Community Reinvestment Act

Community Reinvestment Act
Shorttitle	Community Reinvestment Act
Othershorttitles	CRA
Longtitle	An Act to encourage depository institutions to help meet the credit needs of the communities in which they operate, consistent with safe and sound operations.
Enacted by	95th
Effective date	October 12, 1977
Cite public law	95-128
Cite statutes at large	91 Stat. 1147
Title amended	12 U.S.C.: Banks and Banking
Sections created	12 U.S.C. ch. 30 § 2901 et seq.
Introducedin	House
Introducedby	Fernand St Germain
Committees	House Banking, Finance, and Urban Affairs
Passedbody1	House
Passeddate1	July 25, 1977
Passedvote1	376-6
Passedbody2	Senate
Passeddate2	September 9, 1977
Passedvote2	79-0
Signedpresident	Jimmy Carter
Signeddate	October 12, 1977

Community Reinvestment Act is a United States federal law enacted in 1977 to address systemic disinvestment and redlining in low- and moderate-income neighborhoods. The legislation was designed to encourage federally insured depository institutions, such as commercial banks and savings and loan associations, to meet the credit needs of their entire communities. It mandates that federal banking regulators assess these institutions' records of serving local credit needs. The law's enforcement is tied to the regulatory approval process for applications like bank mergers and branch openings.

Background and legislative history

The act emerged from political pressure by community organizers and civil rights groups, including National People's Action and the Association of Community Organizations for Reform Now, responding to widespread redlining. This practice, documented in cities like Chicago and Detroit, was often tacitly approved by agencies like the Federal Housing Administration. Key legislative champions included House member Fernand St Germain and Senator William Proxmire, who chaired the Senate Banking Committee. The final bill passed with strong bipartisan support during the administration of President Jimmy Carter, following hearings that highlighted lending discrimination uncovered by the Home Mortgage Disclosure Act.

Key provisions and requirements

The core mandate requires appropriate federal financial supervisory agencies to assess each insured depository institution's record. These agencies include the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. Assessments are based on a performance evaluation that considers lending, investment, and service activities within an institution's assessment area, which is typically delineated around its branches and deposit-taking ATMs. The law explicitly states that activities must be consistent with safe and sound operations. Ratings from these exams—Outstanding, Satisfactory, Needs to Improve, or Substantial Noncompliance—are made public.

Implementation and enforcement

Implementation is carried out through periodic examinations conducted by the relevant federal banking agency. The act's primary enforcement mechanism is its consideration during the regulatory review of applications for bank mergers, acquisitions, and the opening or relocation of branches. A poor record can lead to the denial of such applications. Major regulatory frameworks for implementation were established through rules issued in 1989 and significantly revised in 1995 under the Federal Financial Institutions Examination Council. These rules introduced performance tests and data disclosure requirements that shape modern examinations for institutions like JPMorgan Chase and Bank of America.

Impact and effectiveness

Studies, including those from the Federal Reserve Bank of New York and the MIT Department of Urban Studies and Planning, have credited the act with increasing mortgage and small business lending in previously underserved areas. Research following the Financial crisis of 2007–2008 indicated CRA-covered institutions often had more stable lending standards. The act facilitated the growth of community development financial institutions and partnerships with groups like Local Initiatives Support Corporation. Data from the Home Mortgage Disclosure Act shows increased lending to minority and low-income borrowers, particularly after the 1995 regulatory reforms.

Controversies and criticisms

Critics, including some members of the United States Congress and scholars from the American Enterprise Institute, argue the act contributed to the subprime mortgage crisis by pressuring banks into making risky loans. This view was prominently debated during hearings of the Financial Crisis Inquiry Commission. Others contend the law is ineffective or imposes unnecessary regulatory burdens on smaller community banks. Some economists assert that market forces, rather than regulatory mandates, are the primary drivers of community lending. Debates also persist over examination consistency across different regulatory agencies and the definition of geographic assessment areas in an era of online banking.

Amendments and related legislation

The act has been amended several times, most significantly by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 and the Gramm–Leach–Bliley Act of 1999. The Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010 required public disclosure of more CRA exam data and strengthened provisions for minority-owned and women-owned business lending. Related statutes that complement its goals include the Home Mortgage Disclosure Act of 1975 and the Equal Credit Opportunity Act. In 2023, federal agencies including the Office of the Comptroller of the Currency finalized a major regulatory modernization to account for changes in banking practices like mobile banking.

Category:United States federal banking legislation Category:1977 in American law Category:Jimmy Carter