WASHINGTON—The Consumer Financial Protection Bureau (CFPB) has published a new analysis on state Community Reinvestment Act laws, highlighting how states ensure financial institutions' lending, services, and investment activities meet the credit needs of their communities.
The report examined the laws of seven states (Connecticut, Illinois, Massachusetts, New York, Rhode Island, Washington, West Virginia) and the District of Columbia, and found that many of those states adopted laws similar to the federal Community Reinvestment Act in decades following the 1977 passage of the landmark federal anti-redlining law, according to the CFPB.
The Bureau noted that the federal Community Reinvestment Act law applies strictly to banks, state reinvestment laws can apply to a wide range of financial institutions, including nonbank mortgage companies.
“Banks now originate and hold a much smaller share of outstanding mortgage debt than they did when the legislation was originally enacted. In 1977, banks held 74% of outstanding mortgage debt. By 2007, this share had declined to just 28%,” the CFPB said. “As of 2021, nonbank mortgage companies originated 64% of conventional home purchase mortgage loans, compared to the 25% originated by banks.”
The Key Findings
According to the CFPB, key findings in the new report:
- Some states apply an affirmative lending, service delivery, and investment obligation to mortgage companies, in addition to deposit-taking institutions. Most state Community Reinvestment Acts adopted shortly after the passage of the federal law in 1977 applied only to banks. Several states, including Massachusetts and New York, later expanded their state law to cover mortgage companies.
- Some states conduct independent examinations of lending-, services-, and investment-related performance, while other states review federal performance evaluations in conjunction with additional state-designated factors. In some states, performance evaluations are periodic, while other states review a financial institution’s performance in response to an application for a merger, branch, license, or other activity.
- Enforcement mechanisms include limitations on mergers, acquisitions, branching activities, and licensing, but some states have adopted additional measures. Like the federal Community Reinvestment Act, none of the state laws reviewed explicitly provide for the ability to issue civil monetary penalties or structural remedies for failing to meet state reinvestment requirements.
- Some states collect and consider information beyond what is required under the federal Community Reinvestment Act to evaluate lending, services, and investment performance in their state. Most states rely on existing data, such as Home Mortgage Disclosure Act data for mortgage lending, or federal Community Reinvestment Act data for small businesses or small farms, to complete their evaluations. At least one state, New York, requires additional small business lending data reporting beyond what is required by the federal law.
The full report can be found here.
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