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see also Does Europe Need a Community Reinvestment Act?

The Community Reinvestment Act (CRA) is a United States federal law that requires banks and savings and loan associations to offer credit throughout their entire market area, and prohibits them from targeting only wealthier neighbourhoods with their services, a practice known as "redlining." The purpose of the CRA is to provide credit, including home ownership opportunities, to underserved populations and commercial loans to small businesses.

The CRA was passed into law by the US Congress in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community. Only one banker, Ron Grzywinski from ShoreBank in Chicago, testified in favour of the act. [1]

The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution's application for deposit facilities, including mergers and acquisitions. The CRA is enforced by the financial regulators (FDIC, OCC, OTS, and FRB). In 1995, as a result of interest from President Clinton's administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators' attention on institutions' performance in helping to meet community credit needs. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for five years. Thus in 2002, the regulators opened up the regulation for review and potential revision.


Changes of 1995

The 1995 revisions were credited with helping to substantially increase the amount of loans to small businesses and to low- and moderate-income borrowers for home loans. Part of the increase in the latter type of lending was no doubt due to increased efficiency in the secondary market for mortgage loans. The revisions allowed the securitisation of CRA loans containing subprime mortgages. The first public securitisation of CRA loans started in 1997. [1]

Changes of September 2005

Among banks and the regulatory agencies, there was a consensus that data collection, recordkeeping, and reporting requirements imposed a heavy burden on small community institutions. As a result of a 2002 review of the CRA regulations, and revision of an initial Federal Deposit Insurance Corporation proposal following a public commenting period which was largely negative, the FDIC, Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board (FRB), made substantive changes to the implementation of regulations for the CRA for banks (not thrifts). Previously, all institutions over $250 million were subject to a three-part CRA test that covered lending (including community development loans), qualified investments, and services (including community development services) to their assessment areas. Institutions less than $250 million were subject only to a lending test. However, as of September 1, 2005, only those institutions with more than $1 billion in assets were subject to the three-part test; institutions less than $250 million remain subject to only a lending test; and a new CRA test was created for institutions with assets between $250 million and $1 billion. This latter category, referred to as Intermediate Small Banks, is subject to the same lending test that the institutions with under $250 million in assets were subject to; along with a new combined community development test that covers community development loans, qualified investments, and community development services. The $250 million and $1 Billion asset-size thresholds were also indexed to the consumer price index, and could change annually. Thus, all institutions remain subject to the CRA test. These substantive changes were intended to be a compromise between changes advocated by banks and community groups.

However, the changes were not received positively by all community groups. Changes to tests conducted on the Intermediate Small category were viewed by some as decreasing the institutions' obligations to meet lending requirements of low and moderate income households. Racial inequities in mortgage acceptance rates (as reported by Inner City Press, the National Community Reinvestment Coalition, ACORN and other groups) are cited as a primary reason to maintain or even increase the scope of the CRA.


Some economists claim that government policy actually encouraged the development of the subprime debacle through legislation like the CRA, which they say forces banks to lend to otherwise uncreditworthy consumers.[2] [3]


  • Canner, G. and W. Passmore, 1997 The Community Reinvestment Act and the profitability of mortage-oriented banks, Finance and economics discussion series, 1997-7
  • Schwartz, A., 1998. From confrontation to collaboration? Banks, community groups, and the implementation of community reinvestment agreements, Housing policy debate, 9, 3, pp. 631-662
  • Seidman, E., 1999 "CRA in the 21st century," Mortage banking, Washington, DC, October
  • Elizabeth Warren and Amelia Warren Tyagi. The Two Income Trap: Why Middle Class Parents are Going Broke 2003 (New York: Basic Books).

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