Modernizing the Nation’s Anti-Redlining Law: What Bank Regulators Can Learn From Reparations

Debra Gore-Mann
4 min readSep 15, 2022

According to the United Nations, five conditions must be met for full reparations to exist: restitution, compensation, rehabilitation, satisfaction, and guarantees of non-repetition. Political theorist and professor Thomas McCarthy, explains the philosophy behind reparations is to “establish…conditions of justice in a society scarred by the enduring and pervasive effects of those wrongs.”

The Civil-Rights era Community Reinvestment Act is perhaps our country’s broadest effort to provide reparations at the federal level to date. While far from an antidote to the racist policies and practices that led to such deep inequality in America’s economy, the CRA aimed to address and remedy the harms of decades of disinvestment and redlining. The last time the CRA was substantially updated was in 1995, after it was established in 1977. Since then, the financial system has changed dramatically, with expanded online banking and interstate lending, while racial disparities in lending and wealth creation have persisted or worsened.

Redlining and the Intent Behind the CRA

The term redlining refers to the color-coded maps developed by the New Deal-era Home Owners’ Loan Corporation, which banks used to assess the relative “risk” of making loans in certain communities. Redlined areas were considered high risk, and consequently denied loans, financing, and investment.

Redlined communities were overwhelmingly Black neighborhoods and neighborhoods with high populations of people of color. HOLC and subsequent financial and real estate associations characterized these hazardous neighborhoods as having an “infiltration of: negroes,” and therefore should be avoided. For decades, redlining meant that people of color were denied access to the same loans that allowed White communities to build wealth, contributing to the stark racial wealth gap that continues to grow today.

The CRA requires federal banking regulatory agencies to examine banks’ lending records to ensure a percentage of loans go towards meeting the credit needs of what they refer to as “low- and moderate-income” neighborhoods. Since 1996, banks covered by the CRA have invested more than $980 billion in historically underserved zip codes. However, the three agencies behind the CRA–the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Federal Reserve Board–painstakingly avoid using any language that acknowledges that the practice of redlining was, in fact, driven by racism.

The avoidance of reparative language that acknowledges the segregated government sanctioned policies and practices that led to redlining, and the racialized victims that suffered harm as result, contributes to the ongoing role the federal government and banks play in perpetuating new forms of redlining. And data bears witness to this–the homeownership and racial wealth gap for communities of color shows very little improvements.

In a recent blog published by the U.S. Treasury, the authors stress that “a failure to invest in individuals harmed by de jure and de facto discrimination has resulted in vastly limited opportunities and stark inequities between white and non-white Americans that have continued to this day.” The blog goes on to describe HOLC’s role in redlining as a prime example. These lingering racial disparities are visible through the continued denial of home mortgage loans, higher interest rates and fees, predatory lending, higher home insurance rates, and lower home appraisals for households of color. This doesn’t mean the CRA has been wholly ineffective, but it does suggest there are serious gaps.

Repairing the Harms of Redlining

While at the time CRA was established, it led to necessary investments and community development in low-income neighborhoods, it now needs to include additional types of reparation to adapt to the new financial landscape, and to address the original CRA’s failings that were the result of its race-neutral approach. This includes naming the specific injustice behind redlining and providing guarantees it will not be repeated; symbolic reparations like apologies and commemorations; and modifications that require banks to provide plans and performance metrics that demonstrate a commitment to transform these pernicious unequal and unjust conditions that have persisted for decades.

We must articulate an explicit racial equity framework if we are to ever achieve the CRA’s original purpose to correct the harms of redlining and start to close the racial wealth gap. Race-neutral policies aren’t going to cut it anymore. Racist public policies led to a need for the CRA, so explicitly race-based criteria that hold banks accountable to serving communities of color is necessary to genuinely address decades of race-based disinvestment.

On May 5th, federal bank regulators released a Notice of Proposed Rulemaking to modernize the CRA. The proposed update shockingly still failed to address race. In the public comment period that followed the announcement, several organizations and institutions including Greenlining advocated for a racially-conscious CRA, urging regulators to make updates to their proposal. While the comment period ended on August 5, the fight for a better CRA isn’t over.

What’s Next

Regulators have a rare opportunity to strengthen the CRA and an especially important opportunity to increase reinvestment in communities that were historically redlined and continue to experience economic and climate inequities.

In addition, we can no longer operate as if we live in the same world we did in the 1970s. Financial institutions have a role to play in slowing the catastrophic impacts of climate change. We are beyond the “business as usual” ethos that has led to this climate crisis in the first place. The updated CRA can and must include strategies to encourage investments in climate resiliency and scrutinize business activities that contribute to climate change, which disproportionately impacts communities of color.

At this critical moment, regulators should take a note from the United Nations on how governments can meaningfully redress Human Rights violations, like systemic racism. For redlined communities to heal and rebuild, we need reparations.