This year's State of Bank Reinvestment report from the Association for Neighborhood & Housing Development (ANHD) lays out the major aspects of the final CRA rule that would hinder COVID recovery using a well-researched and data-driven analysis. The report also offers ways for banks to help foster an equitable recovery and puts forth an equitable CRA reform framework for the three federal bank regulators, including the OCC, FDIC, and Federal Reserve Board.

To view the full report, click "Download" above or click here.

Conclusions & Recommendations

The CRA as it is today can be an integral component of COVID recovery. A stronger CRA would be even more impactful to recovery and helping address long-standing systemic income and racial disparities. It has the potential to boost lending and access to banking for underserved communities by incentivizing high quality, high impact activities based on local needs, while discouraging and downgrading for displacement and activities that cause harm. This final rule does the opposite. It creates a more complicated, less transparent system that will hinder the types of activities communities need in response to COVID and addressing long-standing disparities.

ANHD and our members have developed the following recommendations for banks to help with COVID recovery and following that, a set of principles that should inform any CRA reform. When CRA exams evaluate bank response to COVID, they should consider how well banks follow these recommendations.

 

Support for Affected Small Businesses & Their Employees

Small businesses are suffering because of COVID-19. Many small businesses, especially those led by people of color and immigrants, have long struggled to stay open considering rising costs and lack of access to financing. Many small businesses and their employees are now hit hard as they have had to reduce employees or shut down entirely. Banks should take the following actions to support small businesses:

Banks should suspend loan payments and commercial mortgage payments for businesses that are suffering a slowdown or closure due to COVID-19. Waive fees and interest accrued and extend the loan to reflect the amount due. They should also reduce the cost of banking by waiving monthly maintenance, overdraft, and transactional fees, forgiving past overdrafts, and waiving ATM fees for out-of-network banks and for customers of other banks. Banks should also ensure all outreach materials and customer services are in multiple languages.

Banks should provide grants and capital to Community Development Financial Institutions (CDFIs) that serve small businesses. CDFIs need resources to provide grants, zero-interest loans, technical support, and other affordable loan products. It is also important for banks to lend directly with affordable loans to small businesses of all sizes. Banks should also make PPP loans to businesses and facilitate the forgiveness process, regardless of whether they are customers.

Banks should continue and expand grants for nonprofits serving small business owners and employees affected by COVID-19, particularly those providing financial relief and assistance to low-income and immigrant small business owners. Businesses may also need support to operate remotely, including but not limited to technical support and equipment to work remotely, support to conduct banking online, and assistance creating an online presence. Lastly, the high cost of rent has long been a challenge for small businesses and is even more so now. Banks that offer mortgage forbearance can pass on that relief to small business tenants that cannot afford their rent.

 

Protection for Tenants in Multifamily Buildings

Low-income tenants have long been vulnerable to displacement by landlords looking to bring in higher-paying tenants. During this period of extreme financial duress, that pressure is sure to increase. The state’s recent eviction moratorium is a positive step, but will require additional response by banks, especially when the moratorium expires:

Banks should ensure all borrowers know about and follow the eviction moratorium and prevent evictions when it expires. One way to do so would be to monitor vacancies that take place during the COVID-19 crisis and report to the Department of Financial Services (DFS) if a landlord is evicting tenants. New York State DFS must also ensure banks continue to follow the full responsible multifamily lending guidelines for CRA loans and lending in general with responsible underwriting, proper vetting of landlords, and responding when issues arise. They should update the guidance to include a mandate that their borrowers respect the eviction moratorium and protect tenants from eviction. Banks should also fund organizations that are working with tenants to respond to the crisis through direct tenant support and advocacy.

Banks that offer mortgage forbearance on rent-stabilized and unregulated buildings should add conditions to support tenants, including full support of eviction moratorium, rent relief for residential and commercial tenants, commitment to maintain building and respond promptly to tenant needs, and referrals to city agencies and nonprofits who can support tenants during this crisis.

Lastly, banks should institute and finance programs that help transfer distressed properties to tenant ownership or preservation-minded developers, with an emphasis on nonprofit CDCs with a track record of providing deep affordability and permanent affordability. 

 

Access to Basic Banking Services

Banks make tens of billions each year in monthly maintenance, overdraft, and ATM fees. During normal times, this is a hardship for low-income clients, and the situation has only gotten worse with COVID, where it is even harder for people to make ends meet. Banks should respond swiftly:

Banks should reduce the cost of banking by waiving all monthly maintenance fees, providing free money orders and remittances, and waiving outstanding overdrafts and any overdraft fees moving forward. They should also waive all out-of-network ATM fees and check-cashing fees for customers and non-customers to allow people to bank closer to home. They should ensure immigrants can access affordable banking by providing adequate language access and accepting alternate forms of ID, including the IDNYC, for all transactions. 

Banks should take additional steps to ensure people have access to cash and credit and are not penalized for failure to make payments due to a pandemic. They should refuse to garnish wages or freeze bank accounts, cease repossessions and debt collection, and not report late payments to credit bureaus. They should waive late fees and interest payments on credit cards for anyone who cannot pay all or some due to COVID-19. For longer-term loans like auto or personal loans, implement loan forbearance, which means to extend the loan, suspend payment and interest due, and add the outstanding loan amount to the end of the loan. 

Lastly, banks should continue and expand grants, and refer customers, to nonprofits serving consumers affected by COVID-19, particularly those working with low-income, immigrant, and limited English proficient populations. Financial counselors can help people transition to online banking and navigate the system to resolve banking issues. Banks can also provide or connect to additional financial supports.

 

Support for Low-Income Homeowners

In order to prevent displacement and further financial hardship for low-income, Black, and Brown homeowners during this economic crisis, banks should be doing everything possible to ensure homeowners and tenants can remain in their homes without fear of eviction or further financial hardship:

Banks should allow COVID-impacted homeowners who cannot pay their mortgages to defer the payments for up to a year and have any late fees and interest payments waived with no negative credit reporting. At the end of the forbearance, servicers should instead extend loan terms and provide permanent loan modifications as needed. This should apply to all home loans, regardless of which investor owns the loan. 

Foreclosures should not be started, continued, or completed and foreclosure sales should both be put on hold during this period. The process must be simple and swift for any homeowner who requests it and outreach and materials must be provided in multiple languages and promote widely. Banks should provide a single point of contact to navigate the system and refer borrowers to HUD-approved housing counselors.

Banks should continue and expand grants for nonprofit organizations serving homeowners affected by COVID-19, particularly HUD-approved counselors and service providers working with low-income people, people of color, and limited English proficient homeowners. Housing counselors are critical to helping borrowers navigate the new programs being put in place by lenders and government agencies as well as regulations around foreclosures and evictions.

 

Support for Non-Profit Affordable Housing Providers & Nonprofit Community Organizations

Nonprofits are always on the front lines, serving the most vulnerable populations. ANHD members serve low-income people of color who are the hardest hit by this financial crisis. These organizations are now simultaneously having to attend to internal work and staff needs, while also continuing to serve impacted communities with housing, loans, services, and supports.

Nonprofit developers do not have the same financial cushion as for-profit developers, as they put more of the money they receive back into their buildings in maintenance and services. With many tenants out of work and unable to pay the rent, they are left with a huge cash flow crisis, meaning they have few resources remaining to maintain the buildings while also meeting their expenses and debt obligations. It is critical that banks provide additional supports for nonprofit housing providers and other CDCs:

Banks should provide loan forbearance and forgiveness for nonprofit developers impacted by the COVID-19. This may be for projects in progress that are halted or delayed, multifamily buildings they manage, buildings they occupy, or loans, lines of credit, and investments used to serve their clients and members.  Banks should waive or modify grant requirements that could not be met due to COVID-19. They should also provide additional grants that are flexible and can be used for general operating support or operating subsidies.

 

Recommendations for an Equitable CRA Reform Framework

The OCC’s final CRA rule should be withdrawn entirely. The three bank regulators at the OCC, FDIC, and Federal Reserve must go back to the table to reform the CRA together. They must collaborate with the communities impacted by an inequitable banking system to come up with an approach that maintains the core of the law and strengthens it to address longstanding shortcomings, evaluate newer banking models, and incorporate principles of racial equity throughout.

Any CRA reform must reflect the following community priorities:

The CRA must evaluate the quantity, quality and impact of a bank’s activities. This means banks should get credit for impactful activities that help lift historically redlined people out of poverty. The CRA was passed in response to redlining and disinvestment in low-income communities of color. Low- and moderate-income people and people of color continue to suffer the impact of disinvestment and irresponsible investment and products.  In New York City, quality community development activities include loans and investments that support deeply, permanently affordable housing; mission-driven developers, neighborhood-based community organizations, and CDFIs; and quality jobs in sectors that pay well and are accessible to underserved populations. Quality retail activities include maintaining and expanding bank branches and providing affordable loans and banking products to underserved small businesses; first-time homebuyers and existing homeowners; and consumers. 

CRA examiners should specifically evaluate the impact of activities on people of color in addition to lower-income people. As part of this evaluation, they must downgrade banks for harmful behavior, including patterns of lending that lead to harassment, displacement and harm. 

Community input and community needs must be at the heart of the CRA. Strong community needs assessment and community engagement should inform community needs and how examiners evaluate how well banks are meeting those needs. Community input must be a key component of the CRA process to help evaluate how well banks are meeting local needs. This applies to CRA exams, and applications where a bank’s CRA record is considered, including bank mergers and branch openings and closings. The CRA can and should foster collaboration with community organizations and lead to more investment and more impactful investment.

Assessment areas must maintain local obligations. The CRA must maintain the placed-based commitment banks have to local communities. Regulators should maintain assessment areas where banks have branches and ATMs and expand to other areas where banks also do considerable business, such as lending and deposit-taking. Any assessment area reform must increase the size of the pie: maintain or increase quality reinvestment where it is needed, including high need “CRA hot spots” such as New York City, while also directing capital to under-banked regions.

Banks and regulators have an opportunity to respond to COVID through implementing and modernizing the CRA in a meaningful way that will benefit the people most impacted by the pandemic, which are low-income, Black and Brown communities. The OCC’s approach puts these communities at risk and must be repealed. Our communities deserve better.