Community Reinvestment


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News About Our Work The Community Reinvestment Act is a federal law that was passed in 1977, to prohibit banks from refusing to lend in low and moderate income communities. Because this "redlining," as it is called, was found to be widespread, Congress passed CRA to ensure that "regulated financial institutions have a continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered."

The Gramm-Leach-Bliley Act of 1999 chipped away at the CRA, but by no means repealed it.  This Act slows the CRA examination cycle for banks with assets below $250 million to once every four or five years, and imposes new reporting requirements on community groups that seek to enforce the CRA, including by submitting comments to the bank regulatory agencies.

As the statute makes clear, the CRA is only enforced in connection with banks' merger and expansion applications.  The federal bank regulatory agencies periodically evaluate banks for their compliance with CRA, and assign them one of four ratings: Outstanding, Satisfactory, Needs to Improve or Substantial Non-Compliance. In 1998, the agencies rated over 98% of banks as either Outstanding or Satisfactory, despite that fact that, for example, the banking industry continues to deny the mortgage loan applications of African Americans and Latinos twice as frequently as those of whites. Statistics about loan approvals and loan denials can be determined by using the Home Mortgage Disclosure Act (HMDA) data that banks are required to make public each year.

Because the regulators have so inflated the CRA grading system, the one pro-CRA provision of the Gramm - Leach - Bliley Act (requiring financial holding companies' banks to have "Satisfactory" or "Outstanding" CRA ratings) is of little practical effect. When a bank moves to acquire an insurance company, the only venue for public participation is before a state insurance regulator, under a fair housing / consumer compliance standard, rather than a CRA standard. For this, contact the Inner City Public Interest Law Center.

Despite that fact that the regulators have been largely "captured" by the banking industry, CRA can sometimes be enforced in a way that benefits our communities, particularly when grassroots community groups challenge bank-on-bank merger and expansion applications. When banks apply to buy another bank, or to otherwise expand, CRA requires the regulators to consider the applicant bank's record of serving low and moderate income communities.

There are public comment periods on these applications; if community groups document the bank's failure to fairly serve their area, the regulators are required to look more closely, and take action.  Some banks make commitments as to the amount and type of loan products and banking services that the bank wil make available.  Some important issues, like questionable high interest rate lending, insurers getting into banking, or companies entirely capturing the regulators, don't lend themselves to settlement, but rather to full throttle advocacy.  See, e.g., "Community Reinvestment in a Globalizing World: To Hold Banks Accountable, From The Bronx to Buenos Aires, Beijing and Basle," by Matthew Lee, in Organizing Access to Capital: Advocacy and the Democratization of Financial Institutions, Prof. Greg Squires, ed., Philadelphia: Temple University Press, 2003. For more, contact the Inner City Public Interest Law Center.

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