A Green Light for Banks to Start ‘Redlining’ Again

This seemingly small change could have sweeping consequences for millions of Americans and affect tens of billions of dollars annually in lending. A Federal Reserve Bank study in 2017 showed that after a change to the statistical definitions of the Philadelphia metropolitan area resulted in some parts of the area becoming ineligible for Community Reinvestment Act lending, bank loans in the newly ineligible sections fell by about 20 percent for borrowers with incomes between $44,000 and $61,000.

To be sure, the Community Reinvestment Act, like most regulations, can be improved. We’re eager to work with the regulatory agencies, Congress, banks and the entire financial sector to modernize it. Over 500 national and community groups have proposed sensible approaches to do just that.

As it stands now, the law is by no means a burden on banks. A study by three economists for the Federal Reserve System board found that the three biggest bank mortgage lenders in the United States, accounting for more than one-third of all deposits, reported making only 15 percent of their lending to low- and moderate-income borrowers in 2016, down from 32 percent in 2010. Under the current rules, 98 percent of banks passed their most recent evaluations. If anything, the law and the rules enforcing the law need to be strengthened.

Most people don’t pay attention to banking rules. That’s what bankers, lawyers and government regulators are supposed to do. But these laws define where money flows in the richest nation on earth and where it doesn’t. And the flow of capital determines, in turn, who has access to affordable housing, to good public education, to small business loans and to financial services that aren’t abusive and predatory.

Discrimination, in the past and continuing today, is at the core of the wealth gap between whites and people of color. We can’t allow banks to cherry-pick where they lend. One easy formula is no substitute for a commitment to invest in all of America’s communities.

Article source: https://www.nytimes.com/2018/08/28/opinion/trump-mortgage-redlining-cra.html?partner=rss&emc=rss