Inside the government's feeble fight to end redlining
The country's signature law to stop redlining is under review. Will it get the teeth to police banks?
Redlining is a five-alarm word in the lexicon of American racism, but it really has a quite specific definition: The denying of credit in non-white, particularly Black neighborhoods.
The federal government was for redlining before it was against it, instituting color-coded maps of fast-changing metropolises for the better part of the 20th Century. And redlining is very much still around.
How much? The racial homeownership gap is now wider than it was in 1890.
What is not widely known is the role federal banking regulators play in letting this practice continue.
The main law policing redlining is the 1977 Community Reinvestment Act, or CRA. These bank regulators only enforce the CRA when banks seek a merger or acquisition. The broadly written 1960 Bank Merger Act, which President Joe Biden's administration wants strengthened, also requires banking regulators to consider a merger's impact on the community.
But the federal government's merger review process is, at the end of the day, a formality, if a sometimes time intensive and messy formality. The three agencies in charge of such reviews — the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency — have not denied a single bank merger in 15 years.
And if these agencies were to find that a merger ran counter to public interest because of a bank's discriminatory lending practices, it's not likely anyone would know about it. Like the waitstaff at a country club to a patron whose card was declined, regulators alert banks, often in phone conversations, of the potential for a denial, well before any public exposure.
Banks then quietly withdraw their application, rather than face a public denial.
Ostensibly, the Biden administration has reversed decades-long executive branch indifference to the CRA. Senior administration officials claim that rooting out "modern-day redlining" is a top priority.
In a joint news conference last September, officials at the Consumer Financial Protection Bureau, the Department of Justice and the OCC proclaimed a crack down on "digital redlining." And in a March interview with former president Bill Clinton, Department of Housing and Urban Development Sec. Marcia Fudge, called attention to the continued practice of redlining.
"We still have redlining in this country," Fudge said. "We are looking at where we have failed with the CRA, and we know we have."
DOJ and CFPB can bring lawsuits against alleged housing discrimination. And HUD can bring lawsuits claiming bias in mortgage lending. These agencies, though, do not have a seat at the table when banks, during a CRA exam or undergoing a merger review, provide a voluminous account of their lending practices.
They cannot, in other words, do what the Federal Reserve, OCC and FDIC can do: Compel depositories to catch up to nonbank lenders in their minority loan practice. Indeed, depositories' mortgage lending to minorities is far behind that of nonbanks, a cruel irony since nonbanks do not have community reinvestment obligations. With bank regulators reluctant to wield their power, community groups often take up the mantle, but with mixed results.
Such inaction is of great frustration to fair lending advocates and also longtime experts on the issue, like Calvin Bradford, one of CRA's original authors.
"It's white, male and fairly racist all the way through. There haven't been women involved in high levels of the [banking] agencies, and no minorities, until fairly recently," said Bradford, presently the principal of Calvin Bradford & Associates Ltd. "It's been a racist part of the government that doesn't care, because its view was: if you're going to make safe loans, you should make them to white people."
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