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For people pushing for credit and investment in poor neighborhoods, recent Capitol Hill news comes in three categories–bad, worse and Senator Phil Gramm. The House is trying to hobble the Community Reinvestment Act by making sure it doesn’t apply to the financial behemoths of the future. In the Senate, Gramm is trying to cripple the law for good.

CRA, which requires banks to provide credit equitably on their home turf, has been responsible for hundreds of millions of dollars of loans in low- and moderate-income neighborhoods. But when Phil Gramm took over the Senate banking committee last year, CRA’s backers predicted doom, since the conservative senator had railed against the law for years.

Now, their fears are being realized. Over the last weeks, the House and Senate have been developing versions of the “financial modernization” banking bill, which would eliminate barriers between banking, securities and insurance companies. The bill opens the gate for the creation of enormous financial conglomerates, like the recent Citibank-Traveler’s union. And if the pin-striped set gets its way, Congress will allow these new megaliths to duck the requirements of the 22-year-old Community Reinvestment Act.

The Senate version of the new bill, passed out of committee on March 4, would go much further. A Safe Harbor provision would effectively keep community groups from commenting on a bank’s CRA record if the bank had a “satisfactory” or better overall rating–regardless of its local history. And an amendment from Senator Richard Shelby exempts rural banks with assets of $100 million or less from CRA, which would include roughly 60 percent of the banks and thrifts in the country.

The House version, passed last Thursday, doesn’t include those cutthroat provisions, but it would allow newly-formed mega-banks to escape CRA.

Effectively, that means that Congressional debate has shifted from extending the law to cutting it back. “Gramm’s been very savvy about capturing people’s attention and making them argue on his terms about saving CRA at all,” said Sarah Ludwig, who runs a New York task force on fair lending issues.

Democrats on the Senate banking committee were incensed by how Gramm handled the debate, and the White House has sent a letter promising to veto his bill.

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