What is CRA?
Community Reinvestment Act
The Community Reinvestment Act (CRA) was enacted by Congress in 1977, after years of campaigning by community based organizations throughout the country. Community organizations were responding to banking practices such as, disinvestments in economic development and affordable housing, as well as the lack of basic services provided to moderate and lower-income community members. The CRA was amended in 1989 by the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), as part of the Savings and Loan Bailout Bill.
The Community Reinvestment Act mandates that lending institutions have an obligation to meet the credit needs of all segments of the community where they do business. These needs may include loans for home mortgages, small business loans, start-up loans for small business, community development loans, and loans for affordable housing development for lower-income communities. Under the CRA requirements, lending institutions can no longer disinvest and not meet the credit needs of lower-income communities, while solely expanding their business operations in low-risk, high profit lending areas.
The Community Reinvestment Act does not force lending institutions to make bad loans, nor to provide services which threaten sound banking operations. Nevertheless, community organizations throughout the country have negotiated community reinvestment agreements with lending institutions, thereby establishing a criteria as to how lending institutions can comply with the Community Reinvestment Act.
There are found federal regulatory agencies that are responsible for monitoring lending institution compliance with the Community Reinvestment Act and formulating a rating for each category of lending institution, based on their performance in complying with the law. The Federal Reserve Board regulates state-chartered banks which are members of the Federal Reserve System as well as single-and multi-bank holding companies. The Office of the Comptroller of the Currency regulates federally chartered ("national") banks. The Federal Home Loan Bank Board regulates federally chartered or insured savings and loan associations. And lastly, the Federal Deposit Insurance Corporation regulates mutual savings banks and state chartered banks that are FDIC insured, but are not members of the Federal Reserve System.
Under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) the ratings that the regulatory agencies administered were changed. They were changed from a straight scale rating of 1 to 5, to four new categories, which are: "outstanding", "satisfactory", "needs improvement", and "substantial non-compliance." These ratings were, at one time, confidential but as of July 1, 1990 the confidential ratings became public information, making it easier for community groups to distinguish which lending institutions are complying with their CRA obligations and making it easier for citizens to investigate potential redlining by requiring banks to record the race, sex, and income levels of all loan applicants and recipients.
