Community Reinvestment Act

Enacted in 1977 in response to redlining — that is, banks that drew a "red line" on maps around disfavored (usually minority) neighborhoods and refused to do business within those areas — the Community Reinvestment Act (CRA) enabled bank regulators to assess and rate banks' lending and investment activities in low- and moderate-income neighborhoods. The CRA states that "regulated financial institutions have continuing and affirmative obligations to help meet the credit needs of the local communities in which they are chartered." Although CRA requires regular examination of all banks, the impact of regulation is greatest when a bank requests to merge, expand or open additional branches, as regulators can require specific corrections to occur prior to granting approval. More often, banks needing merger approval preemptively make lending commitments to secure community and regulator support.

While conducting its examination, the bank's primary regulator (for nationally-chartered banks, the Office of the Comptroller of Currency (OCC); for savings and loans institutions, the Office of Thrift Supervision (OTS); for state-chartered banks, the Federal Deposit Insurance Corporation (FDIC); or for Federal Reserve System member banks, the Federal Reserve Board (FRB) ) will evaluate an institution's compliance with the CRA, and rate the institution as "Outstanding," "Satisfactory," "Needs to Improve," or "Substantial Noncompliance." The depth of each exam is based upon the bank's size—whether the bank is a large, mid-sized or small —with the large banks receiving the most scrutiny. Community development practitioners can click here for recommendations on how they can help ensure financial institutions meet their community's needs.

The CRA examination process requires that regulators publish a list of banks that will be evaluated in advance. This allows the community groups and the public in general to submit written comments regarding that institution's lending and investment activities. The fact that the CRA examination process has been open to public comment has increased bank lending and bank investment in underserved areas. Since 1977, more than $6 trillion has been reinvested as a result of CRA agreements, with the funds used for a variety of loans and investments in low- and moderate-income neighborhoods.