Ordinary scrutiny how to#

Ordinary scrutiny how to#

The second set of proposals are about how to incorporate a bank’s record of meeting the needs of people and neighborhoods of color in CRA evaluations and ratings. An Equal Protection question arises here because under most circumstances the government may not act on the basis of race. But it may do so in circumstances that satisfy the “strict scrutiny” test applied by courts. Courts might not construe explicitly race-conscious CRA evaluations as triggering strict scrutiny because good CRA ratings are not a limited government benefit - potentially every bank can earn one - but we assume for present purposes that these proposals would be subject to that test. These proposals should not be at all controversial from a constitutional perspective because they do not, to any degree at all, allocate government benefits or impose sanctions based on race. They are comparable to a host of race-based information already collected and published by the federal government, the most basic being the census.

The benchmarks will help regulators interpret each bank’s performance and enhance their understanding of the local circumstances in which banks operate, called the performance context. To further enhance that understanding, we also propose creating full-time research positions dedicated to studying the racial components of banks’ varying performance contexts, modeled on work done by the Federal Reserve Bank of San Francisco. The first set of proposals is informational. We call for increasing the collection, calculation and reporting of data about lending to people and neighborhoods of color. This can be done through metrics specific to an individual bank’s performance in its assessment areas (a geographic area defined by the bank as its community) and benchmarks reflecting the demographics of, and the whole market’s collective lending in, the assessment areas. We have designed these measurements to parallel ones proposed last year by the Federal Reserve Board based on LMI.

It is time for regulators to incorporate an explicit focus on race in core CRA regulations and examination procedures. This should and can be done in a manner that complements, and does not in any way supplant, the longstanding focus on LMI. There are many ways regulators can make CRA more race-conscious that comport with CRA’s language and purpose and with the Equal Protection Clause of the United States Constitution. This paper proposes several and explains why they are constitutional. Little direct emphasis has been placed on the needs of people and neighborhoods of color. Through regulations and in practice, their chief concern has been how well banks are meeting the needs of low- and moderate-income (LMI) people and neighborhoods.

Limiting the ability to achieve CRA’s central aim, however, regulators have generally interpreted the “entire community” to focus on income. To counter the effects of discrimination, Congress identified banks’ affirmative duty to meet the credit needs of their entire communities and required federal regulatory agencies to evaluate and rate banks periodically on how well each is meeting that obligation.

The Community Reinvestment Act (CRA) was enacted in 1977. It was a response to the nation’s long and painful history of lending discrimination against people of color and the resulting disinvestment and decay in communities of color. Congress’ purpose was to counter decades of official and unofficial redlining and other forms of discrimination by government agencies and the nation’s banks. The law’s author, Senator William Proxmire, and many other supporters over the years have confirmed that this was the impetus for the law.