Trump Quashed Updated CRA Rules. Can California Step Up With a State CRA?

Policy cuts both ways. It was the tool used to undermine Tate Hill’s community by design — and it’s a tool he’s using now to restore and regenerate it.

Born and raised in southwest Fresno, Hill has always seen it as a vibrant, diverse community, filled with Hispanic, Asian, and other Black folks like himself.

One thing southwest Fresno didn’t have were bank branches. Back in the 1930s, long before Hill was born, banking and real estate industries helped craft federal policies to discourage investment in such neighborhoods because they were full of Black, Hispanic, immigrant or low-income populations perceived as too risky by the white men who wrote those policies, which came to be known as “redlining.”

Like so many others, Hill didn’t learn about that history until he was an adult working at a community development corporation, helping his neighbors find better jobs, find more affordable housing and start their own businesses. “That’s when I learned about the term redlining,” Hill says. “There’s been some very intentional things that have transpired that have caused harm.”

Hill’s work continues today as CEO at Access Plus Capital, a community development financial institution (CDFI) that supports and finances small businesses in Fresno and many rural communities in California’s Central Valley.

The federal Community Reinvestment Act (CRA) encourages banks to partner with community development corporations and CDFIs like his to address the legacy of redlining. But Hill and a chorus of allies across California agree that the Community Reinvestment Act, passed by Congress in 1977, is long overdue for an update. That update came close to happening under the Biden administration, but the Trump administration is rescinding that update.

Californians are now turning to their state government. AB 801, also known as the California Community Reinvestment Act of 2025, recently passed out of committee in the California State Assembly and a full floor vote is expected within the next month or so. Hill is part of a statewide coalition calling for its passage.

Read more: Why the Community Reinvestment Act Is Back in the News – Again

Among other changes, AB 801 would update CRA coverage for state-chartered banks in California, which would also remain subject to the federal CRA. The legislation would also expand CRA coverage in California to state-chartered credit unions and state-licensed non-bank lenders, neither of which are currently subject to the federal CRA but are now much more significant players than they were back in 1977.

Under the California Community Reinvestment Act, regulators would evaluate covered institutions for their presence in communities of color, something that the federal CRA does not take into account. The legislation would also empower state bank regulators to evaluate CRA performance using methodologies that account for online-only lenders or lenders who otherwise have a limited physical branch presence, something that federal CRA rules also do not currently take into account.

“It’s so important for the modernization of the CRA to catch up to the current environment of financial institutions and the needs of communities,” Hill says. “In particular here with the state-based CRA, it’s a way to layer and fill the gaps that might be more specific to a particular state. The federal law really should be the floor of what we think about, and then the state is enhancing what’s important particularly for California and its needs.”

Game of charters

The original federal CRA from 1977 directs federal bank regulators to “assess the institution’s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods,” and to “take such record into account” when considering applications to open or close branches or for mergers with other banks.

As it’s written, the federal CRA only applies to banks, but it applies to all 4,465 banks across the country. Around 80% of those banks are actually state-chartered banks; state banking regulators also have oversight over the institutions chartered or licensed in their state.

Since 1863, banks in the U.S. have had the option to be state-chartered or federally-chartered. The differences today are less meaningful than they once were. State-chartered and federally-chartered banks today tend to offer the same range of products and both can operate in multiple states, but state-chartered banks are smaller and tend to operate more locally. The average size of a federally-chartered bank today is $16 billion in assets, while state-chartered banks average just $2.2 billion.

“State-chartered banks are typically going to be the local and regional banks, and so those are definitely the ones that we want to collectively see are invested in the communities that have been disenfranchised,” Hill says.

Read more: California Urgently Needs Its Own Community Reinvestment Act

Similarly, credit unions can also choose to be state-chartered or federally-chartered. Out of 4,445 credit unions across the country today, 37% are state-chartered. With $680 million in assets on average per state-chartered credit union, they’re actually larger than federally-chartered credit unions with an average of $421 million in assets.

Using their oversight powers over at least some of the financial institutions operating within their borders, seven states as well as the District of Columbia currently have their own state-based Community Reinvestment Acts. The most recent state to join the group was Illinois, which passed its state-based CRA in 2021 — though the rulemaking process dragged on for several years. The first state-based CRA examinations in Illinois will be conducted later this year for activity going back to 2024.

While state-based CRA laws apply to state-chartered banks, they vary in their applicability to other types of financial institutions. Connecticut, Massachusetts, Rhode Island, Illinois and D.C. include state-chartered credit unions in their state-based CRA. Massachusetts, New York, D.C. and Illinois also include non-bank lenders, which are required by states to obtain a license to make loans within their borders.

The proposed California Community Reinvestment Act of 2025 would cover state-chartered banks and credit unions — as well as state-licensed non-bank lenders like mortgage companies and online or “fintech” (financial technology) companies that made at least 200 or more loans in California over the previous two years. Across California, there are around 100 state-chartered banks with more than $310 billion in assets and nearly 100 state-chartered credit unions with $153 billion in assets. There are also around 400 state-licensed mortgage lenders in California.

“These are usually not small players, your fintechs and so forth,” Hill says. “These are all large players that have their own level of access to clients. Credit unions have also gotten significantly bigger and have changed in their scope. Here in our region, we have several very large credit unions that are much larger than even a combination of some of our local banks.”

How CRAs work

Whether federal or state-based, CRA oversight operates similarly for the institutions they cover. Regulators send CRA examiners to evaluate institutions on a regularly scheduled basis (sometimes every other year, sometimes every 3-5 years for institutions that perform well).

Whether federal or state, CRA examiners compare the income levels of an institution’s service areas to the income levels of its borrowers and the income levels of the areas where it makes loans, down to the census tract level. If an institution is only lending to wealthy areas or wealthy borrowers, it can result in a lower performance rating. Researchers have found evidence that CRA evaluation does affect which census tracts banks target for residential mortgage lending and small business lending.

CRA examiners also evaluate an institution’s community development activity. How much does it participate in programs like the Low Income Housing Tax Credit or New Markets Tax Credit programs? How much does it invest in CDFIs? In 2023, federal CRA examiners tallied up $126 billion in community development loans, which include things like loans for affordable housing, economic revitalization and historic preservation.

Hill’s Access Plus Capital currently has loans or investments from seven banks, including four state-chartered banks, totalling $10.4 million — dollars that his CDFI then turns around to re-lend to its small business clients. These are the kinds of loans and investments that CDFIs hope to see more of from state-chartered credit unions or state-licensed mortgage lenders in California.

One of the lead coalition members behind AB 801 is Inclusive Action, a nonprofit and CDFI that supports low-income communities and entrepreneurs in Boyle Heights and nearby areas in Los Angeles and LA County.

“We believe a statewide CRA can create new funding streams for CDFIs by encouraging credit unions and mortgage companies to invest in institutions like ours,” says Luz Castro, associate director of policy at Inclusive Action.

About 21% of Inclusive Action’s loan portfolio are loans to street vendors for equipment, inventory and working capital. Another 5% are for swap meet vendor inventory. Few banks or credit unions would be willing to make these loans, but many of these borrowers still don’t trust banks, especially at a moment when the Trump administration is scouring the depths of previously sacrosanct private bank data to facilitate deportations.

“We can all agree credit unions are member-owned financial institutions with a strong community driven mission, but we think there are still gaps in the way they reinvest back into community and ways to be more intentional about investing back into low income and communities of color that need it most,” Castro says.

“The small businesses and micro-businesses that we serve are the smallest you can think of in L.A. County. Street vendors, mom-and-pop shops, women and immigrant entrepreneurs.”

Beyond the grades

The final product of a CRA examination is technically a document called a performance evaluation, which contains a rating for the institution.

Typically the ratings are something like “outstanding” at the highest end, followed by “satisfactory,” “needs improvement,” and “substantial noncompliance” — with the last two typically indicating a failing grade.

But CRA grades are notoriously inflated. Historically, 98% of banks receive a passing grade on their federal CRA examinations every year, despite copious data showing disparities in access to capital along racial or gender lines.

Read more: How to Evaluate a Bank’s Community Reinvestment Act Evaluation

State-based CRA exams have followed the same pattern. Of 90 state-chartered banks and 48 state-chartered credit unions evaluated under Massachusetts’ CRA legislation, none currently have a failing grade. At the same time, the state’s CRA performance evaluations do show credit unions making the kinds of community development loans and investments that AB 801 advocates want to see more credit unions making in California.

CRA grades can have impact in one particularly visible way. Many municipal, county and some state governments require the institutions that hold government bank accounts to have a passing grade on their CRA examinations. Failing an exam can force a local or state government to close its accounts and move to another bank. That’s exactly what happened in 2017 after Wells Fargo failed its regular CRA exam, forcing the City of New York to close up nearly a hundred Wells Fargo bank accounts, including its main payroll account, and move them to Chase.

Beyond the grades, supporters of AB 801 are interested in how state-level CRA examiners can help nudge institutions to have more productive conversations with cooperatives, community land trusts and other groups that have a hard time getting on bank executives’ meeting calendars.

“Even when when the federal CRA is working, you have federal regulators that are looking at institutions, sometimes that are in multiple states, and they’re necessarily looking at it a higher level,” says Kevin Stein, chief of legal and strategy at Rise Economy, a statewide network that is also one of the lead groups behind AB 801.

“There is an opportunity with the state CRA to have local needs prioritized and identified and have those met, so that the activities of financial institutions hopefully will be greater in dollars but they’ll also be more impactful,” Stein says. “They’ll make more of a difference in the lives of community members and the health of communities because the community will articulate its needs at a local level, and the institutions will strive to address those needs. That’s potentially a very big deal.”

These groups are not just looking for grants. They’re looking to help banks create and market new loan products that meet needs — like workers who need a loan to acquire a small business from a long-time entrepreneur who wants to retire, loans for acquisition and rehab of community-owned commercial real estate, or loans for community land trust residents.

“We’ve been doing a lot of education for lenders around the community land trust ground lease setup, the model and the understanding that the homeowner will need to take a mortgage, but it’s only applicable to the improvements and not to the land itself,” says Lydia Lopez, co-director of the California Community Land Trust Network. “Whether banks are okay with that structure has been a hurdle sometimes.”

There’s been growth in the number of community land trusts in her network since she joined in 2022, from a couple dozen to more than 50 today. As they’ve grown in number, they’ve been able to open some doors through federal CRA legislation. State-chartered banks have been among the first to sign up as investors for a new fund supporting acquisition of properties by community land trusts across the state.

Lopez believes a state-based CRA can open doors to even more new partnerships with credit unions and mortgage companies chartered or licensed to do business in California. That’s why her network also supports AB 801.

With one exception, credit unions and mortgage companies seem to be the last ones to the community land trust table. Even municipalities are starting to understand the broader benefits of the community land trust model — by separating ownership of the structure on top of the land from the land itself, it makes homeownership more attainable, which is good for the whole city. Lopez can rattle off at least half a dozen California municipalities that have approached the California Community Land Trust Network for help with starting up community land trusts in their jurisdictions.

“Cities can’t retain their workforce,” Lopez says. “The issue of housing is not divorced from the economy. If you cannot retain your workforce, your economy is going to suffer.”