THE CASE FOR A CALIFORNIA COMMUNITY REINVESTMENT ACT
JYOTSWAROOP BAWA and JAMIE BUELL
INTRODUCTION
Banks often finance affordable housing, provide first-time homebuyer mortgages, lend to small businesses, invest in community development finance institutions (CDFIs), and grant funds to nonprofits. Most people are unaware that this is largely due to the federal Community Reinvestment Act (CRA), enacted in 1977 to combat redlining. The CRA obligates banks to lend and invest in the communities they serve, including low- and moderate-income areas. While we have made progress in breaking down barriers to BIPOC wealth creation, redlining persists—in the last three years, there have been 14 complaints brought by the U.S. Department of Justice against financial institutions accused of redlining, including credit unions.1 The largest settlement in United States Department of Justice history occurred in Los Angeles in 2023, highlighting the continued need for stronger enforcement and expanded regulation.2
While the federal CRA has driven billions of dollars into historically underserved communities, several challenges remain to ensure that all financial institutions play their part in supporting affordable housing development and preservation, small business growth, good quality job creation, homeownership, and intergenerational wealth building in all of our communities:
f Race-neutral framework limitations: The federal CRA focuses on economic status rather than race, promoting investments in “low and moderate-income” communities without specifically addressing Black, Indigenous, and other people of color (BIPOC). This approach overlooks persistent systemic discrimination, historical redlining, and ongoing disparities in credit access that continue to disadvantage BIPOC communities.
f Limited application: The CRA only regulates deposit-taking banks, leaving credit unions, non-bank mortgage lenders, and fintech companies (specifically those that offer banklike products and are regulated by the state as money transmitters) outside its jurisdiction. Despite offering bank-equivalent services and deriving substantial profits from California communities, these institutions, which now dominate the state’s financial landscape, operate without any community reinvestment obligations.
f Systematic Enforcement Deficiencies: Federal banking agencies have consistently demonstrated ineffective oversight of the Community Reinvestment Act, as evidenced by the 96% pass rate for CRA evaluations—a statistic that defies statistical probability and undermines regulatory credibility. This inflation of ratings renders the evaluation system functionally meaningless as a differentiator of performance. When regulatory bodies have attempted meaningful reform, financial institutions have strategically deployed legal challenges to preserve the status quo. Additionally, the current federal administration may seek to undermine CRA regulations, following previous patterns of regulatory rollbacks.3 These structural weaknesses necessitate state-level monitoring and enforcement mechanisms that can maintain consistent oversight regardless of federal political cycles.
f Asymmetric Assessment Framework- no downgrades for harm: The federal CRA’s fundamental design flaw lies in its unidirectional assessment methodology that rewards positive activities while failing to account for countervailing harmful practices. Banks accumulate CRA credits for certain community investments while simultaneously engaging in practices that undermine community economic health, including predatory fee structures, financing that accelerates displacement, environmentally destructive investments, and funding entities with documented labor violations. Most critically, the framework inadequately addresses the very discrimination and redlining practices it was designed to combat. A state CRA could correct this asymmetry by implementing a balanced evaluation system that both rewards constructive community engagement and applies appropriate penalties for harmful conduct, providing a comprehensive assessment of financial institutions’ net community impact.
A state-level CRA can complement the federal CRA by leveling the playing field to cover all major financial institutions impacting communities, setting standards for how financial institutions in California invest and conduct business, how they can help address racial and other wealth disparities, and how they can ensure that all our communities thrive.
1
Essential to note that this is not a novel idea; seven other states (Connecticut, Illinois, Massachusetts, New York, Rhode Island, Washington, West Virginia) and the District of Columbia have enacted CRA laws to encourage financial institutions to better meet the needs of residents in their communities. Californians deserve to see increased access to credit and investment in our communities, and the same protections against discrimination as in other states.4
Capital Sources
Deposits from individuals, businesses, and municipalities flow into financial institutions. Mortgage companies receive loan payments and consumers use money tranfer services.
4
Community Benefit Communities gain equitable access to financial services, affordable housing, and economic development resources.
HOW CRA WORKS
2
2a. Direct Lending Financial institutions provide loans to small businesses and homebuyers, expanding credit access.
2b. Community Investment Financial institutions fund CDFIs, developers and local governments through low-interest investments, social impact bonds, LIHTC, and grants.
3
Regulatory Oversight
State regulators collect and publish CRA compliance data with opportunities for public input during assessments.
CREDIT UNIONS THE CASE FOR INCLUSION
Market Significance
California’s 112 state-chartered credit unions held $164.7 billion in assets and $137.4 billion in deposits as of September 2024. Despite their nonprofit structure, only 16 of California’s credit unions qualify as community development financial institutions (CDFIs) with a mission to serve underserved communities.5
Evidence of Discrimination and Abuses
Credit unions face increasing scrutiny for lending discrimination and redlining.
f The Golden 1 Credit Union, the largest state-chartered credit union, received 439 total consumer complaints filed against it since the onset of the COVID-19 pandemic.6 By comparison, Cathay Bank, the state-chartered bank closest to Golden 1 in deposit size, only received 78 complaints, a mere 17.7% of the total complaints Golden 1 received.
f Citadel Federal Credit Union7 is facing a redlining complaint from the Justice Department
f Navy Federal Credit Union was the focus of explosive CNN reporting, finding it had denied more than half of its Black mortgage applicants.8
f In 2024 investigative report revealed that Frontwave Credit Union in Oceanside charged the Young Marines, a youth organization, millions in excessive fees while managing their funds, sometimes charging 10 times more than market rates for financial services.9
Credit unions charged the most in overdraft fees
Newly available data on Overdraft (OD) and Non-Sufficient Fund (NSF) fees charged by state-chartered banks and credit unions reveal that credit unions charge their members more and rely more heavily on these junk fees for income than their bank counterparts.
In 2023, state-chartered credit unions charged over $250 million in overdraft and non-sufficient fund fees, comprising 16 of the top 20 highest fee-charging institutions based on dollar amount alone, and representing 81% of total junk fees charged by state-chartered banks and credit unions combined. First Imperial Credit Union, for example, derived 15% of its total income from OD and NSF fee income.10
The credit union industry has defended its high-cost overdraft and non-sufficient funds (NSF) fees as necessary operational components that enable lower costs in other areas for members. However, recent analysis from the National Credit Union Administration challenges this assertion. The NCUA’s research demonstrates that credit unions charging elevated overdraft and NSF fees do not provide the offsetting benefits of reduced membership fees or more favorable interest rates for their members as frequently claimed.11
$250M in overdraft and non-sufficient fund fees charged were charged by Credit Unions 2023 representing 81% of total junk fees charged by state-chartered banks and credit unions combined.
16 OF THE TOP 20 highest fee-charging institutions based on dollar amount alone in California were credit unions.
Particularly troubling, 13 of the 20 credit unions charging the highest fees hold low-income designations,12 yet these same institutions generated $134.7 million in revenue from predatory junk fees collected primarily from their low-income membership base: that’s $11.2 million extracted from families each month. This troubling pattern reveals that these credit unions are disproportionately burdening their most financially vulnerable members with excessive and unnecessary charges, contradicting their foundational mission of serving disadvantaged communities.
Credit Unions charged in overdraft and
fund fees in 2024
Credit Unions charged in overdraft and
fund fees in 2024
CRA Obligation Erosion Through Acquisitions
Credit unions are buying banks at a record pace and creating a reduction in reinvestment as the CRA obligation of the acquired bank disappears. In 2024, there were 22 credit union acquisitions of banks, doubling the 11 such transactions that took place nationally in 2023. 13 Every one of these 33 banks that were acquired by credit unions had an obligation to serve working-class communities - an obligation that was eliminated when the credit union took over. Frontwave Credit Union, which charged its young Marine members over $7 million in OD and NSF fees in 2023 (a number that has increased to $8 million in 2024 representing 111% of their net income14 ), is seeking to purchase Community Valley Bank, which received a rare Outstanding CRA rating for its service to its communities. If approved, CVB’s federal CRA obligation will be extinguished because Frontwave, as a credit union, is not subject to federal CRA requirements.
Frontwave Credit Union, is seeking to purchase Community Valley Bank, which received a rare Outstanding CRA rating for its service to its communities. If approved, CVB’s federal CRA obligation will be extinguished because Frontwave, as a credit union, is not subject to federal CRA requirements.
Broad Membership Accessibility- Comparable to banks
While credit unions technically differ from banks by having members, these membership restrictions are often so broad that they effectively function like banks, which must serve entire communities where they maintain branches. Large state-chartered credit unions in practice are open to anyone within their geographic footprint. For example, as of December 2023, Golden 1, the largest credit union, reported $19.6 billion in assets and 1.1 million members statewide. Golden 1’s membership is available to all California residents, as well as to anyone employed by one of numerous “selected employer groups,” regardless of residence.15
Similarly, nine of the state’s other top 10 credit unions serve large geographic regions, operating functionally like banks that are supervised to ensure equitable service to all residents in their branch locations. The various State Community Reinvestment Acts across the country already accommodate this reality without complications.16
Limited Community Development Contributions
Credit unions are not helping to address affordable housing and other community development needs. A close review of credit unions’ impact reports and charitable partners finds little evidence of investments addressing the affordable housing crisis afflicting all the communities where they operate.
Wescom Central Credit Union, for example, reports total expenditures of $1.14 million – i.e., a tiny fraction of 1% of total deposits - in support of community service programs and other charitable activities.
Wescom Central Credit Union’s foundation budget is less than half the $2.5 million pay and benefits package of the credit union’s President and CEO, and less than one-tenth of the amount paid out annually as salaries and benefits for the CU’s officers, directors, trustees, and key employees.17
A close review of credit unions’ impact reports and charitable partners finds little evidence of investments addressing the affordable housing crisis afflicting all the communities where they operate.
INDEPENDENT MORTGAGE COMPANIES (IMCS) THE CASE FOR INCLUSION
Market Dominance
Independent mortgage companies have overtaken traditional banks and credit unions in the mortgage sector, capturing 55% of California’s mortgage market in 2023, and a remarkable 72% during the 2020’s historic low interest rates.18 With over 350 independent mortgage companies operating in the state, California ranks as the top origination market for industry leaders like United Wholesale Mortgage (UWM) and Rocket Mortgage, consistently maintaining this position from 2020 through 2023.19
Evidence of Discrimination and Abuses
IMCs have faced numerous lawsuits and regulatory actions alleging discrimination, excessive fees, and unethical practices. State CRA would provide a strong incentive for these companies to lend to meet community needs. Recent infractions include:
f A 2024 class action accusing UWM of colluding with brokers to push borrowers into costly mortgages, leading to billions in excessive fees.20
f A federal suit charging Trident Mortgage Company with discrimination against minority families.21
f Litigation by the CFPB against Townstone Financial for discrimination against Black borrowers and residents of majority black neighborhoods in Chicago.22
f A CFPB consent order against Freedom Mortgage Corporation for mortgage loan data reporting violations.23
f A HUD complaint against LoanDepot.com for refusing to refinance applicants’ homes because they were located on Native American Lands, including in California24
Proven Success in Other States
Experience from other states demonstrates that IMCs effectively contribute to community development, equal access, and financial stability through investments in financial literacy programs, down payment assistance, and affordable housing initiatives. These state-level frameworks prove that accountability measures work. In New York, state regulators specifically attribute’s Homestead Funding Corp success in serving borrowers of color to being subject to State CRA requirements in multiple states.25
MONEY TRANSMITTERS FINTECHS OFFERING BANKLIKE PRODUCTS THE CASE FOR INCLUSION
Evolution of financial services
Since the federal CRA was enacted, the financial services sector has changed significantly. Now ubiquitous, fintech firms offer bank-like products and services but are a riskier, quasi-bank option. Specifically, the types of fintech companies26 that would be covered under a state CRA are those that the DFPI regulates and defines as money transmitters27
These money transmitters are earning money from California consumers hand over fist, yet do not have any reinvestment obligation, data transparency, or community engagement necessitated by the federal CRA. California State can assert its authority to rectify this imbalance, protect consumers, and unlock much-needed capital.
Economic Impact and California Connection
California has an opportunity to be a leader in the country and be the first state to extend reinvestment obligations to money transmitters. This is all the more important, considering that companies like PayPal and Apple were born in California and have had a substantial impact on the housing and job market, and the larger economy of the state. The cost of living and housing in Silicon Valley and the surrounding areas has skyrocketed since the birth of tech companies like money transmitters and the growth of their employment bases, who need homes in which to live and roads to drive to get to work. California should ensure that companies of such size and impact are doing right by the place that has given them so much by requiring them to adequately reinvest.
Substantial Untapped Resources
Net revenue for the North American operations of money transmitters totaled between $70 and $100 billion in 2022 and is expected to grow to $130-$180 billion by 2028.28 Money transmitters have substantial assets to invest in communities, including those that are analogous to deposits held by traditional banking institutions, namely cash and cash equivalents, investments in short-term debt securities, and customer funds. For just one company, Block, these bank-like assets totaled $9.27 billion at year’s end.29 Given the size of the California economy, a reinvestment obligation commensurate with the California market revenues of these companies can provide will be significant capital for the economic development of regions currently struggling for investments to meet urgent community needs, such as affordable rental housing and housing stock for homebuyers in the market.
Growing Usage Among Vulnerable Populations
Over 44% of U.S. consumers use a money transmitter to transfer money between friends, family, and acquaintances.30 Money transmitter usage is up– these platforms have become the preferred financial transaction system among working-class households and BIPOC communities. Money transmitters are thriving in large part due to their use by individuals and families, who have the greatest need for CRA support.31 However, firms profiting from the transmission of funds from these communities have no obligation to reinvest.
Money transmitters leave these already-vulnerable customers even more vulnerable. State CRA is needed to address customer risks and support market competition. Black Americans and lowerincome Americans also reported having been scammed or having their digital payment accounts hacked more often.32 Major money transmitter companies like Wise33, Block34, Chime,35 and Cashapp36 have all been hit with complaints and settlements from the CFPB and state agencies for failing to uphold adequate consumer protections.
Furthermore, these services like Cashapp and Venmo are used as a substitute for a debit card for those who are un/underbanked and wish to store money. The FDIC’s household survey finds that unbanked households have substantially higher rates than banked households of using online payment services and prepaid cards as alternatives for essential financial transactions typically handled through a bank account.37 However, while deposit-taking institutions like banks insure the deposits of their customers through the FDIC, the rapidly growing number of payment app users are left vulnerable to losing their funds without deposit insurance or other consumer protections.
Impact on Housing Affordability
Money transmitters have exacerbated local housing/jobs imbalances, driving up housing demand while leaving unsubsidized housing unaffordable for many of their own employees. In Santa Clara County, home to Apple and PayPal headquarters, the Area Median Income is $184,300—meaning families earning below $147,000 qualify for low-income housing and those earning under $92,000 are considered very low income.38
With average rents at $2,990 per month39, families earning less than $107,600 annually must spend more than one-third of their income on housing. Salary data gathered from Apple employees by Indeed reveals that some Apple management employees report salaries that qualify them as “low income,” and that most rank-and-file sales employees earn salaries in the “very low income” range, i.e. less than $92,000 per year. Even unionized janitorial staff at Silicon Valley companies earn only $21.25/hour (approximately $43,000 annually)40 , less than 25% of the area median wage.
Some of California’s most profitable companies employ the lowest-wage workers in their headquarters regions while driving up housing costs. It is appropriate that firms engaging in banklike activities be subject to bank-like reinvestment obligations to help mitigate the societal costs they impose.
STATE CHARTERED BANKS THE CASE FOR ENHANCED OVERSIGHT
Banks must follow federal Community Reinvestment Act rules, but the law has gaps and weak enforcement that limit its effectiveness in ensuring that banks provide equal credit access and investment in all communities, especially those historically redlined. California can strengthen these protections by creating state-level incentives for banks to engage in fair lending and community development that truly serves all populations.
Redlining was deemed “Satisfactory”
The federal CRA examination process fails to provide adequate accountability. While focusing on low and moderate-income communities, CRA rules neglect neighborhoods of color and often fail to address discrimination and redlining—the very issues that prompted CRA’s creation. Federal regulators routinely award “Satisfactory” or “Outstanding” CRA ratings to banks later found by the Department of Justice or the Consumer Financial Protection Bureau to have engaged in discriminatory practices.
This fundamental disconnect is striking:
f 81% of fair lending and consumer protection violations resulting in legal actions were completely overlooked during CRA evaluations
f 91% of redlining cases were missed by regulators41
f Of the 16 most recent DOJ redlining consent decrees, 12 involved banks that had received passing CRA ratings42
This profound failure in federal implementation underscores the critical need for a State CRA that can properly address these systemic issues.
Federal oversight gives credit for harmful activity
One of the weaknesses of federal CRA implementation is that banks generally only receive positive credit and do not receive ratings downgrades if they engage in activities like fee gouging or fossil fuel finance that are harmful to communities.
Worse still, federal bank regulators are suspected of actually giving positive CRA credit for harmful activities where the harm was knowable, but not obvious. For example, First Republic Bank was a major financier of problematic multifamily landlords,43 but most likely received positive CRA credit from its regulator for lending in low-income areas on apartments where the rents were below market rate at the time the loan was made, even if imminent tenant displacement was foreseeable. State-chartered banks do engage in harmful activities. A state CRA could create disincentives for harmful conduct.
Un/Underbanked Rates Expose Disparities
Even with federal CRA obligations, banks fail to adequately serve vulnerable populations.
f California’s racial disparities are stark: 30.4% of Black and 26.5% of Hispanic households are un/underbanked (lacking accounts or relying on fringe financial providers like payday lenders), compared to just 9.7% of White households44
f Income-based inequities persist: 31.6% of households earning $15,000–$30,000 report being un/underbanked, versus 16.9% of those earning $50,000–$75,000.45
f Unbanked respondents cite distrust of financial institutions as the second most common reason for avoiding banks, after inability to afford account opening costs.46
f Field research reveals discriminatory practices: In a recent mystery shopping study, Black and Latine canvassers were more frequently denied service at California bank branches,47 while customers of all races were disproportionately offered overdraft-fee-based accounts rather than no-fee alternatives. 48
State must protect consumers amid federal deregulation
Since the COVID pandemic began, California consumers have filed 425 complaints with the Consumer Financial Protection Bureau against state-chartered banks. 49 The CFPB—essential for consumer protection—now faces severe budget cuts, staffing reductions, and leadership opposed to its core mission, effectively halting its regulatory function. This regulatory vacuum underscores the urgent need to strengthen the Department of Financial Protection and Innovation’s authority to implement robust consumer safeguards.
IMPLEMENTATION FRAMEWORK FOR THE CALIFORNIA CRA
Enforcement Mechanisms
A key limitation of the federal CRA is enforcement effectiveness. While 96% of banks pass their federal CRA examinations, regulators give credit for activities with minimal community impact while ignoring harmful practices like fee gouging and fossil fuel financing.
A state CRA could focus financing on impactful investments that consider race and impose penalties for harmful activities and poor CRA evaluations, including:
f Requiring financial institutions to improve their plans to serve communities
f Preventing poorly performing firms from merging or opening new offices
f Implementing fines and penalties
Regulatory Authority
A California CRA, if implemented robustly, could generate over $13.5 billion in reinvestment for California communities.
The California Department of Financial Protection and Innovation (DFPI) would develop implementation rules similar to federal banking regulators, but prioritizing California’s specific needs. DFPI could establish straightforward compliance pathways by encouraging investments in established funds and coordinating examinations with federal regulators to minimize regulatory burden. The DFPI can also benefit from other state agencies that have promulgated state CRA rules and engaged in supervision and enforcement activities.
State-Chartered Bank Implementation
As state-chartered banking institutions are already covered by federal law and report data for federal exams, the Department of Financial Protection and Innovation (DFPI) can align its CRA examination with federal procedures. The DFPI currently regulates these agencies and collects data on their financial profiles. Implementation is further facilitated by the existing availability of critical metrics, including mortgage lending data, small business lending information, overdraft and non-sufficient fund fee structures, and consumer complaint records, reducing administrative burdens for both the banking institutions and regulatory authorities.
State-chartered banks’ existing reinvestment obligations mean minimal start-up costs to implement a state CRA. Using Illinois’s fee structure as a model, California’s state-chartered banks would generate approximately $1.96 million annually in fees to cover DFPI implementation costs.50 Rise Economy estimates that a state CRA for state-chartered banks alone could generate over $10 billion annually, including mortgage loans, small business support, and affordable housing development.51 This funding will be critical for meeting California’s affordable housing
goals, particularly as federal support under the Trump Administration is expected to be drastically reduced.
Credit Union Implementation
State-chartered credit unions already maintain regulatory reporting relationships with the DFPI, providing a foundation for CRA implementation. As of September 2024, these institutions hold $137.4 billion in deposits. Federal regulatory analysis indicates that CRA compliance would likely cost financial institutions less than one percent of their operating expenses. 52 Using Illinois’s fee structure as a model, California’s state-chartered credit unions would generate approximately $1.13 million annually to cover DFPI implementation costs. 53
Most credit unions already report mortgage lending data. While their nonprofit structure may limit certain investments like low-income housing tax credits, credit unions can still make philanthropic investments supporting affordable housing development, small business assistance, housing counseling, and other community development initiatives. They can also issue multifamily mortgage loans and develop better financial products with reduced fees—improvements that a State CRA would encourage.
A state CRA would not force credit unions to extend beyond their charter-defined geographic or membership parameters. DFPI could tailor evaluations to assess credit union performance within their specific operational areas, just as with banks. No evidence suggests that state CRA requirements have caused credit union failures in other states.
Rise Economy estimates that a state CRA could generate $4 billion annually, including mortgage loans, small business support, and affordable housing development.54 Using an even more conservative estimate to account for credit unions not being involved in certain products and services or investment vehicles, if the top 20 state-chartered credit unions reinvested only 1% of their total deposits in contributions or lending to affordable housing support, nearly $1 billion could be unlocked for critical support in the state’s housing crisis.
Only 1% reivenstment could unlock $1 billion to meet housing needs
Independent Mortgage Companies (IMCs) Implementation
DFPI, as the primary regulator of independent mortgage companies, has existing authority over licensing, examinations, investigations, and enforcement. State CRA will empower DFPI to:
f Access financial records and mandate operational changes
f Penalize or limit activities if IMCs fail to meet financial or operational requirements
f Use publicly available mortgage and financial data to evaluate lending patterns, ensuring equitable service to low- to moderate-income borrowers and communities of color
While the industry may claim new regulatory burdens, in-depth analysis by federal regulatory bodies shows implementation costs would likely amount to less than one percent of operating expenses. According to Illinois’s fee structure, major companies like Rocket and UWM would pay an annual fee of $24,000. Three states already cover IMCs in their CRA legislation—Illinois, New York, and Massachusetts—establishing precedent for California.
Money Transmitter Implementation
The State CRA will expand DFPI authority to collect relevant and basic financial data from money transmitter companies, many of which are headquartered and doing substantial business in California. California-specific data is needed for full reinvestment analysis. Currently, companies like Venmo, CashApp, and Apple do not include a “customer funds” asset class in their financial statements, nor do they break out revenue earned by state. The State CRA would require CA market disclosure that would guide reinvestment obligations. A meager 2% requirement in lending capital would go a long way in meeting California community needs.
A State CRA for money transmitters would result in a greater understanding of the industry. Consumers and lawmakers would know the extent of the market share of the financial services industry that money transmitters occupy, and how they behave in it. Including these companies in state oversight can help ensure that they are held to a higher standard and that consumers are better protected. For example, while a state CRA won’t mandate that companies like Cashapp or Venmo provide FDIC insurance, greater oversight and scrutiny from a state regulator will encourage the sector to serve communities better.
A State CRA would mean that DFPI examines and gives credit to money transmitters for the availability and offering of safe, fee-free, and scam-free checking/financial service account-like products. It can also encourage companies to provide low-interest community development and small business capital to communities they are already in business with.
While the industry will argue that this legislation will create new and costly regulatory burdens, in-depth data analysis by two key federal regulatory bodies55 shows that this legislation would likely amount to a fraction of one percent of operating expenses for currently unregulated financial institutions.56 According to the Illinois State CRA fee structure and publicly traded money transmitters, companies like Block and Paypal would be charged an annual fee of $24,000.
HOUSING SOLUTIONS AND ACCESS TO CAPITAL
IN CALIFORNIA
State CRA can encourage financial institutions to address California’s affordable housing crisis. While California has doubled production of new affordable homes in the past five years, the state funds only 12% of what’s needed to meet its goals57. The current annual production of 19,400 affordable homes falls far short of the state’s goal of 753,313 units for extremely low, very low, and low-income residents, requiring an estimated $13.9 billion in state subsidies58
While the legislature has made improvements in the process of permitting housing developments, the building work remains stalled. Enterprise Community Partners reports that 44,723 new affordable homes in California are entitled but stalled due to financing constraints.59
While expanding CRA to state-chartered institutions won’t completely fill funding gaps, it can significantly reduce public funding requirements, allowing scarce state resources to go further. Competition for federal CRA credit has already reduced interest rates and improved pricing for low-income housing tax credits.
A State CRA will level the playing field across the financial sector while directing private capital toward addressing California’s housing affordability crisis.
The racial homeownership gap has persisted throughout U.S. history and today stands at a 28 percentage point gap between white and Black households and an 18 percentage point gap between white and Latine households.60 State CRA-initiated periodic and repeat disparity studies of the modern housing market lenders are the necessary step California regulators must take to finally make meaningful progress in BIPOC homeownership rates. State CRA-incentivized investments can play an important role by adding much-needed resources to support the State homeownership goals.
From publicly available data, for example, in 2022 and 2023, 13% of state-chartered banks’ mortgage lending went to LMI tracts and 54% went to majority-minority tracts, even though in California 31.4% of tracts are LMI and 66% are majority-minority.61 Meanwhile, the IMCs serve BIPOC homebuyers, however, controlling for credit scores and other financials, data showed that Black and Latine homebuyers paid hundreds more in closing costs. Neither scenario supports the State’s goals of closing the racial wealth and homeownership gap. The State CRA can incentivize equitable lending.
Potential housing programs for CRA Investments
A state CRA could encourage capital investments from any of the newly covered entities to wealthgenerating programs such as:
f Down payment assistance
f Foreclosure prevention
f Special Purpose Credit Programs targeted to historically underserved first-time homebuyers
f Affordable housing development and preservation
f Community land trusts, co-ops, and shared equity models
f Community development finance institution fund
CONCLUSION DEMOCRATIZING FINANCIAL OPPORTUNITY FOR ALL CALIFORNIANS
All Californians deserve equal access to financial stability and wealth-building opportunities. Financial institutions benefiting from our economy should address community needs for affordable housing, economic development, and fair financial services.
The increasing extraction of wealth through junk fees, lending disparities, and fraudulent practices demands action. A significant portion of our financial infrastructure profits from California without adequate reinvestment.
The proposed State Community Reinvestment Act will hold state banks, credit unions, independent mortgage companies, and deposit-holding money transmitters accountable by incentivizing meaningful community investment.
California needs a state CRA that works for everyone.
ENDNOTES
1
2
Justice Department Secures Over $6.5M from Citadel Federal Credit Union to Address Redlining of Black and Hispanic Communities (2024, October 10). Department of Justice, Office of Public Affairs. https://www.justice.gov/archives/opa/pr/justice-department-secures-over-65m-citadel-federalcredit-union-address-redlining-black-and-hispanic-communiities
Justice Department Secures Over $31 Million from City National Bank to Address Lending Discrimination Allegations (2023, January 12). Department of Justice, Office of Public Affairs. https://www.justice.gov/archives/opa/pr/justice-department-secures-over-31-million-city-nationalbank-address-lending-discrimination
3 Community Reinvestment Groups Sue Trump Administration For Unlawfully Gutting Anti-Redlining Rules (2020, June 20). Democracy Forward. https://democracyforward.org/updates/communityreinvestment-groups-sue-trump-admin-for-unlawfully-gutting-anti-redlining-rules-cra/
4
Consumer Financial Protection Bureau. (2023, November). State Community Reinvestment Acts, Summary of State Laws.
5 U.S. Department of the Treasury Community Development Financial Institutions Fund (2024). List of Certified CDFIs. https://www.cdfifund.gov/sites/cdfi/files/2024-01/CDFI_Cert_List_01_10_2024_ Final.xlsx
6 Consumer Complaints for The Golden 1 Credit Union. (2020, March 20 to 2024, October 28). Consumer Financial Protection Bureau. https://www.consumerfinance.gov/data-research/consumercomplaints/search/?chartType=line&company=GOLDEN%201%20CREDIT%20UNION%2C%20 THE&dateInterval=Month&date_received_max=2024-10-28&date_received_min=2020-03-15&lens=P roduct&searchField=company&subLens=sub_product&tab=Trends
7 Justice Department Secures Over $6.5M from Citadel Federal Credit Union to Address Redlining of Black and Hispanic Communities (2024, October 10). Department of Justice, Office of Public Affairs. https://www.justice.gov/archives/opa/pr/justice-department-secures-over-65m-citadel-federalcredit-union-address-redlining-black-and
8 Tolan, C., Ash, A., & Marsh, R. (2023, December 14). Navy Federal Credit Union rejected more than half its Black conventional mortgage applicants last year | CNN Business https://www.cnn. com/2023/12/14/business/navy-federal-credit-union-black-applicants-invs/index.html
9 Lewis, S. (2024, March 11). Investigation: Oceanside Credit Union charged military youth program millions in fees. KPBS. https://www.kpbs.org/news/2024/03/11/oceanside-frontwave-credit-unionmillions-fees-young-marines-money
10 Buell, J. (2025, January). The Overdraft Crisis: A fact sheet examining how credit unions are failing California communities. Rise Economy. https://rise-economy.org/research_crc/fact-sheet-theoverdraft-crisis/
11 NCUA Office of the Chief Economist. (2025). Observations from the NCUA’s New Data on Non-sufficient Funds and Overdraft Fees | NCUA https://ncua.gov/news/publication-search/ overdrafts/observations-ncuas-new-data-non-sufficient-funds-and-overdraft-fees
12 Low-Income Credit Union Designation | NCUA. (2024, July 1). https://ncua.gov/support-services/ credit-union-resources-expansion/field-membership-expansion/low-income-credit-uniondesignation
13 Wolfe, D. (2025, January 2). How many credit unions acquired banks in 2024? An industry M&A analysis | Credit Union Journal | American Banker https://www.americanbanker.com/creditunions/ list/how-many-credit-unions-acquired-banks-in-2024-an-industry-m-a-analysis
14 California Department of Financial Protection and Innovation. (2025) Annual Report of Income from NonSufficinet Funds and Overdraft Fees. https://dfpi.ca.gov/wp-content/uploads/2025/04/AnnualReport-of-Income-from-Fees-on-Nonsufficient-Funds-and-Overdraft-Charges_2025.pdf
15 https://www.golden1.com/apply-today (Like many California CUs, Golden1 requires applicants to have a social security number.)
16 Consumer Financial Protection Bureau. (2023, November). State Community Reinvestment Acts, Summary of State Laws.
17 Williams is one of 20 executives, according to the credit union’s Form 990 filing with the IRS, who were paid more than a quarter million dollars in 2022.
18
19
Data analysis of Home Mortgage Disclosure Act data for originated loans on 1-4 unit owner occupied properties for 2020 through 2023
Data analysis of Home Mortgage Disclosure Act data for originated loans on 1-4 unit owner occupied properties for United Wholesale Mortgage and Rocket Mortgage
20 Scarcella, M. (2024, April 3). Mortgage lender United Wholesale sued by consumers alleging billions in excess fees. Reuters. https://www.reuters.com/legal/transactional/mortgage-lender-unitedwholesale-sued-by-consumers-alleging-billions-excess-fees-2024-04-03/
21 Crawford, B. M., Hancock, C. W., Narod, A. J., & Long Jr., D. T. (2022, August 3). CFPB, DOJ File Complaint Against Non-Bank Mortgage Lender for Deliberate Discrimination Against Minority Families. Financial Services Perspectives. https://www.financialservicesperspectives.com/2022/08/cfpb-doj-filecomplaint-against-non-bank-mortgage-lender-for-deliberate-discrimination-against-minorityfamilies/
22 Dayen, D. (2024, July 12). Judges Block Huge Loophole in Lending Discrimination. The American Prospect. https://prospect.org/justice/2024-07-12-judges-block-huge-loophole-lendingdiscrimination/
23 Consumer Financial Protection Bureau Settles with Freedom Mortgage Corporation. (2019, June 5). Consumer Financial Protection Bureau. https://www.consumerfinance.gov/about-us/newsroom/ bureau-settles-freedom-mortgage-corporation/
24 HUD Approves Agreement Between California Mortgage and Appraisal Companies and Homeowners (2018, September 21). United States Department of Housing and Urban Development, Public Affairs. https://archives.hud.gov/news/2018/pr18-107.cfm
25 New York State Department of Financial Services (2021). Report on Inquiry into Redlining in Buffalo, New York. https://www.dfs.ny.gov/system/files/documents/2021/02/report_redlining_buffalo_ ny_20210204_1.pdf
26 Trificana, J. (2023, August 9). What is fintech? 6 main types of fintech and how they work. Plaid. https://plaid.com/resources/fintech/what-is-fintech/
27 See https://dfpi.ca.gov/regulated-industries/money-transmitters/
28 McKinsey & Company. (2023). Fintechs: A new paradigm of growth https://www.mckinsey.com/ industries/financial-services/our-insights/fintechs-a-new-paradigm-of-growth
29 Figure is a combination of Block’s cash and cash equivalents, investments in short-term debt securities, customer funds, and long-term debt securities, as reported in Block’s 10-K for FY23. The estimate represents Block’s entire footprint, not exclusive to California.
30 Chen, J., Mahajan, D., Nadeau, M.-C., & Varadarajan, R. (2023, October 20). Consumer digital payments: Already mainstream, increasingly embedded, still evolving. McKinsey & Company. https://www.mckinsey.com/industries/financial-services/our-insights/banking-matters/consumerdigital-payments-already-mainstream-increasingly-embedded-still-evolving
31 P2P payments: From humble beginnings to $3.04 billion banking ecosystem. (2023, October 25). https://integrated.finance/insights/blogs/p2p-payments-from-humble-beginnings-to-304-billionbanking-ecosystem
32 Anderson, M. (2022). Payment apps like Venmo and Cash App bring convenience – and security concerns – to some users. Pew Research Center. Retrieved January 30, 2024, from https://www. pewresearch.org/short-reads/2022/09/08/payment-apps-like-venmo-and-cash-app-bringconvenience-and-security-concerns-to-some-users/
33 Consumer Financial Protection Bureau. (2025, January 30). CFPB takes action against Wise US Inc. for
illegal remittance practices. https://www.consumerfinance.gov/enforcement/actions/wise-us-inc/
34 Conference of State Bank Supervisors. (2025, January 13). Settlement agreement and consent order: Block, Inc. https://www.csbs.org/sites/default/files/other-files/Block_Settlement_and_Consent_ OrderFinal_1.13.2025-order%20only.pdf
35 California Department of Financial Protection and Innovation. (2024, February 27). DFPI orders Chime Financial to pay $2.5 million, improve customer service standards due to unfair complaint handling. https://dfpi.ca.gov/press_release/dfpi-orders-chime-financial-to-pay-2-5-million-improvecustomer-service-standards-due-to-unfair-complaint-handling/
36 Consumer Financial Protection Bureau (2025, January 16). CFPB Orders Operator of Cash App to Pay $175 Million and Fix Its Failures on Fraud https://www.consumerfinance.gov/enforcement/actions/ block-inc/
37 FDIC. (2023). 2023 FDIC National Survey of Unbanked and Underbanked Households: Executive Summary https://www.fdic.gov/household-survey/2023-fdic-national-survey-unbanked-andunderbanked-households-executive-summary
38 Area Median Income & Eligibility for Affordable Housing. (n.d.). Silicon Valley at Home. Retrieved February 12, 2025, from https://siliconvalleyathome.org/resources/finding-affordable-housing/
39 Talerico, K. (2024, May 12). “Bay Area rents are on the rise again — but not in this one city.” The Mercury News. Retrieved from https://www.siliconvalley.com/2024/05/12/bay-area-rents-are-on-the-riseagain-but-not-in-this-one-city/
40 USWW-SEIU Master Wage Rates as of May 1, 2024.
41 Calvin Bradford 2022 analysis of a thirty year period of data found that 85 of 105, or 81% of total fair lending and consumer protection violations that resulted in judgments, verdicts, settlements, conciliation agreements, or consent orders against banks were not identified or considered in the institutions’ CRA performance evaluation during the exam period when the discrimination case or violation occurred.. Relative to redlining cases specifically, regulators missed 20 of 22 of these cases, or 91%. For more information, see https://woodstockinst.org/wp-content/uploads/2023/12/BradfordViolating-Your-Way-to-an-Outstanding-Rating.pdf
42 A January 2024 analysis by the National Community Reinvestment Coalition (NCRC) found that of the 16 most recent bank redlining consent decrees announced by the DOJ, fully 12 of those banks received passing CRA ratings for their relevant CRA performance evaluations.
43 Stein, K., McElroy, E., & Leshne, C. (2018). Disrupting Displacement Financing in Oakland and Beyond California Reinvestment Coalition. https://calreinvest.org/wp-content/uploads/2018/07/DisruptingDisplacement-Financing.pdf
44 Unbanked and underbanked for California, 2023 by Selected Household Characteristics (2024). FDIC National Survey of Unbanked and Underbanked Households, custom data tool. https://householdsurvey.fdic.gov/custom-data
45 Ibid.
46 2023 FDIC National Survey of Unbanked and Underbanked Households (2024) p. 3. Federal Deposit Insurance Corporation. https://www.fdic.gov/analysis/household-survey/2021report.pdf
47 DiVito, E. (2022). Banking for the People: Lessons from California on the Failures of the Banking Status Quo, p. 10. https://rooseveltinstitute.org/wp-content/uploads/2022/09/RI_ BankingForThePeople_202209.pdf
48 Ibid., p. 14.
49 Consumer Complaints for all State-Chartered Banks regulated by the CFPB. (2020, March 20 to 2024, December 16). Consumer Financial Protection Bureau. https://www.consumerfinance. gov/data-research/consumer-complaints/search/?chartType=line&company=EAST%20 WEST%20BANK&company=BANC%20OF%20CALIFORNIA%2C%20INC.&company=CATHAY%20 BANK&company=MECHANICS%20BANK&company=PACIFIC%20PREMIER%20BANCORP%2C%20 INC.&company=HOPE%20BANCORP%2C%20INC.&company=FIRST%20FOUNDATION%20
INC.&dateInterval=Month&date_received_max=2024-12-16&date_received_min=2020-03-15&lens=P roduct&searchField=all&state=CA&subLens=sub_product&tab=Trends
50 All state-chartered credit unions were matched with the according fee amount based on their asset size. These fee charges were then summed. For more information about Illinois’s fee structure according to asset sizes, see https://idfpr.illinois.gov/il-cra/cu-exam-fees.html and https://www. vedderprice.com/watching-and-waiting-the-illinois-community-reinvestment-act
51 Calculation is based on the total deposits amount for the top 20 state-chartered banks ($242,851,343,000) as published by the DFPI in Q3 FY 2024, retrieved from https://dfpi.ca.gov/news/ statistics/state-chartered-bank-statistics/. Rise Economy uses a 4% estimate of deposits, as 4% is a conservative average of what banks have committed annually to CRA eligible activity in our Community Benefits Agreements, expressed as a percent of their deposits. We then take 4% of total state-chartered bank deposits to estimate what could be reinvested under a state CRA, as we believe commitments listed in Community Benefits Agreements go above and beyond what happens under federal CRA, however a portion of the estimated reinvestment activity is already occurring under existing CRA-eligible activity.
52 https://idfpr.illinois.gov/il-cra/cu-exam-fees.html and https://www.vedderprice.com/watching-andwaiting-the-illinois-community-reinvestment-act
53 A Federal Reserve Bank of St. Louis report found that total expenses associated with CRA compliance for currently covered institutions represents 0.5% of a community banks’ total noninterest expenses. The FRB of St. Louis finds an average of 7.2% of a community banks’ total regulatory compliance costs and that all compliance costs combined account for only 7% of total noninterest expense for such a bank. Multiple this out and you find that CRA compliance accounted for only ½ of 1% of a community banks’ non-interest expenses. (seven percent of 7.2% equals 0.5%). For financial institutions with assets in excess of $1 billion, total compliance costs are lower still, amounting to only 5.3% of non-interest expense. For more information, see Compliance Costs, Economies of Scale and Compliance Performance, Evidence from a Survey of Community Banks,” April 2018.
54 Calculation is based on the total deposits amount for the top 20 state-chartered credit unions ($96,007,008,000) as published by the DFPI in Q3 FY 2024, retrieved https://dfpi.ca.gov/wp-content/ uploads/2024/12/fin3q24.pdf . Rise Economy uses a 4% estimate of deposits, as 4% is a conservative average of what banks have committed annually to CRA eligible activity in our Community Benefits Agreements, expressed as a percent of their deposits. We then take 4% of total state-chartered bank deposits to estimate what could be reinvested under a state CRA, as we believe commitments listed in Community Benefits Agreements go above and beyond what happens under federal CRA, however a portion of the estimated reinvestment activity is already occurring under existing CRA-eligible activity.
55 https://idfpr.illinois.gov/il-cra/cu-exam-fees.html and https://www.vedderprice.com/watching-andwaiting-the-illinois-community-reinvestment-act
56 A Federal Reserve Bank of St. Louis report found that total expenses associated with CRA compliance for currently covered institutions represents 0.5% of a community banks’ total noninterest expenses. The FRB of St. Louis finds an average of 7.2% of a community banks’ total regulatory compliance costs and that all compliance costs combined account for only 7% of total noninterest expense for such a bank. Multiple this out and you find that CRA compliance accounted for only ½ of 1% of a community banks’ non-interest expenses. (seven percent of 7.2% equals 0.5%). For financial institutions with assets in excess of $1 billion, total compliance costs are lower still, amounting to only 5.3% of non-interest expense. For more information, see Compliance Costs, Economies of Scale and Compliance Performance, Evidence from a Survey of Community Banks,” April 2018.
57 Mazzella, D. (2024). California Affordable Housing Needs Report 2024. California Housing Partnership. https://chpc.net/resources/california-housing-needs-report-2024/
58 Public subsidy cost estimated based on Public subsidy per unit factor of $148,120 from Enterprise Community’s The California Affordable Housing Pipeline report (https://www.enterprisecommunity. org/sites/default/files/2024-04/State_Pipeline_2024_FINAL.pdf) multiplied by total RHNA units needed.
59 Santana, S., Marcus, J., Atanacio, A. L., & Palafox, A. (2025). The 2025 California Affordable Housing Pipeline. Enterprise Community Partners. https://www.enterprisecommunity.org/learning-center/ resources/2025-california-affordable-housing-pipeline]
60 U.S. Census Bureau, U.S. Department of Commerce. “Demographic Characteristics for Occupied Housing Units.” American Community Survey, ACS 5-Year Estimates Subject Tables, Table S2502, 2023, https://data.census.gov/table/ACSST5Y2023.S2502?q=owner occupancy by race&g=040XX00US06&moe=false. Accessed on December 18, 2024.
61 Analysis of 2024 FFIEC CRA Flat File. https://www.ffiec.gov/censusapp.htm
