Rep. Jeb Hensarling, R-Texas, has introduced legislation to repeal the 1977 Community Reinvestment Act, a damaging relic from Jimmy Carter’s presidency.
The CRA empowered left-wing activist groups like ACORN and the Greenlining Institute to use claims of racism to force banks and other financial institutions to make loans and mortgages on the basis of the ethnic and demographic makeup of neighborhoods instead of the credit worthiness of borrowers.
At the time, this tool of political blackmail was cleverly camouflaged by its proponents behind the righteous cause of ending redlining, the practice in which bankers allegedly drew red lines around certain neighborhoods, putting them off-limits for loans and mortgages. The redlined areas were typically populated by minority residents, usually blacks or Hispanics.
But the CRA didn’t actually ban redlining, it just reversed the direction money flowed, as decisions on loans and mortgages are still made on the basis of the ethnic identity of the recipients’ neighborhoods. (Ultimately, this approach led banks and commercial lenders to invest massively in subprime mortgages backed by Fannie Mae and Freddie Mac, which in turn caused the economic meltdown of 2008).
The CRA gave ACORN, Greenlining and legions of similar groups leverage to extort loans and mortgages in return for not conducting devastating PR and political pressure campaigns designed to libel offending banks and bankers as racists. If federal regulators could be convinced that a bank was guilty of racism, it could be prevented from acquiring or merging with other banks. The law created a powerful incentive for banks to pay off the activist groups to make them “go away.” When mobsters do the same thing, prosecutors call it a “protection racket.” When groups like the Greenlining Institute do it, they call it “social justice.”
Tori Richards of California Watchdog and The Examiner’s Mark Tapscott documented how Greenlining perfected this process in a five-part series ending today.
Aside from the fact CRA created a legalized form of bank robbery, Hensarling pointed out that in the years since its passage, “interstate banking, branch banking, Internet banking, risk-based pricing all have helped revolutionize and democratize credit in our society as never before. If you can gain access to the Internet at a public library, if you can have access to a telephone to call a toll-free number, you can unlock countless credit opportunities that, again, for credit cards and home loans, were simply unavailable 33 years ago. Market competition … now provides low-income Americans with a platform to access competitive bids and financial products all across the U.S., not just in localized geographic communities. In fact, the concept of a localized geographic community for banks is simply antiquated.”
So is the CRA, and it should be repealed before it causes any more damage to the U.S. economy.