Trump’s Racist Lending Agenda
By Bartlett Naylor
Consistent with Donald Trump’s reported history as a racist landlord, the bank regulators he controls now propose to gut one of the nation’s foundational laws aimed at combating credit discrimination, including redlining, where specific neighborhoods are excluded from opportunities available to other people.
Donald Trump’s real estate career documented on the front page of major newspapers began with a protracted legal battle alleging he and his father discriminated against prospective tenants who were Black. The Justice Department investigated the issue and, in 1973, sued Trump Management, naming company Chair Fred Trump and President Donald Trump as defendants. According to the New York Times, “It was front-page news, and for Donald, amounted to his debut in the public eye.” A subsequent Times investigation “uncovered a long history of racial bias at his family’s properties, in New York and beyond.” In a fictional Hollywood film account called The Apprentice, Trump attorney Roy Cohn blackmails the prosecutors into dropping the case. Cohn also teaches the young Trump key lessons: attack, attack, attack; deny everything, admit nothing; and no matter what happens, claim victory and never admit defeat. In reality, Trump settled the lawsuit without admitting guilt. Cohn’s lessons play out daily in the White House.
As the President persistently rails against “woke” policy, his bank regulators now aim to gut a foundational law aimed at combating racism in real estate.
During the same decade Trump made headlines as he battled with the government over his rental practices, Congress advanced laws to combat racial discrimination. Ironically, the federal government itself built discrimination into the loan-making process. In response to the many foreclosures during the Great Depression, Congress established the Home Owners’ Loan Corporation (HOLC) in 1933. This agency provided government support for loans, but it drew red lines on maps of certain neighborhoods, marking them as higher risk. These neighborhoods had lower-income residents and large minority populations. This became the basis for the process referred to as “redlining.” The harmful impact of that policy has persisted for decades, with neighborhoods of color suffering lower mortgage approval rates.
Congress began to address the problem with the 1968 Fair Housing Act and the 1974 Equal Credit Opportunity Act. In 1975, Congress approved the Home Mortgage Disclosure Act (HMDA) to quantify where and to whom banks made loans. The law required banks to make their annual lending public, delineated by recipients’ neighborhood, income, and race.
In 1977, Congress built on these laws and approved the Community Reinvestment Act (CRA), authored by Sen. William Proxmire (D-Wisc.), chair of the Senate Banking Committee at the time. Sen. Proxmire explained: “By redlining, let me make it clear what I am talking about. I am talking about the fact that banks and savings and loans will take their deposits from a community and instead of reinvesting them in that community, they will actually or figuratively draw a red line on a map around the areas of their city, sometimes in the inner city, sometimes in the older neighborhoods, sometimes ethnic and sometimes black, but often encompassing a great area of their neighborhood.”
The CRA went beyond the data collection required by previous laws by adding a mechanism to promote fair lending. The law states that banks must demonstrate “a continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered.” If banks fail to demonstrate such a record of fair lending, regulators will “take such record into account in its evaluation of an application for a deposit facility by such institution.”
Committee aide Robert Kutner, who subsequently founded the American Prospect magazine and helped found the Economic Policy Institute, provided essential staff work for this law.
Congress assigned three regulators to enforce this law: the Federal Reserve Board, the Comptroller of the Currency, and the Federal Deposit Insurance Corp. (FDIC).
Recent U.S. Supreme Court decisions increased the president’s power to fire certain regulators, reversing previous policy that insulated Senate-confirmed officials from specific decisions. The Comptroller serves at Trump’s pleasure. While not directly addressed, members of the FDIC may also serve at his pleasure. But the Supreme Court has indicated that Federal Reserve governors enjoy special status. Trump has attempted to fire Gov. Lisa Cook, alleging she fraudulently listed two homes as her primary residence. The Supreme Court blocked that effort and asked lower courts to review the allegation. Trump also attempted to fire Jerome Powell, who was chair of the Federal Reserve at the time. He continues to serve as governor.
Trump’s current attack on the Community Reinvestment Act comes only from the Comptroller and the FDIC, which he claims to control. The Federal Reserve did not join in this proposal. The effort may be subject to litigation.
Trump’s regulators now propose a significant debasement of the Community Reinvestment Act. Most harmful, this proposal sets a woefully low threshold for community reinvestment funding. The proposal calls for community investments totaling 0.625 percent of a bank’s primary capital standard (Tier 1 capital). For a bank, capital represents the portion of its assets that exceeds its liabilities, often less than 10 percent of its assets. This new threshold would generate funding that is 85 percent less than the nation’s 100 largest banks now devote to this sector, according to one analysis. Out of every $100 million in assets at a large bank, it could devote as little as $62,500 to qualified projects.
The proposal also excuses banks with less than $10 billion in assets from full scrutiny. Among other problems, this may reduce demand for the Low-Income Housing Tax Credits (LIHTC), an important driver of affordable housing development. Thus, this proposal would exacerbate the nation’s housing crisis.
Trump’s bank cops also redefine the “purpose” test to promote economic development for the low and moderate income community. For example, funding data centers provides little ongoing employment relative to the cost of construction. But under the new proposal, such investments might qualify.
After the Community Reinvestment Act was implemented, Black homeownership rose from 40 percent in the early 1990s to a peak of nearly 50 percent in 2004. After the 2008 financial crash and Trump’s first presidential term, it fell back to 40 percent before rising again during the Biden administration.
Fate of the Community Reinvestment Act may not command debate around the average kitchen table. But it has served as a tool to fight racism in real estate and has helped promote affordable housing. Recounting the legislative fight to approve the CRA, Kuttner describes the many community groups that mobilized and petitioned Congress, a space otherwise dominated by bank lobbyists. “The hearing record was filled with extensive research reports by the community groups documenting extensive redlining,” Kuttner wrote. “They were a citizen army primed for action.”
It’s paramount to show that everyday people are still watching and that they support strong protections to ensure everyone has equal access to credit opportunities. Americans can express their support for this important anti-discrimination law and oppose Trump’s deregulatory move with emails to these addresses: [email protected] and [email protected].