On November 2, 2023, the Consumer Financial Protection Bureau (CFPB) issued survey on state Community Reinvestment Laws (CRA) intended to inform states without CRA about actions they could take to promote lending and investment in communities of color. In connection with the statement, the office highlighted the explosive growth of mortgage loans made by nonbank entities compared to banks, only the latter of which are covered by the federal Community Reinvestment Act. Just two days earlier, the New York attorney general released a report on racial disparities in homeownership, finding that historic lending practices have prevented consumers of color from purchasing homes and deepened wealth inequality. These reports are based on an avalanche of public policy efforts, such as Interinstitutional promotion of credit programs with special purposes. and the Department of Justice Fight against the Redlining initiative โ aimed at driving additional lending and investment in communities of color.
Seven states have CRA laws that create an affirmative obligation for financial institutions to meet the lending, investment, and service needs of their communities.
The CFPB survey highlights the variety of approaches various states take to ensure that financial institutions adequately serve the communities in which they operate. The bureau's main concern is that the federal CRA and four of the seven state CRAs do not apply to nonbank financial services companies. The bureau notes that when the federal CRA was enacted in 1977, banks originated 74% of all mortgages; However, as of 2021, non-bank mortgage companies originated 64% of conventional home purchase loans. While the office does not expressly recommend extending all CRA laws to nonbank mortgage companies, it does imply this by noting that their business model โwould not be viableโ without federally backed institutions โ the justification for subjecting them to banks to the federal CRA.
The survey also explores the range of enforcement mechanisms that state regulators use to promote compliance with CRA obligations. While no states provide for the assessment of civil monetary penalties for noncompliance, the office found that states can restrict M&A activity, require corrective action, limit product offerings, and examine highly rated institutions less frequently.
New York Attorney General Pushes for Increased Law Enforcement Resources and Tools
In recent years, the New York Attorney General and the New York State Department of Financial Services have focused on alleged discriminatory lending practices in mortgage and auto lending. The attorney general's new report explores racial and ethnic disparities in homeownership, mortgage application and approval rates, and mortgage prices. To rectify these problems, the attorney general recommends, among other things, that the legislature increase funding for government agencies to do fair credit work. Noting that conducting fair lending investigations is resource-intensive, the report concludes that โmany lenders escape review.โ The attorney general also recommends that the state directly subsidize first-generation homeowners' down payments to address historic inequalities that created the racial wealth gap, thereby limiting asset accumulation for families of color.
Looking to the future
Federal and state policymakers and regulators continue to use a variety of tools to pressure financial institutions to serve communities of color. Perhaps the most notable initiative is the Department of Justice's Anti-Redlining Initiative, which recently secured its 10th redlining settlement. The Department of Justice also recently revealed that it has More than 24 active investigations throughout the country.. In response to this pressure, both banking and non-banking financial institutions will need to continue to seek opportunities to support communities of color, whether through affirmative marketing and outreach, strengthening support for limited English proficient consumers, or developing new products.
