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Banks, Small towns, and the Risk to the American Dream

Advocacy | February 20, 2020

You may have seen various national news stories about a potential change in rules that will affect how banks direct millions of dollars into American cities and towns. Called the Community Reinvestment Act, or CRA, it’s a regulation put in place in the 1970s to push back on redlining that has deprived black and brown Americans, as well as low-income Americans, of investment in their communities. Fahe is concerned that the proposed changes will actually reduce CRA investments in people and businesses that need them.

CRA has directed billions of dollars over the years toward people who would not otherwise have had access to this capital and investment since the 1970s, (though Fahe knows yet more is needed given the growing inequality in our country). Banking has changed with the internet, a wave of concentration that has been permitted, so many now contend that the rules need an update. Fahe shares some of those thoughts, as the CRA does not reach most of small town Appalachia, where an important part of the Fahe Network is active.

The two bank regulatory agencies releasing the proposed rules are now in the midst of that update, and Fahe is analyzing the proposals to draft our comments (comments to the agencies are due April 8, and you can see below how to comment). Our concern is primarily that the rules would enable banks to direct their investments to already profitable gentrifying neighborhoods in growing cities, leaving the black and brown Americans, low income Americans, and small towns behind. The proposals do that by changing how CRA is measured, dramatically expanding what activities can count toward obligations under the CRA, and expanding where those activities can count, without providing requirements or sufficient incentives to serve our people.

First, the proposal seems to prioritize big projects by evaluating banks’ ability to maximize an overall dollar amount of community reinvestment. This measurement, combined with the expansion of activities and areas discussed below, will make it easier for banks to do fewer projects that would probably get done anyway in the private market. Banks will then have less reason to engage in smaller, more challenging community reinvestment activities benefiting those Americans who could most use the investment.

Second, under the proposed CRA, projects such as stadiums, large agriculture loans, and infrastructure projects could count as CRA eligible, if in the right census tract. These big projects would also let banks meet goals more easily without needing to invest in the served populations. We like infrastructure done right at Fahe, but we think these kinds of projects will receive investment given banks’ profit motive and public support. Likewise, larger business loans now count, so a trendy bar in an “up and coming” neighborhood in a growing city counts, though bankers are apt to loan to such an enterprise.

Third, under the geographic areas banks can earn CRA credits for (called “assessment areas”) would also be expanded for some banks, in ways that theoretically could help poorer parts of the country (and are being marketed that way) but will actually likely help the wealthiest parts of country. The new assessment areas for certain banks will be expanded to include where those banks receive 5% or more of its deposits. But where do most banks have the most of their deposits? Not in additional low income areas, but instead in wealthy areas.

There are other concerns with the proposal, and we will probably return to this topic here to discuss further. Notably, the Federal Reserve, the other bank regulator, is not joining this rulemaking and has expressed deep skepticism about the approach taken by its sister agencies.

You Can Share Why Your Community Needs Investment

Dear reader, if you would like to make any of these points or tell your story about why your town or neighborhood needs community investment in comments to the regulators, instructions are below. It’s a good idea to make sure your comments are officially received by both agencies below, as they do each have independent processes for developing their final rules.

For the Office of the Comptroller of the Currency (OCC), follow this link and comment.

Fahe CRA Comment Template

For the Federal Deposit Insurance Corporation (FDIC), Send your comment by email the FDIC at: Include the RIN 3064-AF22 on the subject line of the message.