the Future of Change

A recent report revealed that many residents of color in urban centers still face lending discrimination from the nation’s financial institutions.  Now, a lawsuit filed by the NAACP and LULAC alleges that Capital One Bank has engaged in discriminatory bank practices by, among other things, closing bank branches in communities of color.  But not just that, the lawsuit also contains allegations from a former bank official that she was asked to monitor civil rights groups’ activities to determine whether such groups were aware of the bank’ taking such actions.

The lawsuit raises several claims, including that these bank practices violate the Fair Housing Act.  The lawsuit also alleges that the bank’s conduct violates the Community Reinvestment Act (CRA).  Since the CRA was designed to prevent just this sort of conduct (that is, it was passed to prevent bank disinvestment), one would think the bank is in violation of the law.  The problem is, the law, as presently drafted, makes it difficult to bring an action to enforce it directly in court.  The main teeth the CRA possesses is that regulators are supposed to grade banks on the extent to which they are meeting the convenience and needs of the communities they serve, with a particular focus on low- and moderate-income communities.  Those same regulators are supposed to take that grade into account when passing on a bank’s application to take certain actions, like open new branches or merge with other banks.  Historically, an overwhelming number of banks, usually hovering around 98%, receive passing grades under the CRA.  Even more disconcerting, one analysis by the U.S. Treasury Department showed that over one fifteen-year period, 8 bank applications were denied for any grounds.  That may seem like a lot, until one learns that there were more than 92,000 bank applications filed during that period, meaning less than .01% of bank applications during the period studied were denied.  These results suggest that leaving CRA enforcement in the hands of regulators alone leaves much to be desired.

Whether a community member or group could get involved in CRA enforcement by suing directly for a violation of the law is still an open question, although, some attempts to do so in the courts have proven unsuccessful.  It is not clear that the Capital One suit seeks direct relief under the law, while at the same time it does claim that the bank’s practices violate the CRA.  In order to strengthen the CRA, and give individuals and community members, as well as the courts, a more significant role in policing bank violations of the principles of the CRA, Congress could add an explicit private right of action under the law.  The current Congress, in Republican hands, is unlikely to take such steps, however.  Still, there are arguments that a direct suit under the present iteration of the law is possible.  I explore this and other questions about the CRA here.

The Supreme Court recently  reaffirmed the notion that cities can sue under the Fair Housing Act.  In light of that ruling, perhaps the time is right for litigants, and the courts, to give another look at direct enforcement of the CRA as well.