How racial justice push sparked new CRA law in Illinois

A new Illinois law that is designed to push state-regulated financial institutions to invest more in underserved communities grew out of the racial justice movement that swept the nation last year.

It happened before lenders, which opposed the measure, knew what hit them. Democratic Gov. J.B. Pritzker signed the Illinois Community Reinvestment Act on March 23, less than three months after it was introduced, as part of a wide-ranging set of reforms backed by the Illinois Legislative Black Caucus.

While the law’s supporters celebrated their swift victory, opponents in the financial services industry expressed frustration with a speedy legislative process that largely shut them out.

“It’s certainly troubling and not what we’re used to,” said Ben Jackson, executive vice president of the Illinois Bankers Association. “At the same time, we have this law. We have to move forward with it the best way we can.”

Homes are boarded up in the Roseland neighborhood of Chicago. A news report last year found that lenders invested more money in one majority-white neighborhood between 2012 and 2018 than they did in all of Chicago’s majority-Black neighborhoods combined.


The law creates the state’s own version of the federal Community Reinvestment Act, in order to assess the performance of state-chartered banks, state-chartered credit unions and nonbank mortgage lenders in meeting the needs of economically disadvantaged communities. While banks, regardless of where they are chartered, are already covered by the nationwide community reinvestment law, credit unions and nonbank lenders are not.

The state law’s passage is an example of how combating racial inequality has become a key priority for Democrats over the last year, reducing the clout of the financial services industry in certain policy areas.

“Our nation’s systems were designed to keep Black people from owning businesses, buying homes and fostering economically prosperous communities,” Senate Majority Leader Kimberly Lightford, a Democrat who is the first Black woman to serve in that role, said last week in a press release. “To achieve real equity in Illinois, we must dismantle these systems and rebuild them in a way that gives African Americans the chance to succeed.”

Supporters of the Illinois Community Reinvestment Act trace its origins back to last June, when the Chicago public radio station WBEZ and a local non-profit news organization released striking findings about racial disparities in the city’s home purchase mortgage market.

That story — published just eight days after the death of George Floyd in Minneapolis — showed that lenders invested more money in one majority-white neighborhood between 2012 and 2018 than they did in all of Chicago’s majority-Black neighborhoods combined.

“I think that that really spurred an awareness that something more needs to be happening,” said Sharon Legenza, executive director of the advocacy group Housing Action Illinois.

The WBEZ report focused on mortgage lending by some of the nation’s largest banks. But because those banks typically have national charters from the Office of the Comptroller of the Currency, the ability of state and local governments to influence their conduct is sharply limited.

So Illinois lawmakers turned their attention to state-chartered financial institutions, including nonbanks that have made more than half of all U.S. mortgages in recent years.

Under the law signed last week, state-chartered lenders will have an obligation to meet the needs of the Illinois communities in which they operate. The Illinois Department of Financial and Professional Regulation will be responsible for writing rules that operationalize the measure, as well as for conducting examinations.

The state regulatory agency supported the legislation and looks forward to implementing it, according to department secretary Deborah Hagan. “The bill is groundbreaking for Illinois,” she said in an emailed statement.

The Illinois Credit Union League is among the groups that opposed the bill. The group’s chief operating officer, Patrick Basler, said that credit unions whose members are linked by a common occupation are not allowed to lend outside of those ranks, which makes the specific requirements of the Community Reinvestment Act a poor fit.

Credit unions have a great brand, but I think the Massachusetts experience shows that sometimes that brand is overrated.

Tom Callahan, executive director, Massachusetts Affordable Housing Alliance

Basler also argued that the mission of credit unions is to provide products and services to people of modest means. “Credit unions are already doing what CRA is asking, which is serving the underserved communities,” he said.

Other observers took issue with that assessment.

Prior to the Illinois measure, Massachusetts was the only state with a law that subjected nonbank mortgage lenders and state-chartered credit unions to community reinvestment standards. Under the Bay State’s law, almost no credit unions currently have the top score, according to Tom Callahan, executive director of the Massachusetts Affordable Housing Alliance.

“Credit unions have a great brand, but I think the Massachusetts experience shows that sometimes that brand is overrated,” he said.

Bankers have their own complaints about the new Illinois law. They contend that it will create duplicative regulation, since state-chartered banks that already must comply with the federal Community Reinvestment Act will be subject to two examinations.

“As Illinois piles on additional banking regulations,” Jackson said, “it tends to lead banks to seek to charter elsewhere, whether in another state or under the OCC.”

The law’s supporters said that they believe the department can conduct examinations of banks in a way that does not impose additional burdens.

When state regulators write the implementing regulations, state-chartered financial institutions should have a voice, said Horacio Mendez, the president and CEO of the Woodstock Institute, which championed the community reinvestment law. “We feel that it’s really important for all of us to be at the table,” he said.

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