Community Reinvestment Act

•    The Community Reinvestment Act or CRA, is a federal law passed by Congress in 1977 to combat redlining, or the discrimination of certain communities based on race and/or class.

•    The CRA says, “regulated financial institutions have a continuing and affirmative obligation to meet the credit needs of the local communities in which they are chartered.”

•    The CRA regulations have been revised as part of the Clinton administration’s initiative to create performance-based and objective standards. These new regulations have attempted to satisfy community activists by focusing more attention on the lending, investment and service records of banks.

How Does CRA work?                           

•    The act establishes a regulatory regime for monitoring banks’ compliance with CRA. There are four regulatory agencies: the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve Bank and the Office of Thrift Supervision.

•    These agencies monitor the level of lending, investments, and services in low- and moderate- income neighborhoods.

•    Approximately once every two years examiners from the agencies will assess and “grade” lending institutions’ activities in low- and moderate- income neighborhoods.

•    If a lending institution has a low grade, or if an agency finds that an institution is not serving these neighborhoods, it can delay or deny that institution’s request to merge with another lender, change its charter, open a branch or expand any of its services.

•    Rarely are applications denied, but federal agencies can make approvals conditional upon specific improvements in a bank’s CRA performance. Also, dialogue between banks and community organizations often result in bank commitments to increase lending and/or start affordable housing and small business lending programs.

How can community groups use CRA?           

•    Community groups can leverage the CRA in getting banks to be more active in reinvestment in low-income communities and communities of color.  Banks will meet with community groups if community groups have suggestions for how banks can better meet their CRA requirements.

•    Community groups can comment on bank performance when banks are being examined by regulatory agencies. Federal agencies publish in advance a list of banks that will be evaluated each quarter. Timely comments can have a strong influence on a bank’s CRA rating by directing examiners to particular areas of strength or weakness in a bank’s lending, investments or services in low- and moderate- income communities.

•    Community groups can also enter into negotiations with banks during their merger processes. Banks must file applications with the regulatory agencies when they wish to merge or acquire other institutions. At this time there is a public comment period, and if the bank is not properly serving the needs of low-income communities, they may not be allowed to merge. Often, banks will enter into negotiations with community groups and commit to lend, serve or invest in particular initiatives, at certain levels, in certain areas, or to certain communities before the approval of their merger is granted.