Rebuilding America’s Communities through the Community Reinvestment Act

Unemployment in America reached an all time high this summer due to COVID-19 and the clear solution to rebuilding our economy is investments in communities, and that requires cash. Banks play a critical role in lending to our communities, but their history of racial discrimination has created an inequitable system. Updating a federal banking policy from 1977 could help unlock the financial opportunity needed to repower our economy more equitably and sustainably.

The Community Reinvestment Act (CRA) was designed to combat the racist practice of redlining. Prior to the CRA, banks did not lend financial services to communities of color. This practice of “redlining” used color-coded maps to draw red lines around communities of color to denote risk. The CRA is meant to encourage banks to meet the lending needs of all segments of their communities, with a particular focus on low- and moderate-income families.

The CRA can again play an important role in driving financial equity by providing equitable access to loans for disadvantaged communities. The CRA outlines approved bank lending activities for community development as:

  • Affordable housing for low-and moderate-income individuals;
  • Economic development for small businesses;
  • Community services; and
  • Revitalization of low-and moderate-income areas or disaster areas designated by the government.

An Interagency Statement issued in March, provided banks with short-terms steps to take to meet the financial needs of their customers in areas affected by COVID-19. Banks, through the CRA, can immediately lend to additional activities that increase access to digital services, increase access to healthcare, generate economic development, sustain small businesses and activities that support provision of food supplies. Once banks meet those immediate needs of the community they must turn toward long term investment. The CRA should again evolve to include clean energy investments as a long term solution for community wealth building and addressing the climate crisis.

Long term investments in community solar projects can create jobs, improve health and air quality, and provide monthly savings to families and local businesses. The CRA should also approve financing the construction and/or purchase of solar plus storage energy facilities. The capital that is required for low and moderate income communities to obtain solar remains a significant barrier that the CRA can help alleviate.

Solar plus storage is also an effective way to build resilience, helping us mitigate the harm of the next crisis. The combination of solar and energy storage can provide power to critical community facilities like hospitals, shelters, and public safety buildings when the grid is down. Solar plus storage also can provide bill savings to those facilities by reducing demand, and it can create direct economic benefits to communities in the form of reduced energy burdens. By reducing demand for dirty grid resources, investing in clean energy now also addresses the looming climate crisis.

Updating the Community Reinvestment Act during COVID-19 is tricky, and we must ensure communities receive the maximum benefit to survive this crisis and build resilience against the next one. The Office of the Comptroller of the Currency’s (OCC)  is one of three regulatory bodies that oversees banks in the United States. The Federal Deposit Insurance Corporation (FDIC), a second regulatory body, posted a joint notice of proposed rulemaking with OCC in January 2020. The third regulatory body, the Federal Reserve recently released Advance Notice of Proposed Rulemaking for the CRA.

Last month the Senate failed to pass a resolution to block the OCC’s and FDIC rulemaking from taking effect. Opponents felt the rule change undermined the spirit of the law, to support communities that need financial services the most. Now is the time to bridge the gap between community needs and financial services, and banks must be responsive to community needs, especially during this time of uncertainty.

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