New Efforts to Modernize and Strengthen the Community Reinvestment Act First Step Toward Maximizing Impact of Historic Law

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Erin Musgrave
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Accion Opportunity Fund submits comments on proposed rules to modernize the Community Reinvestment Act, the nation’s historic anti-redlining law

San Jose, Calif., Aug. 5, 2022 — Accion Opportunity Fund submitted comments today on proposed rules that are critical to modernizing and strengthening the Community Reinvestment Act (CRA), one of our nation’s most important civil rights laws. While the proposed rules are a step forward to improving the CRA, there are several areas rulemakers should continue to refine in order to make the most of this vital law.

For 45 years, the CRA has been instrumental in enabling financial institutions to reach and serve historically underinvested small business owners and communities. As one of the nation’s leading Community Development Financial Institutions (CDFIs), Accion Opportunity Fund (AOF) strongly supports the original intent of the CRA, while acknowledging there are aspects of the law and its administration that could be improved to reflect current banking trends and maximize impact.

In reviewing the proposed changes from the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and Federal Reserve, AOF sees three areas in need of continued refinement:

Newly proposed bank threshold will cause harm to CDFIs and ultimately decrease lending. The agencies have proposed increasing the small asset and intermediate asset bank thresholds range. AOF believes this increase would reduce community development financing, especially in rural markets. It would cause 779 banks that are currently classified as intermediate banks to be reclassified as small banks, decreasing their community development finance responsibilities.

Furthermore, the proposed new bank size requirement will cause a disruption in capital flow to CDFIs. AOF strongly encourages the agencies to reconsider the bank size increase and maintain the current bank size requirement.
The CRA can best meet the needs of underinvested communities by preserving the investment test that helps to spur New Markets Tax Credit Investments. AOF commends the agencies for explicitly including New Markets Tax Credit (NMTC) transactions as eligible community development activities but is concerned about the proposal to eliminate the CRA’s investment test. Because CRA-motivated banks are primary NMTC investors, the CRA investment test serves as an additional incentive for banks to continue funding these projects. Removing the investment test could potentially jeopardize hundreds of millions of dollars in private sector community development investments.

For the modernization of the CRA to be successful, it must consider how race has factored into a bank’s lending performance. The CRA’s original intent was to help reverse the devastating effects of redlining and financial discrimination against African Americans. However, the purpose of this law has been lost over the years in subsequent debates and proposed regulations.

AOF is in favor of the creation of benchmarks and metrics to assess activity in this area—especially in light of the Section 1071 small business lending data that will be made available by the Consumer Financial Protection Bureau. It is important that efforts to modernize the CRA seize the opportunity to purposefully advance racial equity, rather than using income levels as a proxy.

According to the National Community Reinvestment Coalition, the CRA has spurred more than $6 trillion of investments in low- and moderate-income communities. Accion Opportunity Fund alone has received over $95 million in CRA-motivated investments from banks, which in turn has allowed it to originate nearly $225 million in small business loans.

As the economic impacts of COVID-19 and inflation continue to disproportionately harm low-income communities and communities of color, we need a modernized CRA that incentivizes investment in these areas and holds banks accountable for the impact of their lending.

Learn More About Accion Opportunity Fund (AOF)

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Accion Opportunity Fund works to create an inclusive, healthy financial system that supports the nation’s small business owners by connecting entrepreneurs to affordable capital, educational resources, coaching, and networks. Through innovative partnerships and outreach strategies, we reach entrepreneurs of color, low-income entrepreneurs, and women, who often lack access to the financial services they need to build and grow their businesses. Accion Opportunity Fund Community Development is the lending arm of Accion Opportunity Fund, California Finance Lender license #6050609.