Community Reinvestment Act

The federal Community Reinvestment Act (CRA) was passed in 1977 in an effort to eliminate redlining by mortgage lending institutions, a practice that discriminated against residents of low-income neighborhoods. Despite continuing objections by financial institutions, it has proven to be effective in increasing access to credit in traditionally under-served neighborhoods, particularly low-income and minority communities. Significant changes in the mortgage lending industry in recent years, coupled with pushback by lenders and the emergence of reverse redlining (subprime and predatory lending targeted to vulnerable communities) along with the foreclosure and economic crises that followed, have limited the reach of the law. Proposed changes to regulations implementing the CRA can restore and strengthen the impact of the law and make it an even more effective anti-redlining and community reinvestment tool in the future.

Since the CRA was enacted, a community reinvestment infrastructure has emerged that has made this an effective, and even more contentious, statute. Fair lending and community reinvestment advocates, lawyers, academics, religious leaders, labor organizations, sympathetic elected officials, and others have developed a wide range of expertise, organized effective coalitions, and assembled political power in a manner that has changed the way banks do business. Passage of the law was the result of aggressive community organizing in the 1960s, and even earlier in some communities. In turn, the law has stimulated even more effective organizing, advocacy, and consequently, more equitable access to mortgage loans.

Under the CRA, federally regulated depository institutions (e.g., banks and thrifts) are required to affirmatively ascertain and be responsive to the credit needs of their service areas, defined primarily by those communities in which they have a branch bank and provide loans. Federal financial regulatory agencies (e.g., Federal Reserve, Comptroller of the Currency, Federal Deposit Insurance Corporation) are required to monitor the lending, investment, and service activities of the lenders they supervise. When those lenders submit applications to their regulator to purchase or merge with another institution, open or close a branch office, or make any other significant change in their business operation, the regulatory agency is required to take the lender's CRA record into account in evaluating the application. In addition, third parties, including community organizations, can challenge those applications on the grounds that the lender is not meeting its obligations under the CRA. Applications can be denied or delayed, resulting in costs to those institutions. While enforcement has been uneven between regulatory agencies and by different U.S. presidential administrations, the law has moved mortgage lenders in the intended direction. According to the National Community Reinvestment Coalition, challenges and commitments resulting from the CRA have led to more than $6 trillion in loans to traditionally under-served areas.