Updating The Community Reinvestment Act Is Fraught With Disagreement
STEVE INSKEEP, HOST:
The regulations targeted by President Trump include rules limiting discrimination by banks. Federal regulators are looking to reshape the Community Reinvestment Act. It became law in 1977. It was designed to stop banks from redlining. That's effectively drawing red lines on the map around some neighborhoods, refusing to make loans there, failing to locate branches there. Banks and community groups agree this law needs to be updated, but they do not agree how. Here's Charles Lane from our member station, WSHU.
CHARLES LANE, BYLINE: A lot has changed since the Community Reinvestment Act was last updated, like your phone. Now you can deposit money with it, make transfers, contest transactions. Wayne Hood is a banker at SouthEast Bank in Tennessee. He says physical banks aren't as important as they used to be.
WAYNE HOOD: There are so many technologies that are completely separate and non-dependent upon branch network, and yet, CRA continues to focus on where are your branches.
LANE: CRA, or the Community Reinvestment Act, says that if banks are federally insured, they can't just cherry-pick the rich customers. They have to serve the entire community. The community is defined as the area around the bank's brick-and-mortar branches. Now, there are banks that don't have branches, like online banks and so-called limited purpose banks. Hood's bank specializes in student loans.
HOOD: Our student loan customers would be scattered throughout the country, and that's one of the reasons CRA's a challenge for us.
LANE: Regulators are currently updating the CRA to focus less on how many branches a given bank has in a certain area and more on how that bank serves its communities. Some of these modernizations, however, alarm community groups. They say that if banks winnow their physical presence, people with low and moderate incomes will be excluded from the financial system.
RASHMI RANGAN: So we are going to drive around for a little while longer, and we won't see bank branches.
LANE: Rashmi Rangan runs the Delaware Community Reinvestment Action Council. Delaware is interesting because the state's corporate laws encourage banks to put their headquarters there. But Rangan says the low-income parts of the state are actually bank deserts, places where people end up using more expensive services like check cashing and payday loans. And Rangan says if banks escape the CRA's existing requirements, there will be more bank deserts, and more poor people will be excluded from the financial system. In fact, she says, banks should go in the opposite direction if they really want to help the community. That's what she's doing. A few years ago, she started Stepping Stones Credit Union. One of their branches is a cargo van.
RANGAN: This is where we open accounts. We have some security stuff up there.
LANE: They drive the van to where the people are.
RANGAN: Banking and money is all about trust, and you have to be seen.
LANE: Rangan and other community groups worry that the Trump administration's push to modernize the CRA will give banks an excuse to only serve rich people. For their part, regulators say community groups are focused too much on hanging on to physical branches and are missing larger opportunities in the process.
JO ANN BAREFOOT: Penny wise and pound foolish.
LANE: Jo Ann Barefoot is a former bank regulator and current regulatory consultant. She says the CRA can do more than bank branches to serve low and moderate-income communities.
BAREFOOT: We could be giving banks credit for teaching people in the moment they're making a decision, having a great app - like, ask what-if questions. What if I paid off faster, or what if I had a smaller down payment?
LANE: Barefoot says the Community Reinvestment Act could be used to encourage banks to develop cheaper, short-term loans integrated into bank accounts or even smart bank accounts that shuffle bills around so struggling consumers can avoid overdraft fees. For NPR News, I'm Charles Lane.
(SOUNDBITE OF BEN WILLIAMS' "TOY SOLDIERS")
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