The Biden administration is entirely correct to scrap its predecessor’s controversial revamp of anti-redlining regulations.
The Office of the Comptroller of the Currency announced last week that it plans to rescind regulations rewritten during the Trump administration to implement the Community Reinvestment Act.
The rules were roundly criticized – including by many banks governed by them – as out of step with the law’s spirit. They were seen as invitation for unscrupulous lenders to reduce their lending to low- and moderate-income homebuyers – seen as less profitable and more risky than higher-dollar loans to wealthier buyers. Concerns were also raised that banks might shrink investments in areas hard-hit by decades of racism and disinvestment whose legacies the nation is still trying to undo.
Problems with the regulations didn’t stop there. Former Comptroller of the Currency Joseph Otting fueled accusations the rewrite was driven by a personal vendetta against CRA regulations by pushing the regulations through despite a torrent of criticism from advocates and industry. Otting was formerly CEO of California’s OneWest Bank, which historically had trouble complying with the CRA. This track record complicated Otting’s efforts to engineer a merger with CIT Bank in 2015.
Worst of all, Otting persevered with the new regulations even after the nation’s two other bank regulators, the FDIC and the Federal Reserve, pulled out of a joint effort to modernize the 44-year-old law. Had Otting’s new regulations stayed in effect, it would have created a seriously uneven playing field for the banking industry and could have supercharged profits at OCC-supervised banks while those overseen by the Fed and the FDIC would have, comparatively, languished.
The CRA is a foundational piece of civil rights legislation and even in its aged form, continues to do vital work to lift up communities nationwide. But there is also no doubt that it needs to be modernized. It was written before the advent of digital banks or the relative sidelining of banks from the home mortgage industry, for example. And a fresh look at the law’s regulations could even come up with ways to streamline the compliance burden faced by even lenders with the best of intentions.
Now that the OCC, FDIC and Fed have pledged a joint effort to reform how the CRA is implemented, we have hope this vital law can be brought into the 21st century, with racial and economic equity at its center and respect for the community banking industry’s core needs.
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