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

The problem with the Community Reinvestment Act is not its goals but its vagueness and ambiguity that have led to a nightmare of documentation, paperwork and formalized process that diverts bankers' time and bank resources from being utilized to serve our communities… we need to build a system of supervision and enforcement that encourages creativity and substance in community reinvestment lending.

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Michael K. Guttau, National Mortgage News

The Community Reinvestment Act should be repealed--not reformed or restricted but repealed! For no conceivable set of regulations on a bank is consistent with the objective of the Act to meet ‘the credit needs of its entire community, including low and moderate-income neighborhoods, consistent with safe and sound operation of such institution.’ The Community Reinvestment Act was the wrong solution to a genuine problem, for the most part created by other government regulations. Until recently, federal restrictions on interstate banking and state restrictions on intrastate branching severely restricted bank competition in local markets and the potential for geographic diversity of loan portfolios. These restrictions have been substantially reduced, promising a more competitive banking system that is more responsive to the interests of both depositors and borrowers and less vulnerable to adverse economic conditions in specific regions...Don't try to fix the Community Reinvestment Act. It can't be done. Repeal it.

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William A. Niskanen, Chairman, Cato Institute. Testimony, Subcommittee on Financial Institutions and Consumer Credit, House Committee on Banking and Financial Services

You're wrong in stating where the problem came from. The problem came from this notion that everybody in America had a right to a house whether they could ever afford to pay their loan back. That's what the Community Reinvestment Act was all about.

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Sean Hannity, Fox News.

The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites. The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans.

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Jeff Jacoby, Boston Globe.

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.