George Orwell was no banker, but if you applied his words to the current debate on the Community Reinvestment Act, he was correct: “The most effective way to destroy a people is to deny and obliterate their own understanding of their history.”
In this case, ahistorical arguments that dominate the CRA debate could potentially obliterate the law by disregarding its racial history and calling into question its intent to protect financial consumers — namely depositors — from discriminatory lending.
Efforts to dissociate CRA from its anti-discrimination and consumer protection contexts are Orwellian in nature. These efforts are largely premised on the idea that CRA is “colorblind,” devoid of a racial context and more about consumer access than it is about fairness.
For example, a recent Treasury report argued that “CRA is not a consumer protection law” and laid out narrow circumstances where the two regimes may relate, dependent on the discretion of regulators rather than the intent of Congress.
The Treasury report’s suggestion would make sense if Congress did not consider depositors to be consumers of financial services, and if Congress did not think depositors needed to be protected from discriminatory lending practices. However, there’s no doubt Congress considered depositors to be financial consumers that should be protected under the law from discriminatory lending practices, including redlining. This concept was the impetus behind CRA.
During CRA’s floor debate, Sen. William Proxmire cited redlining as the need for the financial reform. Proxmire stated: “by redlining let me make it clear what I am talking about. I am talking about the fact that [financial institutions] will take their deposits from a community and instead of reinvesting them in that community … they will actually or figuratively draw a red line on map around the areas of their city, sometimes in the inner city, sometimes in the older neighborhoods, sometimes ethnic and sometimes black, but often encompassing a great area of their neighborhood.”
The senator understood the grave consumer harm caused by financial institutions that took deposits from certain communities and exclusively invested those deposits elsewhere. The practice resulted in whole communities being stripped of wealth, a consumer harm Proxmire recognized had a racial component to it.
Hand in hand with arguments that CRA is not a consumer protection law are those that ignore the law’s racial context. For example, in 2014, an American Banker contributor argued that CRA is “
Like our Constitution, the Community Reinvestment Act has been amended by Congress so that its highest ideals could be fulfilled in spite of recurring racial challenges. One such amendment was enacted in 1992 to require CRA examiners to consider a bank’s investments with minority-owned financial institutions when determining whether the bank is sufficiently meeting the credit needs of all within their communities.
The thinking was that minority-owned banks, many of which served predominantly low- and moderate-income customers, were oftentimes best situated to meet these communities’ unique financial needs. Considering that the definition of minority-owned institutions includes black-, Hispanic-, Asian-, Native American- and multiracial-owned banks, it’s hard to see how one can argue that CRA is colorblind without ignoring whole provisions of its plain text.
It’s certainly fair to argue that unlike our fair-lending laws, CRA was not enacted solely to address disparate treatment of protected classes, including racial minorities. However, it’s wholly inaccurate to argue that CRA is colorblind or that it is not a consumer protection law. CRA had much to do with race, considering the context in which it was passed, and its aim was to protect depositors — who are indeed financial consumers — from the wealth-destructive acts of redlining and discriminatory lending.
I have been loud in my call for CRA’s modernization. As I have stated before, at 40 years old, CRA is approaching somewhat of a midlife crisis. We must reinvigorate its structure and pump life in its original purpose. However, stripping it of its historical context is certainly not the right way to breathe more life in what has been a fairly healthy law.
