Banking and Credit
Since the Great Depression, Congress has passed a series of laws to preserve stability in the banking and credit industries, protect consumers from unfair and deceptive practices and make affordable credit available to middle class and low-income families and small businesses. Beginning in the 1980s, the deregulation of financial institutions has fed speculative booms and devastating busts. Privatization of low-cost government credit for student loans and mortgages and weaker consumer protections has driven up the cost of credit and put consumers at risk.
Commentary
Information is power… and that’s the problem
Why #OccupyWallStreet?
Cry Wolf Quotes
CRA has enabled special interest groups to collect billions of dollars from banks under agreements that are kept secret. Even the citizens that these groups purport to represent have no way of knowing how the groups spend the money they get from banks. That s why I hope the Senate will approve a sunshine amendment that will add accountability to this process and bring these agreements into, the light of day.
One cannot say with any certainty whether the more important cause of the current housing crisis was affordable-housing mandates or the actions of investment banks and ratings agencies. There can be no doubt, however, that both contributed. With that in mind, the best way to make sure that we don’t repeat our mistakes is to examine — and change — both… If the Community Reinvestment Act must stay in force, then regulators should take loan performance, not just the number of loans made, into account. We have seen the dangers of too much money chasing risky borrowers.
The subprime mortgage market, which makes funds available to borrowers with impaired credit or little or no credit history, offers a good example of competition at work…To the contrary, it was lenders in the control group that refocused their efforts in line with the mid-1990s boom in lending in low-income neighborhoods. In fact, lending in low-income neighborhoods grew faster than other types of lending at institutions not covered by CRA, whereas low-income lending grew at the same rate as other types of lending activity for CRA-covered lenders. As a group, lenders not covered by CRA devoted a growing proportion of their home-purchase lending to low-income communities, with the community lending share of their loan portfolios rising from 11 percent in 1993 to 14.3 percent in 1997. In contrast, CRA-covered lenders, as a group, devoted about the same proportion of their home-purchase loans to low-income neighborhoods in 1997 as they did in 1993. In both years, their community-lending share was about 11.5 percent. Even though those institutions were subject to CRA, their lending in low-income communities grew no faster than other lending. Those results would not be expected if CRA were the impetus for increases in lending in low-income neighborhoods. The data, however, are consistent with deregulation and technological advances leading to lower information costs and increased competition in the mortgage market. Independent mortgage companies tend to have more leeway to specialize in relatively risky lending than their more conservative and more heavily regulated counterparts in the banking industry. It is not surprising, then, that independent companies took the lead in focusing on lending activity in the riskier segments of the mortgage market… The inescapable conclusion is that progress predicated on technology, financial innovation, and competition—not CRA—has broadened the U.S. financial services marketplace.
Any review of the history of the affordable mortgage movement in America demonstrates the power that CRA had in helping to shred mortgage underwriting standards throughout the industry and exposing us to the kind of market meltdown we've experienced. “If form follows, soon banks and other financial institutions operating under CRA will be cudgeled into lending to small businesses based on race and gender, which will be the opening of a new round of lower lending standards in the very risky small-business sector. The effort to save and extend CRA in the face of its role in the mortgage market's massive meltdown is testament to the unique power of this legislation to nourish an entire industry of nonprofits that, like Acorn, have been reliable supporters of politicians such as Barney Frank, Maxine Waters and a former community organizer and associate of Acorn by the name of Barack Obama.
Related Laws and Rules
Evidence
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Banking Lobby's Warnings About CARD Act Disproven
What happened after credit card reform bill passed Congress in 2009 (it worked).
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The Successes of the CARD Act
The Consumer Financial Protection Bureau describes exactly what the act did and what the effects were one year later.
Backgrounders & Briefs
A Timeline of the CARD Act
An interactive timeline of credit card reform.
Resources
The National Community Reinvestment Coalition works against unfair lending and banking practices, particularly those targeted towards low and middle income families.
