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Banking regulators aim to narrow gaps in access to loans

WASHINGTON — The Federal Reserve and other top banking regulators are set to revise an anti-redlining law to help expand access to credit, investment and banking services, especially for communities of color .

The action comes as the Fed comes under increasing pressure to foster an economy that works for all Americans. The Fed’s blunt tools, like interest rates, cannot narrow specific racial and economic gaps. But a landmark 1977 law known as the Community Reinvestment Act gives the Fed crucial tools to fill the banking gap, especially for low- and middle-income households and businesses.

The proposal – jointly released Thursday by the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation – would refine rules ensuring banks meet their responsibilities in all parts of the country, including rural areas. or in Native American communities.

The long-awaited changes would also give the 45-year-old law a modern update. The last major revisions to these regulations were made in 1995, and changes to the law are considered long overdue since the rise of online banking and physical bank branch closures, which disproportionately leave Americans to low income with less access to financial services.

The proposal changes the standards for large banks relative to smaller ones and examines how larger banks in particular conduct business in the area of ​​mortgages and small business lending.

The law was originally intended to encourage banks to lend in working-class neighborhoods. It forces regulators to regularly review banks’ lending practices for low- and middle-income borrowers, so people with less money still have access to loans to buy homes, cars and do other things. shopping.

The Fed’s new efforts to fine-tune the law come in the wake of the pandemic, when Americans’ ability to get stimulus payments or unemployment benefits often depended on their ability to access financial services. In a statement, Fed Governor Lael Brainard noted that most Americans received stimulus payments by direct deposit. But people without bank accounts had to wait for debit cards or paper checks to arrive in the mail, and they often paid high fees to cash those checks once they arrived.

And, when it comes to access to credit, small businesses generally had an easier time accessing loans from the Paycheck Protection Program — a multibillion-dollar government effort to help small businesses survive shutdowns. temporary staff and layoffs at the height of the pandemic — if they already had a relationship with a bank, Brainard said.

“The pandemic has clearly demonstrated the importance of access to financial services for low- and middle-income households,” its statement said.

Agency officials stressed the benefit of having each of the regulators unveil a proposal together, so that the rules can apply across the banking industry. Officials are accepting public comments on the proposal until August 5. It’s unclear which parts of the framework might change, but a senior Fed official has already noted some hope for improvement.

Fed Governor Michelle Bowman said there were “several provisions” that would impose higher costs on banks, namely those with assets over $10 billion, by requiring them to collect and report new detailed information on deposit accounts, car loans, banking services and branches.

“While I support posting the proposed rule for public comment, there are significant unanswered questions posed by the proposal. Fundamentally, we don’t know if the costs imposed by the proposal will outweigh the benefits,” Bowman said in a statement.