Sen. Warren Proposes Expanding CRA to Credit Unions

Sen. Elizabeth Warren (D-Mass.) on Tuesday introduced comprehensive housing legislation that would, among other things, make credit unions subject to the Community Reinvestment Act.

While such legislation certainly will not become law this year, the bill could help frame the debate if Democrats gain the Senate majority in the upcoming midterm election or if Warren decides to run for president.

Congress passed the CRA in 1977, as part of an effort to encourage banks to meet the credit needs of their communities, including low- and moderate-income communities. Federal banking regulators enforce the law by conducting examinations. In 1995, the law was tailored in an effort to account for different sizes and business models.

“Homeownership is the primary way that American families build wealth – but for decades, misguided and discriminatory Federal policy has excluded millions of families from the American Dream,” Warren’s office said, as the legislation was unveiled. “Weak regulators sat on their hands as the subprime crisis destroyed the finances of millions of families.”

In extending the CRA to credit unions and other financial institutions currently not covered by the law, Warren’s office said the CRA is currently too weak.

Warren said the legislation “extends the law to cover more financial institutions, promotes investment in activities that help poor and middle-class communities, and strengthens sanctions against institutions that fail to follow the rules.”

Among other provisions, the bill would leverage federal funds to build as many as 3.2 million new housing units, invest $445 billion in the Housing Trust Fund to build or rehabilitate homes for low-income Americans, invest $25 billion in a Capital Magnet Fund, invest $4 billion in a new Middle-Class Housing Emergency Fund and invest $2 billion in a new Indian Housing Block Grant program.

The legislation also would provide assistance to people hurt by housing policy through down payment assistance and support for families whose housing wealth was destroyed by the financial crisis.

The programs would be paid for by returning the estate tax thresholds to the levels they were at when the Bush Administration ended.

Earlier this year, the Treasury Department issued recommendations on how Congress should update the CRA. Those recommendations did not include a plan to place credit unions under the program.

However, in its own report, the Government Accountability Office said such a plan should be considered.

Following Tuesday’s introduction of Warren’s bill, credit union trade groups maintained their position that the CRA was not designed for credit unions.

“Credit unions’ commitment to community reinvestment is unlike any other financial institution, as credit unions exist to provide provident credit and every loan made and every dollar earned serves the membership,” Carrie Hunt NAFCU Executive Vice President of Government Affairs and General Counsel said. “The CRA was designed to ensure banks reinvest in their local communities, rather than using deposits gathered from one community and lending them to another.”

“Credit unions have not and do not engage in the discriminatory lending activity that prompted Congress 40 years ago to enact the Community Reinvestment Act,” CUNA President/CEO Jim Nussle said.  “Therefore, it makes no sense to subject them to the type of punitive requirements that banks with a history of redlining must follow.”