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The CRA Is Under Threat – With It, Crucial Investments in Low-Income Communities

Working in the field of business assistance, our sector is super-aware of the crucial role that access to capital plays when it comes to launching a successful small business. And in low-and-moderate-income communities, being able to succeed as a business owner can often be the difference between prosperity and destitution. However, these communities have rarely – if ever – had the access to capital necessary to grow and thrive. 

That is why regulations like the Community Reinvestment Act (CRA) are so important. The CRA was passed in 1977 to require banks to invest – usually through grants and loans – in the communities where they operate. The legislation was a response to inequitable redlining practices and, though it didn’t end discrimination, it was a huge step forward. Since 1996, banks have spent nearly $2 trillion in small-business and community development loans to meet the CRA’s requirements. This vital investment is now under threat. 

On August 28, the Office of the Comptroller of the Currency (OCC) announced a proposed set of rule changes to the CRA. The stated purpose of these rule changes is to “strengthen and modernize the CRA,” but in effect, they are meant to actually weaken the law. Some of the proposed changes include the following:

  • Grading banks using a single ratio of a bank’s community investments divided by the bank’s assets, rather than the current three-pronged approach that looks at lending, investments, and services. This would make it harder to analyze the effectiveness of banks’ efforts in meeting specific community needs. 
  • Expanding the definition of CRA-qualifying activity to include services the banks already provide and that don’t address the credit needs of underserved communities.
  • Giving credit for CRA investments outside the banks’ assessment areas, effectively disconnecting the CRA from its intended purpose of benefiting historically-marginalized communities.  

Many of our colleagues agree that the CRA can be improved and will work with the OCC, Congress, and the financial sector to modernize the law in a way that continues to hold banks accountable to communities. In fact, a coalition of almost 500 national and community organizations have suggested reasonable approaches to this issue.  

We are very concerned that the OCC’s proposed changes would be a disaster for small businesses and aspiring entrepreneurs in low and moderate-income areas. Thanks to the CRA, women, people of color, and other marginalized populations have been able to obtain vital credit to launch and sustain their own businesses, lifting them and their communities out of poverty. Countless business assistance organizations, including CAMEO and our membership, receive funding from CRA investments which allow us to provide essential services like business training, technical assistance, and financial education. Many of these organizations also provide loans of their own, which have shown to be highly effective at helping entrepreneurs reach their business goals. A joint study by Accion in the US and Opportunity Fund found that 94% of businesses that received loans from mission-based lenders are still open 2-3 years later, and more than half are profitable. Additionally,  40% of these businesses added jobs in their communities, creating a ripple effect of prosperity and economic growth.  

The OCC’s proposed changes threaten crucial dollars our members and partners depend on to provide services for low-income communities in California. Salam Nalia, CEO of Access Capital Plus and CFO of Fresno EOC, says, “Small businesses in the Central Valley rely on banks for reasonably priced credit to help them start, expand, and hire workers. These changes may dilute banks’ focus on rural communities which will have a devastating effect on small businesses, homeowners, tenants, and community institutions. Anyone who cares about rural America should care about the weakening of CRA.”

The OCC is currently seeking comments on their proposed rule changes and suggestions for how to modernize the CRA’s regulations. Comments are due 75 days after publication in the federal register. CAMEO will work with our colleagues to submit comments and stop the OCC from undermining this important law.