🔒New federal CRA proposal could mark return of redlining in Hartford

A few months ago the Trump administration quietly rolled out a proposal, which, if enacted later this spring, could have a substantial and negative impact on cities like Hartford.

The proposal was introduced by Joseph Otting, head of the Office of the Comptroller of the Currency (OCC), one of three bank regulatory agencies, and would significantly weaken the Community Reinvestment Act (CRA).

CRA is a federal law passed in 1977 intended to counteract decades of racist and discriminatory lending policies and practices by banks — practices commonly referred to as “redlining.”

Back in the 1930s, the federal government graded neighborhoods in and around Hartford and more than 200 other metro areas based on their perceived investment risk.

Each neighborhood was placed in one of four categories, from best (an “A”-rated neighborhood, shaded in green on government maps) to worst (“D”-rated neighborhoods, shaded in red). Federally backed mortgages and other lending incentives were offered for bank loans made in higher-rated communities like West Hartford and Simsbury, and discouraged in neighborhoods like mine in Hartford’s north end.

Much of the government’s determination of a neighborhood’s respective risk rating was based on the race and ethnicity of residents in the community it was assessing. Neighborhoods where government appraisers detected an “infiltration of negroes” (their words, not mine), or which were occupied by other non-white residents were typically given the poorest rating and cut off from credit.

As a consequence, the flow of capital to such neighborhoods in Hartford was reduced to a trickle. Despite efforts by the federal government to address such discriminatory policies starting in the late ‘60s, I still see the subsequent effects of decades of disinvestment on my block and in my neighborhood every day.

For the last 40 years, the one silver lining for these communities has been the Community Reinvestment Act. As the result of CRA, banks have been required by their respective regulatory agencies to demonstrate that they’re not redlining, but actually investing in the low- and moderate-income communities where they operate.

Historically this has taken the form of bank investments in homeownership counseling programs, affordable mortgages for first-time homebuyers, and more flexible small business lending programs.

Banks can receive CRA credit by opening branches in low-income neighborhoods or providing grants to nonprofits providing products or services in such communities. Banks can invest in nonprofit community development financial institutions like mine, which are often able to make loans in low-income neighborhoods easier than the bank could.

CRA has been a catalyst for hundreds of billions of dollars of investments in low- and moderate-income (LMI) neighborhoods across the country.

According to the National Community Reinvestment Coalition, from 2009-2018 CRA qualified lending in Greater Hartford resulted in $8.2 billion in mortgages to LMI homeowners or in LMI neighborhoods, and $1.9 billion in small business loans in LMI neighborhoods.

But in January OCC head Otting proposed big changes to CRA that would allow banks to get CRA credit for a much wider range of activities that could have little or no benefit to historically underserved communities.

Providing a financial counseling workshop for high-net-worth retirees from Avon? That could count. Financing a new scoreboard in a sports stadium located in a federal Opportunity Zone — like Dillon Stadium in Hartford? Sure, that could work as a CRA-eligible investment under the new guidelines.

In fact, under the OCC’s proposed new “One Ratio” method of assessing a bank’s CRA performance, a large investment of this nature by a bank — even if it has no direct benefit to residents of the surrounding community — could offset a potential elimination of small business and mortgage lending by the bank in the same neighborhood.

Bigger investments in the right projects would mean more to regulators than historic CRA activities that have been weighted toward products and services that actually benefit residents in low-income and underserved communities.

There’s no arguing that the ways communities access financial services have changed since the CRA was passed in 1977. The law needs to be updated, but this proposal from the OCC isn’t the way to do it.

Rex Fowler is CEO of Hartford Community Loan Fund and a resident of Hartford’s northeast neighborhood.