Community Reinvestment Act & Community Benefits Agreements

Community Reinvestment Act & Community Benefits Agreements

By Alexandria Robinson / September 11, 2019  

(Updated July 27, 2021 by GROWTH by NCRC)

American banking has a dark history of discrimination against Blacks, immigrants, and other minorities. The Community Reinvestment Act (CRA) was passed in 1977 to end that discrimination, known as redlining. But discrimination is still a problem in lending across the nation.

Community Reinvestment Act

Banks earn profits by investing the money deposited in them by individuals, businesses, and governments. Historically, most of those profits came from interest paid on mortgage and small business loans. CRA requires banks to meet the credit needs of all segments of the communities where they take deposits, including low- and moderate-income (LMI) neighborhoods. The law requires banks to reinvest those deposits back into their communities in ways that are responsive to the community’s needs.

Three federal banking agencies are responsible for managing the CRA.  These institutions include:

• Federal Deposit Insurance Corporation (FDIC)
• Federal Reserve Board (FRB)
• Office of the Comptroller of the Currency (OCC)

Each of these agencies has a dedicated CRA site that provides information about the banks they oversee (if they have CRA obligations) and those banks’ CRA ratings and Performance Evaluations.

These same agencies periodically review bank compliance with CRA rules. In recent years, nearly all banks have earned passing grades from the government. In rare cases, when banks fail their CRA exams, regulators may stop the banks from growing or entering new markets until they address their CRA problems.  Regulators also look closely at CRA performance when banks want to buy or merge with another bank.

Community Business Agreements

Community benefits agreements (CBAs) are a way for banks to spell out, in writing, how they will satisfy CRA requirements when they merge. The agreements are between banks and community groups.

CBAs open doors for LMI communities and communities of color, and they increase lending, investments, and philanthropy for underserved borrowers and neighborhoods. CBAs boost financial support for small businesses and a variety of other community development initiatives.

CBAs depend on collaboration between banks and community organizations. That starts with dialog and negotiation on the scope and scale of a bank’s CBA commitment, and it continues after an agreement is signed through community councils set up to advise on implementation and monitoring of the agreement.

National Community Reinvestment Coalition

Since 2016, the National Community Reinvestment Coalition (NCRC) has facilitated the creation of CBAs worth $338 billion with 15 banking groups. The largest-to-date plan, finalized in April 2021, was a four-year, $88 billion agreement with PNC Bank, one of the largest banks in the country.

When it brings banking and community group leaders together to negotiate a CBA, NCRC plays the role of facilitator and negotiator on behalf of community groups that are members of NCRC. NCRC’s first step is to analyze local lending and community development data and review it with NCRC member organizations to identify gaps in services and how a bank merger would affect LMI constituents. NCRC also compares community development loans and investments (CDLI) to banks of a similar size. Due to relaxed enforcement of CRA rules, many banking institutions have fallen behind in reaching the appropriate CDLI level.

NCRC also looks at the Herfindahl-Hirschman Index (HHI), which measures how concentrated a banking market is. Federal regulators use it to evaluate whether a merger will create anti-competitive effects. This information is important in ensuring that merger agreements contain a forward-thinking commitment to the community.

With data in hand, NCRC seeks commitments from the banks to participate in a series of local market meetings, where NCRC members discuss their experiences and views on their community needs and propose improvements to the bank’s community reinvestment plans.

GROWTH by NCRC

Opportunities for housing and affordable homeownership are essential components of CBAs and the CRA.  The NCRC Housing Rehab Fund (marketed as GROWTH by NCRC), makes targeted investments in and around LMI neighborhoods to increase homeownership among LMI individuals and families, especially BIPOC communities, with a goal of removing barriers like systemic racism and inequity from our nation’s housing market.

GROWTH also partners with non-profit community development organizations, municipalities, land banks, lenders, investors, developers, builders, and workforce training organizations to achieve shared goals for community improvement through homeownership.  GROWTH’s mission is to create pathways to homeownership by empowering people to become homebuyers, building stable lives and vibrant neighborhoods, and lifting communities through mixed-income housing and greater diversity

Conclusion

CRA and CBA’s are crucial for creating opportunities for people of color and LMI buyers to build generational wealth through homeownership and to revitalize neighborhoods and communities damaged by a long history of discriminatory practices like redlining.  GROWTH and NCRC strive to create equity in our nation’s housing market and to strengthen our communities through economic empowerment driven by homeownership.

Completed NCRC/GROWTH CBAs:

• KeyBank in March 2016 for $16.5 billion.
• Huntington Bancshares in May 2016 for $16.1 billion — completed in 2020. A second plan was announced in September 2020 for $20 billion.
• Fifth Third Bank in November 2016 for $30 billion.
• First Financial Bank in October 2017 for $1.7 billion.
• Santander Bank in November 2017 for $11 billion.
• IBERIABANK in November 2017 for $6.7 billion.
• First Tennessee Bank in April 2018 for $4 billion.
• Wells Fargo & Company(DC) in October 2018 for $1.6 billion
• Fifth Third updated agreement in October 2018 for an additional $2 billion.
• Truist in July 2019 for $60 billion.
• CIT Group in November 2019 for $7.75 billion.
• First Merchants Bank in June 2020 for $1.4 billion.
• Morgan Stanley in September 2020 for $15 billion.
• First Citizens Bank in February 2021 for $16 billion.
• PNC Bank in April 2021 for $88 billion.
• Huntington Bancshares in June 2021 for $40.7 billion.