The Office of the Comptroller of the Currency (OCC) recently announced plans to alter how banks are evaluated under the Community Reinvestment Act (CRA), one of the longest-standing laws to prevent redlining. The CRA directs the OCC to regularly analyze the number and quality of a bank’s loans, investments and services to historically underserved borrowers and neighborhoods, with penalties for banks that continue to ignore these needs.
The OCC will now factor in whether banks have been closing accounts or refusing services based on a customer’s political or religious beliefs, as well as whether banks have decided not to do business with certain industries, such as crypto firms and fossil fuel companies.
The CRA was a legislative response to how the federal government and the banking industry actively denied access to wealth for people of color by categorizing communities of color as being too risky for home financing opportunities. The CRA was meant to address this systemic disinvestment by evaluating banks on how they serve the credit needs of historically underserved communities.
The OCC’s recent action is being framed as a move to “depoliticize” banking, even though the OCC will now be reviewing bank decisions through the lens of a customer’s political and religious preferences. These changes will also provide very little public benefit, while forcing banks to navigate new contradictory regulations and goals.
Instances of politically or religiously biased debanking will be difficult to prove and could take a considerable amount of time and resources to identify. Less than one percent of filed customer complaints regarding account closures accused banks of closing their accounts for political or religious reasons. Also, banks are unlikely to know their customers’ political affiliations since they don’t collect that kind of information, making it harder to establish supposed discriminatory banking trends.
Adding political and religious considerations to the CRA process is a major misuse of limited regulatory resources when more needs to be done to ensure economic equality in America. OCC examiners, already stretched thin due to staff reductions, will have less time to review bank efforts to address the lack of affordable housing or the growing divide between rural and urban economies in the bank’s service areas. Also, given that any evidence of debanking is largely anecdotal, the OCC will likely limit the review process to very high profile cases (such as President Trump’s claims against Capital One), thus leading to the CRA benefitting politicians and celebrities at the expense of homebuyers, renters and entrepreneurs.
Another major concern is how this will conflict with the OCC’s money laundering prevention efforts. The Bank Secrecy Act places monitoring and reporting requirements on financial institutions to detect instances of illicit financial practices. Banks could now face a scenario where the OCC is pressuring them to open accounts that either outright violate those anti-money laundering guidelines or assume the burden of undertaking intense oversight and monitoring they don’t have the resources for.
Many banks simply cannot afford the heightened monitoring required to legally serve businesses with a high money laundering risk, such as crypto companies, casinos and payday lenders. Despite legitimate concerns with how crypto can be used to conceal the origins and movement of funds, banks may be forced to serve these companies regardless of the compliance costs or risk CRA downgrades. This will in turn significantly benefit the crypto industry, which spent over $119 million during the last election cycle.
This could also make it harder to reduce carbon emissions and transition to cleaner energy. If banking institutions end up pointing to the OCC’s statement to justify their continued financing of oil, gas and coal projects, it risks locking us into the worst case scenarios of climate change. Given climate change’s disproportionate impact on low- and moderate-income and formerly redlined communities, it would be a cruel irony if a bank’s actions to minimize this impact could now result in lower CRA ratings.
The CRA is an important and unique law that requires banks to proactively address widespread discrimination and serve all communities equitably. Strengthening and clarifying its rules and regulations could make it an even more effective mechanism for encouraging private capital to address growing economic gaps and ensure no communities get left behind or exploited.
Reversing the OCC’s decision to repeal the 2023 regulations that brought CRA into the 21st century by accounting for online lending is one example of how the CRA could be modified to better serve widespread economic needs. Instead, the administration and the OCC appear to be using CRA to reward crypto donors.
Kevin Hill is a Senior Policy Advisor with NCRC’s Policy & Government Affairs team.
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