DMI Blog

Mark Winston Griffith

Banking on the Bottom, Revisited

The best way to honor the Community Reinvestment Act is to re-invent it.

That was basically my point when I wrote the op-ed that appeared in the New York Times this past weekend. But here's what I didn't have enough room to say:

CRA is primarily a weak, reactionary instrument that, technically, can only be enforced when a bank formally applies for permission from a regulatory body to conduct a change in business. Last year ninety-nine percent of banks received satisfactory ratings or better, making CRA ratings almost meaningless. From 1985 to 1999, only one tenth of one percent of the bank applications subject to CRA review was denied by regulators, for reasons that may not have had anything to do with CRA.

These days banks use the CRA as little more than political cover for their mergers. A random survey of Federal Reserve merger hearings conducted by the Neighborhood Economic Development Advocacy Project found that every group that testified in favor of the Bank of America/Fleet merger, as well as the Chase/Bank One merger, had received support from the acquiring or acquired bank, sometimes from both.

But CRA is more than just a porous safeguard. It represents an out-dated paradigm. Banks, due mostly to deregulation, increasingly invest in other forms of non-CRA regulated activity.

We cannot afford to abandon the CRA's legacy at a time when our government values the free market more than it does consumer rights. Nor can poor people afford to have their day-to-day financial reality obscured by a fixation on crippled, exclusively bank-based, policy reform. It is time for advocates to re-imagine a new community reinvestment paradigm.

Posted by Mark Winston Griffith at October 10, 2005 09:33 PM

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Comments

Anyone remember when ACORN used to have people in loan shark costumes (sharks in suits) go and hang out in front of check cashing spots?

Posted by: grassyrootsy | October 11, 2005 11:25 AM

Very valuable op-ed. I'm really interested in ways that we could use the involvement that low-income families have with the public assistance system as a point of entry to the mainstream banking system. Why not establish bank accounts & issue debit cards for TANF, Food Stamps, child care vouchers and other benefits, rather than EBT cards or checks? When the public assistance agency is able to place someone in a job (whether subsidized or unsubsidized), how hard would it be to then set up direct deposit for them into that bank account so that they'd stay in the banking system after they leave assistance? And why isn't it a matter of standard procedure to help those new workers file for the Earned Income Tax Credit & other state & federal tax benefits for lower-income people, and have those also paid by direct deposit? This represents a significant source of deposits & interest float for banks, and they would compete for the business - with the potential that they'd start to offer valuable side benefits like free or low-cost remittances for immigrants, free savings accounts, access to financial planning info, etc. I don't know of anyone who's looking at this, but would be interested in hearing from anyone at DMI or elsewhere about their thoughts on the concept.

Posted by: TW | October 11, 2005 11:37 AM

Wow TW I like that solution. It�s a banking version of the motor voter act in a way. Of course the enforcement would be different. Whereas voter registration is the last thing on the minds of the DMV workers, this policy is different because the checks would be directed straight to a bank account. Its not dependent on the personalities and priorities of the government workers. By going straight to the bank account enforcement would be-- well--- enforceable.

Posted by: our gal in brooklyn | October 11, 2005 12:35 PM