Community Reinvestment Act

Community Reinvestment Act

The Community Reinvestment Act (CRA) has been critical to the expansion of responsible credit for low- and moderate-income borrowers since its passage in 1977. Designed to address low levels of lending activity in low- and moderate-income neighborhoods, it has helped spur a growing range of successful affordable loan programs that reduce credit access barriers. CRA expands the overall efficiency of the banking system by incentivizing banks to tap profit opportunities in underserved markets.

The Community Reinvestment Act ensures that banks make resources available to low-income or otherwise disadvantaged communities by offering “equal access to lending, investment and services to all those in an institution's geographic assessment area-at least three to five miles from each branch. In the case of large banks with many branches, the geographic area may encompass an entire county or even a state.” This policy was created as a direct response to “redlining”, a discriminatory practice used by bankers to avoid making loans to people of color or lower-income areas.

Cry Wolf Quotes

CRA has enabled special interest groups to collect billions of dollars from banks under agreements that are kept secret. Even the citizens that these groups purport to represent have no way of knowing how the groups spend the money they get from banks. That s why I hope the Senate will approve a sunshine amendment that will add accountability to this process and bring these agreements into, the light of day.

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Senator Phil Gramm , Chairman of the Senate Committee on Banking, Housing and Urban Affairs.

The CRA has created opportunities for rent seeking and financial and logistical burdens for all lenders. The Act forces lenders to spend money, time, and resources on documentation, PR, and other compliance costs.

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Michelle Minton, Competitive Enterprise Institute

The CRA, by encouraging loosening underwriting standards, may have contributed to the massive increase in foreclosure rates.

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Michelle Minton, Competitive Enterprise Institute

The Community Reinvestment Act does not appear to have had any positive effect on lending to residents of LMI neighborhoods. In fact, it appears to have had a negative effect on CRA lenders and LMI residents alike… While both CRA- and non-CRA lenders have increased the number of loans to low-income borrowers, the financial soundness of CRA-covered institutions decreases the better they conform to the CRA.

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Michelle Minton, Competitive Enterprise Institute

Evidence

Backgrounders & Briefs

Good Rules: Ten Stories Of Successful Regulation

Demos looks at ten laws and rules that we take for granted.

Community Reinvestment Act Policy Brief

By Philip Ashton, UIC

The Community Reinvestment Act (CRA) has been critical to the expansion of responsible credit for low- and moderate-income borrowers since its passage in 1977.