CRA: It's All About Money

When all of the slogans die down and the opinions fade into the invisible background, CRA comes down to money. CRA is our testing field in the ancient struggle between those who have money and those who do not.

That's why people in neighborhoods that were allegedly redlined wanted conventional bank loans. They wanted access to the same financial options that the wealthy had. They wanted it to keep their neighborhoods from deteriorating. And they wanted away from government programs.

As a result of the redlining debates, we now have CRA and HMDA. And it didn't take long for fair lending to get stirred into the formula. Over time, we have developed data collection, reporting, analysis, and comparisons that supposedly tell us whether we are making a difference. But what is it that we actually know from this information and how useful is it?

As the 2000 HMDA reports tell us, we are able to know less and less about the racial and gender identity of applications. (And we can't help noting that this should be a good thing where discrimination is concerned. Race simply isn't a credit qualification.) But we have a lot invested in making sure that those who don't have money have access to ways to acquire money. That is the American dream and CRA is the leading factor in the role banks play in this process.

But it isn't "nice" to talk about being rich and poor. Even we Americans consider that somewhat crass. So, for purposes of CRA, we have come up with the clever means of grouping people into what we call "low-income" and "moderate- income." And then, instead of using people - which would be much too personal - we make decisions using census tracts. Census tracts are nice and neutral and numerical. This way, we don't say anything specific about any individual.

Unfortunately, this polite but obtuse approach can lead us off course. The emphasis on census tracts does indeed keep the sigma of poverty away from individuals. It also leaves a lot of people out of the picture. We end up using averaged numbers that force us to disregard some who should qualify for special projects.

But perhaps the worst consequence of our emphasis on census tracts is that it actually preserves economic segregation. Poverty only counts if it is grouped together and set apart from higher incomes. Individuals who are only able to earn a low income but who live in a middle-income census tract don't get counted. Their needs for transportation, utilities, and economic opportunities don't get counted. They live in the wrong place. They are invisible and ignored.

The original goal of CRA was to eradicate economic discrimination. The goal was to make low-income neighborhoods into good places to live, with healthy economies. In short, it was to find ways to turn those neighborhoods away from the cycle of poverty and decline into the cycle of growth and economic health.

But what does CRA do when this starts to happen? CRA turns its back on a neighborhood - or census tract - when it begins to build a healthy economy. By using census tracts instead of customer income or business size, we are actually forcing neighborhoods off the list as soon as they begin to climb out of poverty. In effect, we may actually be preserving poverty. Having poor neighborhoods justifies CRA. There is something wrong here. Economic development - continued development - should not only be allowed but encouraged. CRA fails at this. CRA relies on the preservation of poor neighborhoods. Without the poor neighborhoods, banks can't get credit for CRA.

CRA is under review again. This is a good time to look beyond the regulation and compliance programs to what CRA actually does and compare that to what it should do.

We think CRA should promote economic development. Only with strong economies in communities do low- and moderate-income people have a chance at climbing the wealth scale. This should really be about creating opportunity. To do that, we need to stop depending on poverty as our measurement. We need to look at the impact that banks have on local economies. After all, banks really exist to provide the financial services that promote economic growth.

Copyright © 2001 Compliance Action. Originally appeared in Compliance Action, Vol. 6, No. 9, 8/01