Lawmakers on the House Financial Services Committee held their first Community Reinvestment Act Hearing (ARC) since regulators issued a revamped version of the anti-redlining law in May.
Democrats have expressed concern that the rule’s focus on lending to low- and moderate-income (LMI) communities rather than race is not doing enough to address racial disparities. Republicans, meanwhile, questioned whether the new data collection requirements and the proposal’s implementation period would be too onerous for some banks.
“We know that relying on data only around LMI communities doesn’t solve racial disparities and studies show we need to make sure they’re addressed,” said Rep. Gregory Meeks, D-NY.
When asked by Meeks how the ARC redesign might better address redlining, Catherine Crobychairman of the National Community Reinvestment Coalition (NCRC), proposed an inter-agency statistical study that would identify metropolitan areas and rural counties experiencing continued discrimination.
“In these areas, ARC reviews would include metrics such as the percentage of African-Americans, Hispanics, or Asians ready,” Crosby said. “The racial or ethnic subgroups of the ARC exams would be based on the results of statistical studies.”
Critics of the CRA’s overhaul took issue with the rule’s focus on LMI. This concentration, some argue, does not adequately address the racial wealth gap.
“Focusing on low and moderate income issues will not advance racial equity. It’s not going to close the racial wealth gap or the racial property gap,” Lisa Rice, president and CEO of the National Fair Housing Alliance, said during a Urban Institute panel last month. “It’s just a reality – there are more low-income whites and there are more moderate-income whites in America by a wide margin.”
Data from the Home Mortgage Disclosure Act consistently shows that high-income consumers of color don’t have the same access to credit as low-income white consumers, Rice said.
“Focusing on income alone won’t really get the ball rolling on issues of racial equity,” Rice said.
But the focus on prioritizing loans to minority groups could render the ARC unconstitutional, Rep. Blaine Luetkemeyer, R-MO, said at Wednesday’s hearing, referring to the a series of lawsuits filed against the Small Business Administration on its prioritization of historically underserved groups in providing COVID-19 relief under the Restaurant Revitalization Fund.
“I think everyone has to be aware that when you start prioritizing things like race, I think we go down a rabbit hole,” he said, adding that the emphasis of the proposal on geography adequately served the purpose of the RCAF. “If we’re making the case that the money should go back to the community it was taken from, I think we’re getting to where we need to go.”
‘A double-edged sword’
Lawmakers asked witnesses about the data collection requirements of the CRA proposal, asking whether the requirement would be too burdensome or costly for some institutions.
Daryl Getterfinancial economics specialist for the Congressional Research Service, called the CRA’s data collection requirements “a double-edged sword” for banks.
“There are a lot of complaints that banks are not making enough loans. So, at some point, the data will be needed to confirm or deny the amount of loans made by the banking system,” he said. “It will be expensive, but at least we can get rid of the evidence at some point once we have the data.”
Is one year enough?
After the publication of the final rule, banks will have one year to implement the necessary changes to comply with the CRA overhaul.
When asked if there was enough time for banks to make the necessary changes, Quentin Leightychief financial officer and chairman of First National Bank of Las Animas, said “some extra time would definitely help.”
“A lot of us wear a lot of different hats. Very few of us are siled in community banking, so it takes time to understand, especially legislation that has almost 700 pages to decipher,” said leightywho testified on behalf of the Independent Community Bankers of America (ICBA), a trade group.
Implementing the changes under the new rule will be costly, he added.
“We’re going to need consultants and lawyers and maybe even software to make sure we implement these changes properly,” he said, adding that a longer implementation period would help. the bank to digest the changes internally without the need to go to a third party. to party.
The comment period for the proposed rule ends on August 5.