New York Expands CRA Requirements

New York Governor Kathy Hochul signed legislation expanding the Community Reinvestment Act (CRA) ‘s anti-redlining requirements to non-depository lenders.

The New York Senate delivered the bill to Governor Hochul on Friday. Now that the bill is signed, it will become law in 90 days.

The CRA is national legislation enacted in 1977 in response to the redlining of poor and minority communities by banks during the 1960s and 1970s. Several states, including Massachusetts, Illinois, and New York, have their own versions. New York’s largely mirrors the federal law. It mandates that banks help meet the credit needs of communities in which they take deposits, specifically in low- and moderate-income neighborhoods.

The expansion diverges from federal law, however. A New York investigation of redlining in Buffalo found that nonbank lenders engaged in modern redlining practices and were not covered under CRA. 

The report found that some Buffalo nonbanks were lending in minority communities less often than depository banks, despite the reverse being true nationally and in the rest of New York. It also stated that nonbanks made “little to no effort to do business in majority-minority neighborhoods.”

Nonbanks have increased their market share significantly since the 2008 financial crisis. The Federal Reserve and Office of the Comptroller of the Currency have teased various updates to the federal CRA, though only the OCC opted to finalize new rules.

However, the CRA has been controversial from its inception. “We have serious reservations as to whether any regulatory agency could have the wisdom necessary to administer such a system to the maximum benefit of competing economic interests,” Robert Bloom, then-Acting Comptroller of the Currency, said in 1977.

Skeptics argue that expanding the CRA would be useless because the CRA is already obsolete.

“The lending landscape in the United States has changed substantially since the 1977 enactment of the CRA,” Diego Zuluaga wrote in policy analysis for the Cato Institute. “Today, the CRA is ill-suited to address the problems of unequal access to banking and credit as they currently affect low‐ and moderate‐​income borrowers.”

Not only did the CRA push banks to engage in riskier lending, he argues, but the advent of technology and transition from localized lending to online access has made the CRA “moot.”

The Mortgage Bankers Association (MBA) has also taken a stance against expanding the CRA. “The independent mortgage banks’ business model takes funds gathered from global capital markets and reinvests them in local New York communities, with a focus on [low-income] and minority households,” MBA said in a statement.