The Senate last night approved a new effort to stop banks from discriminating against blacks and low-income groups in general in their mortgage loan policies, the practice known as "red-lining." The vote was 40 to 31.
The action came as the Senate debated a bill providing a $14.7 billion in new authorizations for housing and community development over the next three years.
Earlier, Harry F. Byrd Jr. (Ind.-Va.) won an extra $1 million in annual federal aid for Arlington County when he got the senate to accept an amendment redefining "urban county" as that term is used in determining eligibility for the community development block grants authorized in the bill. Under existing law, larger cities and heavily urbanized noncity counties are eligible for grants.
But the county, in addition to being urbanized, must have at least 200,000 people and Arlington has only 156,000, so Byrd got through an amendment lowering the population cutoff to 100,000. He said as far as he knew Arlington would be the only county in the nation affected.
Virtually all debate on the bill yesterday involved a Banking Committee provisiion, stronly defended by chairman William Proxmire (D-Wis.), directing federal banking agencies to consider whether local banks are meeting the loan and mortgage needs of their "primary service areas" before granting applications for new branches.
Proximire said a two-year study showed banks and savings and loans institutions often simply refused to use money collected from savers in the inner city for loans to the residents of the very same area where the money is deposited, for fear that they are poor credit risks as a group. "They actually draw a red line" around a neighborhood and say no money will go there, he said.
To block that practice, and make sure the institutions reinvest a substantial portion of their money in their immediate home area is "the best opportunity we have to provide effective rebuilding of our great cities . . . at no cost to the federal government," he said.
Robert Morgan (D-N.C.), sponsoring an amendment to delete the anti-red-lining provision, said at least three other laws passed recently are aimed at the same practices. He argued the new provision would require added paperwork, is vague as to what constitutes the surrounding neighborhood, and worse, could be "a significant step in the direction of (federal) credit allocation."
In effect, he said, it tells banks how to invest their money. But perhaps most dangerous of all, he said, is that it could prevent many suburban banks from channeling their funds to worthy mortgages in the inner city, because they would have to spend most of them in their own suburban service areas.
He read letters from Federal Reserve Chairman Arthur F. Burns and from the Federal Home Loan Bank Board opposing the provision as drawn, and said the Office of Management and Budget also opposes it. But his amendment to delete was defeated on the 40-to-31 vote. Both Virginia senators backed Morgan. Paul Sarbanes (D-Md.) voted with Proxmire and Charles Mc C. Mathias Jr. (R-Md.) was absent.