The Community Reinvestment Act, a major tool for twenty years in bringing capital and fairer banking into low income neighborhoods, has been weakened by this year’s financial deregulation bill. This law will allow for example, Chase Manhattan to now buy State Farm or Allstate without any consideration of the insurance companies’ records of fairly writing property insurance policies in communities of color. There would not even be a public comment period (the main way that CRA has been enforced).
The Clinton Administration largely capitulated to Senator Phil Gramm (R-TX), and, it appears, to the financial services industry’s campaign contributions. As the Senate passed the bill on November 4 – by 90 to 8 – several Democratic Senators claimed the bill “maintains the relevance” of the CRA. They pointed to the one and only concession that Clinton and his Treasury Secretary, Larry Summers, won in the last round of negotiations: only holding companies whose banks are rated “Satisfactory” or above for CRA can take advantage of the new powers allowed in the bill. But since in 1998 over 97% of banks were given “Satisfactory” or better CRA ratings, and since none of the 50 largest bank holding companies have a less than “Satisfactory” rating, this supposed CRA win has little impact in the real world. As Sen. Gramm said during the final debate: under the bill, if the applicant’s banks are rated Satisfactory for CRA, approval of their acquisitions is automatic.
In exchange for this illusory expansion of CRA, Clinton agreed to two of Senator Gramm’s main demands: fewer CRA examination for banks with assets below $250 million and the “CRA Sunshine” proposal. It would be one thing if all nonprofit recipients of bank funds had to report. But the provision to which Clinton and most Democrats targets only groups that engage in CRA advocacy, or even mention the (now-pariah) word, “CRA.”
Where Do We Go From Here?
Groups in communities excluded from fair lending can still document disparities and raise them during bank-to-bank mergers. (The Democrats acceptance of a mere check of CRA ratings on bank-buying-insurance-company applications, however, may lead to proposals for a similar “safe harbor” on bank-to-bank mergers). But when banks move to buy insurance companies, the venue of advocacy – if there is to be any – will move to state insurance regulatory bodies. It’s a more arcane process, which few community groups have yet attempted. State insurance regulators do not consider CRA, as such, but evidence of insurance redlining is relevant.
Another lost opportunity in this bill was the failure of amendments that would have required property insurers to report where they write their policies, like mortgage lenders do under the Home Mortgage Disclosure Act. That’ll be another battle, in another Congress.
Groups and communities concerned with discrimination and disparities in lending may have to become more expert in the state and federal fair lending laws. And, reviewing the administration’s near-capitulation at the end of this process, there is as always a need to keep our elected representatives accountable.