Tuesday, August 3, 2021


Banks say "trust us" on community reinvestment
Larger view
Years ago, bankers avoided making loans to people in numerous inner city Minneapolis and St. Paul neighborhoods. (MPR photo/Dan Olson)
Federal officials want to change banking rules that have helped people in the country's poorest neighborhoods and rural areas buy homes and start businesses. Bankers say the rules are a burden, and they can be trusted to reinvest in poor areas on their own. The debate is part of a long-running effort to alter a nearly 30-year old federal law called the Community Reinvestment Act.

St. Paul, Minn. — Decades ago, bankers in and near poor inner city neighborhoods often denied applications from residents applying for home or business loans. The term "redlining" was used to describe that behavior. Bankers either figuratively or literally drew a red line on a map around areas where they assumed loaning money to people was not profitable.

In the 1970s Sherrie Pugh, director of the Northside Residents Redevelopment Council, and other community organizers fought the practice in an alliance with various north and south Minneapolis neighborhood groups.

"(We) organized around ... redlining by banks not wanting to do lending in low-income communities or communities where there was a predominance of low-income people of color," Pugh says.

In 1977, Congress passed the Community Reinvestment Act. Ten years later, supporters won approval of a CRA requirement that banks make their lending activity public. Since then the financial services industry has worked, with some success, to water down CRA rules.

The latest proposal would exempt all but the country's largest banks from many of the act's reporting requirements. In Minnesota,most banks would be exempt from the most stringent CRA regulations.

Minnesota Bankers Association executive director Joe Witt says his organization's more than 400 members can be counted on to support community reinvestment.

"What they don't necessarily support is a lot of documentation,and a lot of paperwork and red tape that proves they're meeting the needs of their communities," Witt says.

For bankers, the red tape associated with the Community Reinvestment Act ranges from a little to a lot. Smaller community banks sail through the reporting process with relatively little time spent. Requirements for bigger banks are much more time-consuming.

I just can't believe you would find any significant number of banks or bankers who would treat people differently because they look different.
- Don Raleigh, President of Lake Elmo Bank

Lake Elmo Bank has always qualified as a smaller bank. However, president Don Raleigh says the bank is growing, and may soon need to fulfill the more stringent CRA reporting requirements. Raleigh says he knows lending discrimination can still happen, but he believes it is rare.

"I just can't believe you would find any significant number of banks or bankers who would treat people differently because they look different," Raleigh says.

His views are supported by one set of numbers, which show that both the rate and number of minorities who own homes and are successful business loan applicants are up. However, other surveys show minorities are still disproportionately represented among people turned down for loans.

Community activist Sherrie Pugh says besides loan activity, the Community Reinvestment Act also measures service -- such as whether a bank has either a branch office or an ATM in a given neighborhood.

"If there's no ATM machine in your neighborhood, and you have to go three miles away on the bus to an ATM machine, then it's not advantageous. So we still have a lot of work -- just on location of facilities in communities," Pugh says.

There's wide -- but by no means unanimous -- agreement among experts about the impact of the Community Reinvestment Act. The authors of one Federal Reserve Board study say their findings about the act's effectiveness are inconclusive.

Gregory Squires, a sociology and public policy professor at George Washington University, has also studied the impact of banking practices in poor neighborhoods. He says CRA reporting requirements supply the leverage that can be used to encourage banks to direct loans to people in blighted areas.

Squires opposes loosening bank regulation. He says banks and other financial service companies need more -- not less -- scrutiny.

"Today the problem we see is less the availability of a loan, and more the terms and conditions of a loan," Squires says. "Predatory lending has emerged as the major consumer issue in financial services today."

Banks and other companies which make loans are regulated by federal and state entities. The federal office that governs thrifts or savings and loans has already loosened Community Reinvestment Act reporting requirements. The ones which oversee banks have not made a final decision.