In 1977, Congress passed the Community Reinvestment Act, a powerful antidote to racial discrimination in lending. Where banks had divided maps into segregated areas that showed where they would and would not approve mortgages—a notorious practice known as redlining—the new law required them to demonstrate that they serve low-income households wherever they are located.
Forty years on, this regulatory approach—which was designed decades before the era of online banking—is showing its age. Millennial-friendly online-only Ally Bank, for example, doesn’t have any brick-and-mortar locations at all, so regulations predicated on the reach of bank branches don’t make sense for this 21st-century lending platform. The CRA is overdue for an upgrade, and this week, the Trump administration took a long-awaited first step toward revamping the rule.