Citadel FCU Redlining Settlement Proves It’s Time To Bring Credit Unions Under Community Reinvestment Act Enforcement

The recent U.S. Department of Justice (DOJ) law enforcement settlement with Citadel Federal Credit Union is excellent evidence why the Community Reinvestment Act’s (CRA) omission of credit unions from its rules is a mistake, according to the National Community Reinvestment Coalition (NCRC). Citadel FCU agreed to a $6.5 million settlement regarding its alleged discouragement of homebuyers in Black and Hispanic neighborhoods of Philadelphia from applying for mortgages and systematically declined to make mortgages in those neighborhoods. Citadel maintains its innocence in the settlement.

“It no longer makes sense to let credit unions out of the common-sense obligations that CRA puts on traditional banks. Citadel’s alleged conduct in the case it just paid $6.5 million to settle is a timely demonstration of the problem and the need to enhance fair lending protections for credit union customers. Despite their public perception as a gentler, kinder, more community-minded provider of retail banking services, credit unions are just as capable of violating borrowers’ civil rights as any other financial institution. Whatever the driving causes underlying such violations, we know how to fix the problem: Supervise credit unions under CRA so that they can prove their actual actions live up to their public image.”

Such failures and business practices are commonly uncovered in traditional banking through regular federal CRA examinations, which are conducted every few years. Extending CRA to cover credit unions would both improve oversight and put new capital into neglected communities as the firms move into compliance with the law’s requirements. Bringing credit unions under CRA would ensure that they face an affirmative and binding obligation to those same people and communities.

Read the October 15, 2024 NCRC article.

There will be four focused sessions on changes to the Community Reinvestment Act (CRA) at NCRC's April 3-4 2024 Just Economy Conference.

 

The National Community Reinvestment Coalition (NCRC) will be hosting four focused sessions on changes to the Community Reinvestment Act (CRA) at its 2024 Just Economy Conference. The CRA requires banks to lend in the communities where they do business. The federal regulators overseeing CRA announced late in 2023 a much-needed overhaul of this important economic justice law. These sessions will treat the changes as well as the implications for community development and equity.

Register Now

The sessions are:   The New CRA 101 (ROUND 1) This session covers the updated CRA, which encourages financial institutions to meet the credit needs of low- and moderate-income (LMI) neighborhoods and requires federal banking agencies to assess the record of meeting these standards and evaluate their efforts. We will explore how CRA can be used to increase affordable housing and small business reinvestment in your communities, including crucial updates to the rule announced in late 2023.    The New CRA 101 (ROUND 2) Addressing the Climate Crisis through CRA and federal funding Climate change is increasing the frequency and severity of storms, heat waves, fires and other weather-related disasters, with communities of color and low-income households the most affected. CRA’s definition of community development was recently updated to encourage banks to finance weather resiliency. This session will cover climate/weather resiliency projects and priorities, including how best to work with communities to prevent bluelining, a trend where financial institutions withdraw services or increase costs due to climate change.    What's Next With The CRA Final Rule This session will focus on what's coming next with CRA reform and upcoming opportunities to further shape the development of the new CRA rule. Speakers will be covering topics including: developing a statistical model that identifies markets where all banks are underperforming, best practices for reviewing the impact of community development on neighborhoods, and how the regulators can be proactive in preventing a decline in critical investments.   State CRA And Non-Banks Community advocates, along with state and local elected officials, are increasingly pushing for state CRA laws that bring in more resources and fix gaps in the federal CRA rules, especially since more and more lending is done by institutions not covered by federal CRA. This session will explore how state CRA laws include a review of credit unions and mortgage companies' loans and investments in underserved people and neighborhoods, in addition to banks.    Register now.

  Update on Previous Fair Lending Post:

Advocates Urge Maryland to Adopt a State CRA Law to Increase Racial Equity & Reinvestment

The following is a summary of a whitepaper by Josh Silver of the National Community Reinvestment Corporation (NCRC) entitled "A Maryland CRA Law Would Marshall Considerable Resources for Increasing Racial Equity and Reinvestment." In this article, Silver presents reasons why Maryland should adopt its own state Community Reinvestment Act (CRA). This article was referenced in the June 23, 2023 NCRC Just News. Download the whitepaper.

Economic Action Maryland has released a Policy Brief that advocated a Maryland CRA Law. Economic Action Maryland, the NCRC, and other housing advocates plan to push for the legislature to pass a bill in the 2024 Session. Del. Melissa Wells (D-Baltimore City) introduced legislation this year to propose a state-level community reinvestment act, but withdrew it.

The Major Points of the Whitepaper & Policy Brief

(1) A Maryland CRA law would apply to banks and credit unions with about $46 billion in assets. It would cover mortgage companies that made more than 68,000 loans in three years. The assets and lending activity are considerable resources that should have a CRA obligation for reinvesting in underserved neighborhoods.

(2) A state CRA law would help narrow racial and equity gaps in lending. In Baltimore, for example, 33% of recent loans went to African Americans whereas they constituted 62% of the population.

(3) State law can plug gaps in the federal law. The federal CRA applies to banks, whereas other state laws in Massachusetts and Illinois also apply to mortgage companies and credit unions.

Impact of a Maryland CRA Law

A state CRA law would apply CRA to institutions with tens of billions of dollars which offer tens of thousands of loans. State-chartered banks have about $38 billion in assets and state-chartered credit unions have nearly $8 billion in assets. The top ten independent mortgage companies issued almost 68,000 home purchase loans in Maryland during 2018-2020.

Applying CRA to institutions with these large resources would channel significant increases in loans and investments to neglected communities in Maryland. A state CRA law is needed to address sizable racial and income disparities in access to loans. In all of Maryland, lenders made 20% of their single-family loans to African Americans in 2018-2020 while 29% of the population was African American. The gap is even wider in Baltimore, which is 62% Black but where only 33% of loans went to African American borrowers.

While some gaps have narrowed slightly, underserved communities continue to suffer. For the whole state, lending institutions made 32% of their loans to low- and moderate-income (LMI) borrowers during 2018-2020 while 31.6% of the population was LMI.  A significant disparity is in Baltimore where LMI borrowers received 58% of the loans but were 73% of the residents.

A state law would complement rather than duplicate federal law, as the experience of other state CRA laws have demonstrated. It can address needs and neighborhoods not explicitly addressed by the federal CRA. A state law could  authorize Maryland’s Commissioner of Financial Regulation to conduct separate exams for individual counties. This would enable examiners to assess performance more rigorously in Baltimore and underserved rural counties. In contrast, federal CRA exams usually rate performance on a metropolitan level that hides poor performance, which most often occurs in the underserved counties. In addition, a CRA law could require the examiners  to assess the sustainability of lending by considering default and delinquency rates. This is very important for underserved communities and is frequently overlooked by federal CRA exams.

A Maryland state law could contain provisions designed to counter CRA ratings inflation and that would motivate improvements in performance to communities of color. On a federal level, the pass rate of banks on their CRA exams is 98%. A state law should counter this inflation by introducing a fifth rating and by requiring examination of performance in underserved neighborhoods, which are disproportionately communities of color. By law, banks that fail their exams cannot receive deposits from a state agency. The Commissioner could also adjust fees based on ratings received.

Studies have shown that the federal CRA has increased lending and banking services in modest income communities. A state CRA law would expand and widen this. The gains in wealth from a rigorously enforced CRA, driven by homeownership and small business ownership, would benefit Maryland through higher gross domestic output, higher tax revenues, and reduced dependence on the state safety net.

Sources:

Read the June 13, 2023 NCRC article.

https://www.marylandmatters.org/2023/06/20/advocates-a-maryland-community-reinvestment-act-needed-to-invest-in-underserved-communities/?eType=EmailBlastContent&eId=4b868637-2282-437b-b614-5da7465c2ad8.

 Update on Previous Whitepaper:

Maryland Needs a State CRA Law to Increase Racial Equity & Reinvestment

The following is a summary of a whitepaper by Josh Silver of the National Community Reinvestment Corporation (NCRC) entitled "A Maryland CRA Law Would Marshall Considerable Resources for Increasing Racial Equity and Reinvestment." In this article, Silver presents reasons why Maryland should adopt its own state Community Reinvestment Act (CRA). This article was referenced in the June 23, 2023 NCRC Just News. Download the whitepaper.

Economic Action Maryland has released a Policy Brief that advocated a Maryland CRA Law. Economic Action Maryland, the NCRC, and other housing advocates plan to push for the legislature to pass a bill in the 2024 Session. Del. Melissa Wells (D-Baltimore City) introduced legislation this year to propose a state-level community reinvestment act, but withdrew it.

The Major Points of the Whitepaper & Policy Brief

(1) A Maryland CRA law would apply to banks and credit unions with about $46 billion in assets. It would cover mortgage companies that made more than 68,000 loans in three years. The assets and lending activity are considerable resources that should have a CRA obligation for reinvesting in underserved neighborhoods.

(2) A state CRA law would help narrow racial and equity gaps in lending. In Baltimore, for example, 33% of recent loans went to African Americans whereas they constituted 62% of the population.

(3) State law can plug gaps in the federal law. The federal CRA applies to banks, whereas other state laws in Massachusetts and Illinois also apply to mortgage companies and credit unions.

Impact of a Maryland CRA Law

A state CRA law would apply CRA to institutions with tens of billions of dollars which offer tens of thousands of loans. State-chartered banks have about $38 billion in assets and state-chartered credit unions have nearly $8 billion in assets. The top ten independent mortgage companies issued almost 68,000 home purchase loans in Maryland during 2018-2020.

Applying CRA to institutions with these large resources would channel significant increases in loans and investments to neglected communities in Maryland. A state CRA law is needed to address sizable racial and income disparities in access to loans. In all of Maryland, lenders made 20% of their single-family loans to African Americans in 2018-2020 while 29% of the population was African American. The gap is even wider in Baltimore, which is 62% Black but where only 33% of loans went to African American borrowers.

While some gaps have narrowed slightly, underserved communities continue to suffer. For the whole state, lending institutions made 32% of their loans to low- and moderate-income (LMI) borrowers during 2018-2020 while 31.6% of the population was LMI.  A significant disparity is in Baltimore where LMI borrowers received 58% of the loans but were 73% of the residents.

A state law would complement rather than duplicate federal law, as the experience of other state CRA laws have demonstrated. It can address needs and neighborhoods not explicitly addressed by the federal CRA. A state law could  authorize Maryland’s Commissioner of Financial Regulation to conduct separate exams for individual counties. This would enable examiners to assess performance more rigorously in Baltimore and underserved rural counties. In contrast, federal CRA exams usually rate performance on a metropolitan level that hides poor performance, which most often occurs in the underserved counties. In addition, a CRA law could require the examiners  to assess the sustainability of lending by considering default and delinquency rates. This is very important for underserved communities and is frequently overlooked by federal CRA exams.

A Maryland state law could contain provisions designed to counter CRA ratings inflation and that would motivate improvements in performance to communities of color. On a federal level, the pass rate of banks on their CRA exams is 98%. A state law should counter this inflation by introducing a fifth rating and by requiring examination of performance in underserved neighborhoods, which are disproportionately communities of color. By law, banks that fail their exams cannot receive deposits from a state agency. The Commissioner could also adjust fees based on ratings received.

Studies have shown that the federal CRA has increased lending and banking services in modest income communities. A state CRA law would expand and widen this. The gains in wealth from a rigorously enforced CRA, driven by homeownership and small business ownership, would benefit Maryland through higher gross domestic output, higher tax revenues, and reduced dependence on the state safety net.

Sources:

Read the June 13, 2023 NCRC article.

https://www.marylandmatters.org/2023/06/20/advocates-a-maryland-community-reinvestment-act-needed-to-invest-in-underserved-communities/?eType=EmailBlastContent&eId=4b868637-2282-437b-b614-5da7465c2ad8.