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Trump may weaken 'outdated' rules that force banks to lend to the poor

Imagine having a great credit score and being denied for a mortgage just because you live in a low-income neighborhoo...

Posted: Jan 12, 2018 1:05 PM
Updated: Jan 12, 2018 1:05 PM

Imagine having a great credit score and being denied for a mortgage just because you live in a low-income neighborhood.

Redlining, the refusal by banks to lend to poor and minority communities, was so common decades ago that Congress passed the Community Reinvestment Act in 1977 to prevent it.

For years, banks have been fighting these requirements to lend to underprivileged people -- and President Trump is listening as he continues his war on regulation.

The Treasury Department plans to recommend changes to the lending rules early this year, building on moves last year to ease the regulations.

In a statement to CNNMoney, Treasury called the CRA "outdated" and in need of "modernization" -- echoing words used by the American Bankers Association, a powerful bank lobby that wants to relax the rules.

Advocacy groups fear the Trump administration will weaken the lending requirements and make it harder for low-income Americans to get mortgages, small business loans or other forms of credit that help people work their way out of poverty.

"We just can't let that happen," said John Taylor, CEO of the National Community Reinvestment Coalition, an alliance of organizations that promote fair lending. "The CRA is the holy grail that ensures the financial interests of working class and low-income workers will be considered."

Taylor, who met with Treasury Secretary Steven Mnuchin about the CRA, said the irony is that these rules benefit the same "blue-collar people Donald Trump maintains he represents."

Under the rules, banks are banned from denying or raising the cost of banking to residents of low-income and minority neighborhoods. Banks also get graded based on how much credit they provide for mortgages and apartments as well as how many branches they have in low-income areas. In other words, banks aren't allowed to cater only to rich customers.

Related: Is the CFPB really crippling the economy?

The recovery from the Great Recession is accelerating, but the gains have not been shared evenly. Wealth inequality hit a record high in 2016, according to the Federal Reserve.

Trump has repeatedly argued that banks are suffering from too much oversight. In April, he complained that bank CEOs are "petrified of the regulators. They're petrified. They can't move."

Trump's regulators are acting. Banks are given ratings for how much they're lending to underserved communities, and in October the Office of the Comptroller of the Currency made it harder for examiners to downgrade lenders for discriminatory practices.

Keith Noreika, the acting leader of the OCC at the time, said the downgrades "unnecessarily distract and divert the bank's resources from lending, investing or serving the relevant communities."

Related: Trump vows to punish Wells Fargo for 'bad acts'

While the Trump administration is not expected to kill the CRA entirely, bank lobbyists are pushing for more action.

Last month, the bank lobby urged the Treasury Department to "modernize" CRA, One proposal would give banks credit for financing infrastructure projects and teaching people how to handle money, not just lending to poor people.

Taylor urged the Treasury Department not to do that. He says community development must remain focused on low- and moderate-income communities "that have and continue to experience redlining."

Rather than weakening the CRA, Taylor had been pushing regulators to strengthen the enforcement of lending rules by beefing up their staff and allowing community groups to play a role in training examiners.

However, recent research suggests there may be unintended consequences to forcing banks to lend more to low-income communities.

High levels of predatory lending in poor neighborhoods can be linked to rules like CRA that focus more on quantity of loans rather than quality of service, according to the paper by Washington University professor Taylor Begley and University of Michigan professor Amiyatosh Purnanandam.

There is an "exceptionally strong" link between high-minority concentration and high levels of complaints, the paper by Washington University professor Taylor Begley and University of Michigan professor Amiyatosh Purnanandam found.

Last year, Wells Fargo's CRA rating was severely downgraded by regulators, who cited the "egregious nature" of "discriminatory and illegal" credit practices at the bank that hurt "large numbers of consumers."

Downgrades create major public relations headaches for banks and can lead to restrictions on acquisitions and bank branch openings.

JPMorgan Chase, Bank of America and Wells Fargo, America's three largest lenders, declined to comment on changes to the CRA.

Related: 'Drill, baby, drill!' comes to oil regulator

Some Wall Street analysts are cheering talk of relaxing the lending rules.

Changes to the CRA would be a "positive for banks because it supports the narrative of a better regulatory environment," Brian Gardner, an analyst at investment bank KBW, wrote in a report on Thursday.

Veteran banking analyst Dick Bove said that while greater clarity on regulation is needed banks need clearer rules, the CRA shouldn't be meaningfully adjusted because because communities depend on the lending.

"The banks get FDIC insurance and that's backed by the government. So, the banks have a responsibility to make loans that benefit all classes," Bove said.

Indiana Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 51079

Reported Deaths: 2756
CountyConfirmedDeaths
Marion12019693
Lake5588248
Elkhart353959
Allen2939134
St. Joseph210669
Hamilton1691101
Cass16449
Hendricks1454100
Johnson1340118
Porter82638
Tippecanoe7709
Vanderburgh7276
Clark69544
Madison67464
LaPorte61628
Howard59858
Bartholomew59745
Kosciusko5754
Marshall5449
Noble51328
LaGrange4849
Boone48244
Jackson4783
Delaware47152
Hancock46736
Shelby45425
Floyd40644
Morgan34231
Monroe34028
Grant31826
Dubois3046
Henry30018
Montgomery29720
Clinton2903
White27410
Dearborn25823
Decatur25632
Lawrence25225
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Warrick25029
Harrison21722
Greene19432
Miami1932
Jennings17912
Putnam1738
DeKalb1694
Scott1649
Wayne1546
Daviess15017
Perry14710
Orange13723
Steuben1362
Jasper1352
Ripley1307
Franklin1278
Gibson1202
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Fayette1067
Whitley1066
Starke1043
Newton10010
Huntington942
Jefferson862
Wells821
Randolph794
Fulton731
Knox710
Jay700
Washington681
Pulaski661
Clay645
Rush613
Posey570
Spencer541
Owen521
Benton510
Sullivan501
Adams491
Brown431
Blackford402
Fountain352
Crawford330
Switzerland320
Tipton321
Parke270
Martin260
Ohio230
Vermillion200
Warren151
Union140
Pike110
Unassigned0193

Ohio Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 64214

Reported Deaths: 3036
CountyConfirmedDeaths
Franklin11724445
Cuyahoga8979393
Hamilton6781207
Lucas2952305
Marion274539
Montgomery244035
Summit2327209
Pickaway222241
Mahoning1928239
Butler182147
Columbiana137860
Stark1214114
Lorain112069
Trumbull104578
Warren97725
Clark80010
Delaware69815
Fairfield66717
Tuscarawas60410
Lake58923
Medina58232
Belmont56922
Licking56812
Miami50631
Portage49259
Wood48851
Clermont4737
Ashtabula44744
Geauga42543
Wayne37253
Richland3715
Allen35641
Greene3439
Mercer29910
Erie27122
Holmes2595
Darke25626
Huron2402
Madison2169
Ottawa17324
Sandusky16015
Washington14620
Ross1443
Coshocton1423
Athens1391
Crawford1385
Putnam13715
Hardin12312
Morrow1201
Auglaize1094
Jefferson1092
Muskingum1001
Union931
Preble901
Monroe8917
Hancock861
Lawrence830
Guernsey823
Clinton811
Hocking809
Williams762
Shelby744
Logan711
Ashland672
Carroll673
Fulton670
Scioto670
Wyandot635
Brown611
Fayette550
Defiance533
Knox531
Champaign511
Highland501
Van Wert471
Perry441
Seneca412
Henry330
Paulding300
Jackson280
Pike280
Adams261
Vinton232
Gallia201
Noble140
Harrison131
Meigs130
Morgan110
Unassigned00
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