Last Friday, federal bank regulators announced their intention to repeal a recently modernized version of the Community Reinvestment Act (CRA), a landmark piece of legislation enacted in 1977 that establishes an affirmative obligation on financial institutions to provide credit to everyone in the communities where they do business. The Act particularly focuses on ensuring that the historically marginalized and impoverished households that mainstream banks often overlook can participate in the financial system. The regulators also stated their intention to reinstate the older version that existed before the new rule was finalized in October of 2023, which does not account for significant changes that have occurred in the banking system, such as online banking.

National CAPACD urges regulators to preserve the existing rule. While not perfect, the modernized CRA is a significant improvement over the old framework, and was finalized after years of careful examination and input from numerous stakeholders. The new CRA incentivizes needed investments in affordable housing, community development, and small business creation and retention, and it adopts more robust metrics to gauge how well banks are satisfying their obligations under the rule.

Too many families are denied the wealth-building opportunity that owning a home can provide because they are unable to access affordable financial products and services. Running a small business is also a way to build wealth, particularly for immigrants or low-income families unable to attain high-wage employment or other opportunities. Yet many of them lack the startup capital, connections, English proficiency, and an understanding of the financial system that creates a path to business ownership.

The CRA is designed to open up the banking system to these households. Weakening the rule will reinforce the barriers to wealth-building opportunities these households have historically experienced, exacerbate an already large wealth gap, and undermine decades of progress.