The CRA requires federal banking agencies to assess how well each institution fulfills its obligations to these communities. 1813(z), FFIEC Links to Federal Agency's CRA Regulations, "Community Reinvestment Act and Interstate Deposit Production Regulations", "Community Reinvestment Act (CRA) Information", "Community Reinvestment Act Regulations (2005) for OCC", "Community Reinvestment (Regulation BBP)", "Federal Reserve Regulations (1995) pt. [49], Niskanen's, and other respondents to the proposed changes, voiced their concerns during the public comment & testimony periods in late 1993 through early 1995. These included a consideration of race on CRA exams, more objective measures of performance that reduce ratings inflation, and expanded CRA assessment areas that include not only where banks have branches but also areas with significant amounts of bank lending and/or deposit activity. These evaluation reports were divided into separate sections - one confidential; allowing the evaluated institution to retain its proprietary and personal information integrity at the same time the beginnings of the related databases were being compiled, and the other made public; intended to increase access and oversight of the CRS examination process. Extensions of Credit by Federal Reserve Banks (Reg A), Limitations on Interbank Liabilities (Reg F), Privacy of Consumer Financial Information (Reg P), Transactions Between Member Banks and Their Affiliates (Reg W), This page was last edited on 21 June 2022, at 03:49. Average Credit Scores Across Different Racial Groups, How the Choice of a Bankruptcy Type Is Hurting Black Americans, Racial Bias in Medical Care Decision-Making Tools, The Insurance Industry Confronts Its Own Racism, What the Department of Housing and Urban Development Does. L. No. As a result, Bhutta and Ringo concluded, the law was not a major factor in the housing markets subsequent downturn. [102] In 2001 Fannie Mae announced that it had acquired $10 billion in specially-targeted Community Reinvestment Act (CRA) loans more than one and a half years ahead of schedule, and announced its goal to finance over $500 billion in CRA business by 2010, about one third of loans anticipated to be financed by Fannie Mae during that period. ", Office of the Comptroller of the Currency. L. No. There has been a tendency to conflate the current problems in the subprime market with CRA-motivated lending, or with lending to low-income families in general. The years in which the legislative revisions were made appear in bold text preceding the Public Laws that enacted them. Lending institutions can only consider factors relevant to an applicant's creditworthiness (their ability to pay). "BankThink We Have a Once-In-A-Generation Chance To Revamp CRA. eliminating the option of alternative weights for lending, investment, and service under the large, retail savings association test; defining institutions with assets between $250 million and $1 billion as "intermediate small savings associations" subject to a new community development test; indexing the asset threshold for "small" and "intermediate small" savings associations annually based on changes to the Consumer Price Index (CPI); and. However, subprime loans were so profitable, that they were aggressively marketed in low-and moderate-income communities, even over the objections and warnings of housing advocacy groups like ACORN. BankThink:The Final CRA Rule Is In. It did this unilaterally without support from the FDIC and the Federal Reserve.[80]. According to Yellen, former Chair of the Federal Reserve, independent mortgage companies made risky "higher-priced" loans at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the "higher-priced" loans that have contributed to the current crisis. [127][128][129][130] Krugman argues that Pinto's category of "other high-risk mortgages" incorrectly includes loans that were not high-risk, that instead were like traditional conforming mortgages. L. No. Most small business loans made by CRA regulated banks went to higher income areas; 16.6% in low-income areas, 18.4% in low- and moderate-income tracts; 21.8% in middle-income areas and 23.1% in upper-income areas. Regulation G requires banks with federally-insured deposits to disclose agreements made with non-governmental entities. 2", "Community Reinvestment Act (CRA) Background", "Community Reinvestment Act Interagency Examination Procedures", Federal financial supervisory agencies reporting CRA data to the FFIEC, "White House Press Briefing on Community Reinvestment Act Reform Progress", "FDIC's Implementation of the 2005 Amendments to the Community Reinvestment Act Regulations", H.R.6655: Housing and Community Development Act, "Gale Cincotta, 72, Opponent Of Biased Banking Policies", "Prepared Testimony of Ms. Sandra F. Braunstein, Director, Division of Consumer and Community Affairs, FRB; Serial 110-90, Hearing on The Community Reinvestment Act: Thirty Years of Accomplishments, but Challenges Remain", Prepared Testimony of Ms. Sandra L. Thompson, Crabgrass Frontier: The Suburbanization of the United States, FDIC page on Riegle-neal Interstate Banking and Branching Efficiency Act of 1994, SEC. [40] Regulatory changes during the Clinton administration allowed these community groups better access to CRA information and enabled them to increase their activities. [10] These agencies are the Federal Reserve System (FRB), the FDIC, and the Office of the Comptroller of the Currency (OCC). [35], The Office of Thrift Supervision (OTS) proposed revising and started to solicit public comment regarding the complete alignment of its CRA rule with the CRA rules of the other three federal banking agencies in November 2006. 3713), effective November 10, 1978; sections 744(q) of title VII and 1212(a) of title XII of the Act of August 9, 1989 (Pub.

Partly in response to these concerns, Congress included little prescriptive detail and simply directs the banking regulatory agencies to ensure that banks and savings associations serve the credit needs of their local communities in a safe and sound manner. The FDIC related provisions of the new Gramm-Leach-Bliley Act, along with the addition of sub-section 2903(c) directly to Title 12, insured any bank holding institution wishing to be re-designated as a financial holding institution by the Board of Governors of the Federal Reserve System would also have to follow Community Reinvestment Act compliance guidelines before any merger or expansion could take effect. The agency referenced several factors for the proposed realignment, in particular, that a consistent CRA standard applied to both the banking and the thrift industries would facilitate objective evaluations of CRA performance; ensure accurate assessments of banks and thrifts that operated in the same markets; and permit the public to make reasonable comparisons of bank and thrift CRA performance. Sociologist John McKnight coined the term in the 1960s to describe maps created by the Home Owners Loan Corporation (a U.S. government agency) that marked racial and ethnic minority neighborhoods in red, labeling them hazardous to lenders. (c)(2)(D), "Prohibition against deposit production offices", "President's Remarks on Community Development", "President's Statement on Reform of Regulations Implementing the Community Reinvestment Act", "Community Reinvestment Act (CRA) Fact Sheet", "Community Reinvestment Act Regulations (1995)", The War on CRA: Opportunity in Next Wave of Mergers, Issue in Depth: Leading Up to the Decision on Banking Reform, Financial Services Modernization Act, Community Reinvestment Act Amendments in the Gramm-Leach Act, United States Senate Committee on Banking, Housing, and Urban Affairs, Supervisory Agencies Adopt Rule On Disclosure And Reporting Of CRA-Related Agreements, Gramm-Leach-Bliley Act Provisions Relating to CRA and Community Development, Survey of the Performance and Profitability of CRA-Related Lending, The Community Reinvestment Act After Financial Modernization: A Final Report, "Statement by President Bill Clinton at the Signing of the Financial Modernization Bill", "The Twenty-Fifth Anniversary of the Community Reinvestment Act: Past Accomplishments and Future Regulatory Challenges", Press release and letter released by a contingent of "House Democrats", "Update of Statistical Area Definitions and Additional Guidance on Their Uses", "Community Reinvestment Act Regulations (2005), Technical Amendment", "Community Reinvestment Act Regulations (2005) for OCC, FRB & FDIC", "GSE Portfolios, Systemic Risk, and Affordable Housing; Speech before the Independent Community Bankers of America's Annual Convention and Techworld, Honolulu, Hawaii (via satellite)", "H.R. White, Professor of Economics, New York University Stern School of Business; Serial 110-90, Hearing on The Community Reinvestment Act: Thirty Years of Accomplishments, but Challenges Remain". [112], The FDIC has tried to address this issue by "stopping abusive practices through the examination process and supervisory actions; encouraging banks to serve all members and areas of their communities fairly; and providing information and financial education to help consumers make informed choices". 74% of neighborhoods that HOLC colored red ("hazardous") more than 80 years ago are low- to moderate-income neighborhoods today. Three federal regulatorsthe Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve Boardshare oversight of the CRA. [37], The allegations of "redlining" certain neighborhoods originated with the Federal Housing Administration in the 1930s. The agencies use the Consumer Price Index to adjust the asset size thresholds for small and large institutions annually. [89][90] In a 2003 research paper, economists at the Federal Reserve could not find clear evidence that the CRA increased lending and home ownership more in low income neighborhoods than in higher income ones. [104], In October 2000, to expand the secondary market for affordable community-based mortgages and to increase liquidity for CRA-eligible loans, Fannie Mae committed to purchase and securitize $2 billion of "MyCommunityMortgage" loans. [107], Speaking in 2007, the 30th anniversary of the CRA, Ben Bernanke, Chair of the Federal Reserve System since 2006, stated that the high costs of gathering information, "may have created a 'first-mover' problem, in which each financial institution has an incentive to let one of its competitors be the first to enter an underserved market". However, the last is chiefly responsible for assessing whether state member banks are fulfilling their obligations under the law. Is There a Gender Gap in Home Equity Loans? ", "Don't Blame the Community Reinvestment Act", "The Blame the Community Reinvestment Act Industry", "Community Reinvestment Act had nothing to do with subprime crisis", Description of Michael S. Barr, Nonresident Senior Fellow, "Prepared Testimony, Serial 110-90, Hearing on The Community Reinvestment Act: Thirty Years of Accomplishments, but Challenges Remain", "Expanded Guidance for Subprime Lending Programs", "Advisory Committee on Economic Inclusion (ComE-IN) Background Definitions", NBER-Agarwal, Benmelich, Bergman, Seru-"Did the Community Reinvestment Act Lead to Risky Lending? 110315 (text) (PDF), on August 14, 2008, each appropriate Federal financial supervisory agency shall now consider, as a factor in assessing and taking into account the record of a financial institution's CRA compliance, any & all low-cost education loans provided by the financial institution to low-income borrowers. [35][41], According to Ben Bernanke, this law greatly increased the ability of advocacy groups, researchers, and other analysts to "perform more-sophisticated, quantitative analyses of banks' records", thereby influencing the lending policies of banks. Heres Why Its Better. [53][54], In conjunction with the Gramm-Leach-Bliley Act changes, smaller banks would be reviewed less frequently for CRA compliance by the addition of 2908. All the affected Federal financial supervisory agencies have one year after the date of enactment to issue rules in final form to implement the change into the Code of Federal Regulations (CFR) according to Title X, Subtitle C, Section 1031 of the Act. "Summary Fact Sheet on the OCCs Final CRA Rule. Barr noted that institutions fully regulated by CRA made "perhaps one in four" sub-prime loans, and that "the worst and most widespread abuses occurred in the institutions with the least federal oversight". Though low- and moderate-income communities saw an influx of loans after the CRAs passage, research by the Federal Reserves Jeffrey Gunther concluded that lenders not subject to the lawthat is, credit unions and other non-banksrepresented an equal share of those loans. The immediate effect of redlining was that residents in these areas couldn't access credit to buy or improve housing. Best Programs Improving Diversity and Inclusion in Financial Services, Minority GroupsLargely Underrepresented in the U.S. 10173; 103 Stat. In 1981, each of the 12 Federal Reserve banks established a Community Development office to work with depository institutions and the public in identifying credit needs within the community and innovative ways to address those needs. Housing Discrimination: What Is It, and What Can You Do About It? The housing meltdown: Why did it happen in the United States? ", Board of Governors of the Federal Reserve System. [4], Community activists, such as Gale Cincotta of National People's Action in Chicago, led the national fight to pass, and later to enforce the Act. "Community Reinvestment Act. ", JD Supra. 1148), effective October 12, 1977; as amended by section 909(1) of title IX of the Act of October 28, 1992 (Pub. 110315; 122 Stat. [100], Concerns at the time over the 1995 regulatory change causing an increase in the inability of financial institutions to expand through mergers or acquisition due to regulatory denial based on poor CRA compliance were unfounded. L. No. 3874), effective October 28, 1992], [Source:Section 809 of title VIII of the Act of October 12, 1977 (Pub. "The Community Reinvestment Act's History and Future. [114], Economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. The Office of the Comptroller of the Currency in May 2020 issued a final rule to "strengthen and modernize" existing Community Reinvestment Act regulations. [31], By early 1995, the proposed CRA regulations were substantially revised to address criticisms that the regulations, and the agency's implementation of them through the examination process to date, were too process-oriented, burdensome, and not sufficiently focused on actual results. Despite this opposition, the OCC published the final rule in 2020. 102550; 106 Stat. ", National Community Reinvestment Coalition. ", American Banker. These research-based essays offer insight and analysis focused on advancing an economy where all can thrive. In order to gain market share lenders lowered their standards. 1147), effective October 12, 1977, as added by section 1212(b) of title XII of the Act of August 9, 1989 (Pub. [citation needed] The agency noted that latitude would be provided for a short period of time to institutions in the context of examinations conducted after the effective date, July 1, 2007, in order to implement program changes under the new rule smoothly. 102233; 105 Stat. 95128; 91 Stat. Many of the recommendations in that book were included in the 1995 CRA reform. In a world of national banking enterprises, these policies are more likely to drive institutions out of neighborhoods. It's illegal for lenders to consider factors that are unrelated to creditworthiness, including the applicant's race, color, religion, national origin, sex, marital status, age, and participation in public assistance programs. "Community Reinvestment Act (CRA) Questions and Answers For Bank Customers. [92], According to The New York Times, some of these housing advocacy groups provided early warnings about the potential impact of lowered credit standards and the resulting unsupportable increase in real estate values they were causing in low to moderate income communities. An Act to amend certain Federal laws pertaining to community development, housing, and related programs. pinnacle appraisers ", National Community Reinvestment Coalition. ", University of Richmond Digital Scholarship Lab. [105][106] In November 2000 Fannie Mae announced that the Department of Housing and Urban Development ("HUD") would soon require it to dedicate 50% of its business to low- and moderate-income families." [110], According to Inner City Press, "Bronx-based Fair Finance Watch commented to the Federal Reserve about the practices of now-defunct non-bank subprime lender New Century, when U.S. Bancorp bought warrants for 24% of New Century's stock. Additionally, this guidance will generally not apply to: . In 2007, Ben Bernanke suggested further increasing the presence of Fannie Mae and Freddie Mac in the affordable housing market to help banks fulfill their CRA obligations by providing them with more opportunities to securitize CRA-related loans. We've updated our Privacy Policy, which will go in to effect on September 1, 2022. CRA regulated banks may also inadvertently facilitate these lending practices by financing lenders. We also reference original research from other reputable publishers where appropriate. He noted the changes reinforce CRA objectives consistent with thrifts' performance in meeting the financial services needs of their communities. [77] Former Atlantic associate editor Daniel Indiviglio attributes increasing noncompliance with the CRA to the tightening of lending requirements. They recommended that the federal agencies use the CRA to sanction behavior that either directly or indirectly increased predatory lending practices by lowering the CRA rating of any bank that facilitated in these lending practices. (Small Bank Regulatory Relief) directly to Chapter 30, (the existing CRA laws), itself. SEC. He stated that better ways to accomplish the goals would be vigorous enforcement of anti-discrimination laws, of antitrust laws to promote competition, and federal funding of worthy projects directly through an "on-budget and transparent process" like the Community Development Financial Institutions Fund. [35] In 2003, researchers at the Federal Reserve Bank of New York noted that dramatic changes in the financial services landscape had weakened the CRA, and that in 2003 less than 30 percent of all home purchase loans were subject to intensive review under the CRA. The obligations to adhere to 25 percent for services and 25 percent for investments became optional and the means to securing a satisfactory CRA rating was left to the discretion of the qualifying thrifts instead (See the notes in the "2005" column of Table I. for the specifics). He predicted the proposed changes would be very costly to the economy and the banking system in general. 95128; 91 Stat. 30). [94], In a 2005 paper for the New York University Law Review, Michael S. Barr, professor at the University of Michigan Law School, presented evidence to demonstrate that the CRA had overcome market failures to increase access to credit for low-income, moderate-income, and minority borrowers at relatively low cost. [62], After enacting a technical regulatory amendment in the interim incorporating a different formula for stratifying both metropolitan and rural zones to better align with an expanded definition of them under the CRA in the process,[63][64] the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System (FRB), and the Office of the Comptroller of the Currency (OCC) also put a new set of regulations into effect in September 2005 - mirroring much of what the OTS had already initiated earlier in the year (See the notes in the "2005" column of Table I for specifics). [7] Such comments could help or hinder banks' planned expansions. The Community Reinvestment Act (CRA) helps ensure that federally insured banks meet the credit needs of the communities in which they are located, consistent with safe and sound banking practices. [38] Contributory factors in the shortage of direct lending in low- and moderate-income communities were a limited secondary market for mortgages, informational problems to do with the lack of credit evaluations for lower-income borrowers, and lack of coordination among credit agencies. [34] Several legislative and regulatory revisions have since been enacted. The St. Louis Fed's Community Partnerships and Investment Teamprovides information about successful initiatives and programs for community investment; reinvestment; small-business lending; affordable housing; and community, rural and economic development. The law specified that such community lending activity be consistent with safe and sound operation of the institutions. 16) to allow banks to merge or expand into other types of financial institutions. But Otting said it "strengthened and modernized" the law, saying the final rule increased credit for mortgage origination to promote affordable mortgage availability in lower- and moderate-income areas. However, credit unions backed by the National Credit Union Share Insurance Fund and other non-bank entities are exempt from the legislation. 1", "Home Mortgage Disclosure (Regulation C)", "Home Mortgage Disclosure Act (HMDA) Information", "Federal Reserve Regulations (1995) pt.

Office of the Comptroller of the Currency, Community Reinvestment Act (CRA) Questions and Answers For Bank Customers, Mapping Inequality: Redlining in New Deal American, HOLC "Redlining" Maps: The Persistent Structure of Segregation and Economic Inequality, Housing Discrimination Under the Fair Housing Act, Effects Of Revisions To The CRA In 1995 On Regulatory Enforcement. "Community Reinvestment Act.". [3] The law does not list specific criteria for evaluating the performance of financial institutions. : Public Health and Social Welfare, House Banking, Finance, and Urban Affairs, Senate Banking, Housing, and Urban Affairs, Office of the Comptroller of the Currency, Federal Financial Institutions Examination Council, Housing and Community Development Act of 1977 TitleVIII, USC Title 12 Chapter 30 CommunityReinvestment, Financial Institutions Reform, Recovery and Enforcement Act of 1989, Federal Deposit Insurance Corporation Improvement Act of 1991, Resolution Trust Corporation Refinancing, Restructuring, and Improvement Act of 1991, consideration of minority and female owned institutions & partnerships, Federal Housing Enterprises Financial Safety and Soundness Act of 1992, Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, United States House Committee on Financial Services, Housing and Economic Recovery Act of 2008, American Recovery and Reinvestment Act of 2009, Congressional Committee on Financial Services, Community Development Financial Institutions Fund, Department of Housing and Urban Development, House Committee on Oversight and Government Reform, Text of Housing and Community Development Act of 1977 Title VIII (Community Reinvestment), "The Performance and Profitability of CRA-Related Lending", "The Community Reinvestment Act: Its Evolution and New Challenges", "The Community Reinvestment Act: Thirty Years of Accomplishments, but Challenges Remain", Community Reinvestment Act: Review of Empirical Evidence, "Prepared Speech, Footnote #8, The CRA: Its Evolution and New Challenges", "Community Reinvestment Act: Background & Purpose", The Federal Banking Agency as defined under 12 U.S.C.

Groups at first only slowly took advantage of these rights. More recently, some economists and policymakers have suggested the law needs to be revised to keep up with changes in the industry and make the evaluation process less onerous for banks.

[101], In October 1997, First Union Capital Markets and Bear, Stearns & Co launched the first publicly available securitization of Community Reinvestment Act loans, issuing $384.6 million of such securities. In response many institutions established separate business units and subsidiary corporations to facilitate CRA-related lending. Community groups were also opposed to the 2020 proposal. He previously held senior editorial roles at Investopedia and Kapitall Wire and holds a MA in Economics from The New School for Social Research and Doctor of Philosophy in English literature from NYU. Conversations with experts on their research and topics in the news, Podcast featuring economists and others making their marks in the field, Economic history from our digital library, Scholarly research on monetary policy, macroeconomics, and more. Still, each bank is given one of the following ratings: The FDIC maintains an online database where the public can see a particular banks score.

", Office of the Comptroller of the Currency. The share of total US lending to low and medium income borrowers rose from 25% in 1993 to 28% in 1998 as a consequence. [4], The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which repealed restrictions on interstate banking, listed the Community Reinvestment Act ratings received by the out-of-state bank as a consideration when determining whether to allow interstate branches. 2907) to the existing CRA statutes by the Act, any depository institution which donated, sold with favorable terms (as determined by the appropriate Federal financial supervisory agency), or made available on a rent-free basis any branch of such institutions located in any predominantly minority neighborhood to any minority depository institution or women's depository institution, the amount of the contribution or the amount of the loss incurred in connection with such activity would go towards meeting the credit needs of the institution's community and would be taken into consideration when CRA examinations were evaluated. 1148), effective October 12, 1977; as amended by section 358(2) of title III of the Act of July 21, 2010, (Pub. The first major research study of CRA was the 1993 book Community Reinvestment Performance (1993, Probus Publishing) by Kenneth H. Thomas, Ph.D., a Finance Lecturer at The Wharton School of the University of Pennsylvania. [102][103] The public offering was several times oversubscribed, predominantly by money managers and insurance companies who were not buying them for CRA credit. [135] Ben Bernanke, then Chairman of the Federal Reserve, wrote that experience and research contradict "the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties. In a 2018 op-ed piece, former Comptroller of the Currency Joseph Otting asserted that the CRAs outdated approach had led to investment deserts, where "CRA activity often fails to reach by preventing banks from receiving consideration when they want to lend and invest in communities with a need for capital.". [143], In 2015, Federal Reserve Board economists Neil Bhutta and Daniel Ringo published a summary of available studies on the issue. The law does not mandate any other penalties for non-compliance with the CRA. Niskanen believed that the primary long-term effect would be an artificial contraction of the banking system. 110-180, Hearing on the Role of Fannie Mae and Freddie Mac in the Financial Crisis [of 2008]", United States House Committee on Oversight and Government Reform, "FRB: FEDS Notes: Assessing the Community Reinvestment Act's Role in the Financial Crisis", Public Law 95-128, 95th Congress, H.R. CRA is designed as a simple test for how financial institutions are meeting obligations to serve the convenience and needs of the local market where they are located. ", Office of the Comptroller of the Currency. ", University of Chicago Law School.

Redlining is the discriminatory practice of denying services (typically financial) to residents of certain areas based on their race or ethnicity. 95128; 91 Stat. The commission also documented blanket refusals to lend in particular areas (redlining). Regulation BB is a regulation that requires banks to provide certain information to the public. These include white papers, government data, original reporting, and interviews with industry experts.

2901 et seq.) L. No. 1147, title VIII of the Housing and Community Development Act of 1977, 12U.S.C. [74], On June 24, 2010, the Office of the Comptroller of the Currency (OCC), Federal Reserve System, Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS) jointly published proposed revisions to the rules implementing the Community Reinvestment Act. [5], On April 15, 2008, an FDIC official told the same committee that the FDIC was exploring offering incentives for banks to offer low-cost alternatives to payday loans. The OCC's Final CRA Rule: What Changed From The Agency's Proposed Rule? The links to the codification and section notes may provide additional information about the legislative changes as well.