory” or “outstanding.” There is little enforcement mechanism, but a bank’s CRA lending performance is made public and opened to public comment.

A provision that would weaken the CRA is contained in financial services legislation sponsored by Senate Banking Chairman Phil Gramm (R-Texas). His bill would allow banks to undertake lucrative insurance and securities business, which is now prohibited, but without review of their CRA performance in underserved areas.

The bill, which is expected to come before the Senate next month, also would exempt small banks from CRA mandates, even when they were the only financial institutions in rural areas. In addition, the Gramm bill would make it harder for community groups to prove that a bank’s lending practices were discriminatory or unfair and to lodge consumer protests against bank mergers.

On the House side, a compromise bill introduced by Banking Committee Chairman James A. Leach (R-Iowa) and Rep. John J. LaFalce (D-N.Y.) would permit banks to provide more financial services but without crippling the CRA. The compromise passed the banking committee with a strong bipartisan vote and is headed next for the Commerce Committee. It is by far the better piece of legislation.

President Clinton supports the House proposal and threatens to veto the Senate legislation because it would hurt community lending laws and fail to protect consumers.

Before Congress voted to establish the CRA in 1977, many banks wrote off entire areas, refusing to lend to anyone who lived behind the red line. Weakening the CRA would allow a return to that not so benign neglect. When Congress overhauls banking laws, the House bill should prevail.