Among the next targets for Team Trump “deregulation”: Weakening a decades-old law intended to punish bank “redlining” of poor and/or minority communities, meaning the practice of refusing to make loans in those neighborhoods.
Changes to the regulations of the Community Reinvestment Act—a law first enacted in 1977—could potentially transform the way banks make billions of dollars in loans, investments and donations to poorer customers. In all, they could make it easier for banks to meet certain lending requirements and lower penalties for compliance problems.
Using the CRA, federal regulators evaluate bank behavior toward poor communities and assign grades to each company; getting a poor score has no regulatory effect, but may be taken into account when banks seek mergers or other acquisitions; a merger involving a company with poor community scores could be given the side-eye when coming to regulators with expansion plans, in other words. And the grades include not only whether the banks engage in explicit “redlining,” but branch access, account fees, and other means a bank might use to discourage either poor or minority communities from using their services while prioritizing other customers.
Of course, this has been driving banks mad of late, especially due to an Obama administration crackdown on redlining behavior, and the banks want to see it whittled down as much as possible. They are helped in this by, also of course, Trump appointed Treasury Secretary and banker Steven Mnuchin, as well as Trump-appointed Comptroller of the Currency and banker Joseph Otting, and the likely mechanism for doing so will be to broaden the definition of what counts as helping poor communities. Otting wants small business loans to count; the banking industry wants to expand the definition much, much further.
The American Bankers Association has asked to expand the “community development” definition even further to include infrastructure lending and activities that don’t solely benefit the poor. They say this will free banks up to do more to help communities, such as revitalizing struggling rural areas.
None of this is expected to benefit underserved communities; all of it is being undertaken in order to reduce the regulatory rules on banks limiting their bad behavior. It will not Make America Great Again, but it will ensure that Trump’s new team of anti-regulators have very cushy jobs waiting for them in the banking sector once they’ve tired of Washington.