May 5, 2022 - Politics & Policy

Regulators seek overhaul of fair housing, redlining law

Lael Brainard, governor of the U.S. Federal Reserve, listens during a Senate Banking, Housing, and Urban Affairs Committee confirmation hearing in Washington, D.C.,

Fed governor Lael Brainard (Bloomberg via Getty Images)

Federal bank regulators released a proposal Thursday that would overhaul a decades-old law meant to address systemic inequities in banking and prevent the practice of redlining ā€” where banks won't lend to lower-income, typically Black borrowers.

Why it matters: The aim is to modernize the historic Community Reinvestment Act, which evaluates banks on how much lending they're doing in the physical area situated around their branches. That's far less relevant in an era of online banking.

  • This move follows a failed effort during the Trump administration that was criticized for possibly weakening the anti-discriminatory rules and for failing to garner the support of all the banking agencies.
  • The law was last updated in 1995.

What they're saying: "The CRA is one of our most important tools to improve financial inclusion in communities across America, so it is critical to get reform right," Fed Governor Lael Brainard, whose been working on this update for years, said in a statement about the proposal.

  • The pandemic highlighted the need for the overhaul, Brainard said, noting the difficulty unbanked Americans had accessing their relief checks at that time.
  • "I think this will definitely change the way that banks engage in lending to historically marginalized communities," Todd Phillips, director of financial regulation and corporate governance at the Center for American Progress, told Axios today.
  • There is some concern, expressed by Fed Governor Michelle Bowman, that the new rules would be more costly for bigger banks.

Details: The draft proposal, from the FDIC, OCC and Federal Reserve would bring more transparency to the process that regulators use to evaluate whether banks are meeting fair lending goals.

  • Regulators are also looking for new ways to ensure lower-income buyers have access to loans and even bank accounts.

Caveat: The rules don't apply to the financial firms that currently comprise 75.5% of the mortgage market, the Wall Street Journal points out.

What's next: The agencies are accepting comments on the proposal through August and a finalized rule is expected within the next six to nine months.

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