It’s no secret that California’s racial wealth gap is stark. Take a look at the numbers: Black Californian households have a median income of $63,268; Latin/x California households have a median income of $75,698. In contrast, white households in the state have a median income of $103,065, according to recent U.S. Census data.

The data underscores the bleak reality of how centuries of institutional and systemic racism have created the disparities in wealth we see today. Closing the racial wealth gap is one of California’s most urgent challenges.

Homeownership and the lack of affordable housing are the main catalysts of that racial wealth gap. Last year, Gov. Gavin Newsom signed around 60 housing bills into law in 2023. Some address home ownership, while others strengthen tenant protections and rectify nagging zoning issues.

But few tackle the root cause of the problem — financial institutions.

Americans have the federal Community Reinvestment Act (CRA) in place, which has stood as one of the primary housing rights and civil rights laws in the country since 1977. The law establishes a mandate that banks help meet the credit needs of low and moderate-income communities. For nearly 50 years, the law has attempted to root out the pernicious acts of race-based credit denial, also known as redlining.

While the law has mitigated some disparities in financial services access, it simply is not strong enough to close the widening racial wealth gap and address the evolving needs of these communities for the next 50 years. The needs of consumers, especially vulnerable consumers and the communities redlining has historically harmed, have changed since 1977.

Take, for example, the emergence of independent mortgage companies, credit unions and fintech companies, which offer the convenience and speed today’s consumers need. These companies, such as Cash App and Stripe, are frequently used by low-income and BIPOC consumers who may have been alienated from traditional banking. Yet their prevalence has also introduced unforeseen problems in recent decades.

Under the federal CRA, these non-traditional financial institutions do not have a mandate to reinvest in low-income and BIPOC communities, nor is their record of lending to these communities tracked and measured. This is a major hole in the federal CRA. Without those obligations in place, these institutions may be widening the racial wealth gap.

To address these issues and fill the holes in the federal law, California lawmakers can pass a state-level CRA that establishes a reinvestment obligation for these financial institutions.

Watch Next City’s webinar on major changes to the Community Reinvestment Act, set to go into effect in 2026.

A state-level CRA would redress unfair lending, and promote reinvestment in affordable housing development and homeownership and climate-resilient community development, while also penalizing financial institutions that invest in bad landlords or fossil fuel companies that hasten climate change. California is currently facing a severe housing shortage. By implementing a reinvestment obligation, a state-level CRA can ensure the housing needs of Californians are met.

Based on recent Community Benefits Agreements in California, banks have agreed to reinvest an average of 4% of their total deposits annually. Using this figure, the top 20 state-chartered banks and credit unions alone have the potential to reinvest upward of $15.3 billion per year for affordable housing, homeownership and economic development.

Several states have already enacted state-level CRAs, with some like Illinois and New York extending their coverage to credit unions and mortgage companies. California shouldn’t be afraid to take a similar step – and to position itself as a bold leader by making California’s CRA one of the first state-level CRAs to evaluate financial institutions based on their lending to BIPOC communities, climate impact, and requiring a reinvestment obligation from fintech companies.

All Californians deserve to thrive and participate fully in our economy. It’s time for California to live up to its reputation as a progressive leader and make steps toward closing the racial wealth gap by implementing a state-level CRA that fills the holes in the federal law, addresses historical inequalities, and requires all financial institutions — both traditional and non-traditional — to reinvest in the communities where they operate.