How a Little-Known Law Is Expected To Fight Racial Discrimination in Housing

An update this week to a little-known law could help combat racial discrimination in mortgage lending.

Bank regulators made changes to the Community Reinvestment Act, instituted in 1977. The update is an effort to fight the legacy of redlining and will require banks to make more mortgages in lower-income areas. This was the first update to the law since 1995.

However, the law wouldn’t affect credit unions and nonbank lenders—which make up the majority of mortgage lenders.

“This is going to help encourage banks to lend more in areas where the lending is needed the most,” says David Dworkin, president and CEO of the National Housing Conference, which represents more than 300 affordable housing organizations. Banks “will do a much better job of helping communities and people of color.”

Banks will be required to make more loans in lower-income communities in areas where they do a lot of mortgage and small-business loans—instead of just where they have a brick-and-mortar location.

The update was approved by the U.S. Federal Reserve, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency, and it goes into effect in 2026.

“It’s going to change the way banks think about where and how they lend,” says Dworkin. “This will encourage banks to make smaller mortgages, which are safe and sound but less profitable than jumbo loans in high-end communities.”

Previously, banks were rated on their lending only in communities where they had a physical branch. Online banks were judged only in the area where they were headquartered. Those that received low ratings weren’t allowed to participate in mergers and acquisitions.

The goal of the changes is to increase lending in low- and moderate-income communities so residents can purchase homes and start businesses. It’s meant to address the effects of redlining, when mortgage lenders refused to make loans to minority applicants and in minority communities. This prevented many people of color from becoming homeowners or led them into more expensive or predatory loans.

“This update is both long overdue and essential,” National Community Reinvestment Coalition President and CEO Jesse Van Tol said in a statement. “Marginalized communities still suffer from a variety of inequities in mortgage and small-business lending, and from the enduring effects of historic financial discrimination.”

However, there are concerns that banks might choose to close up shop in lower-income areas rather than make more loans in these communities.

In addition, only banks with more than $600 million in assets would be affected.

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