The Community Reinvestment Act (CRA, P.L. 95-128, 91 Stat. 1147, title VIII of the Housing and Community Development Act of 1977, et seq.) is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.Text of Housing and Community Development Act of 1977 — Title VIII (Community Reinvestment) Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.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. This principle is one that federal law governing deposit insurance, bank charters, and bank mergers had embodied long before the enactment of CRA."The Community Reinvestment Act: Thirty Years of Accomplishments, but Challenges Remain" , February 13, 2008 This hearing before the full House Committee on Financial Services examined the impact of CRA on the provision of loans, investments and services to under-served communities. In addition to exploring CRA's success, the hearing hoped to examine challenges that prevent the law from being more effective for the future. | Printed Hearing: 110-90(PDF)
The Act instructs the appropriate federal financial supervisory agencies to encourage regulated financial institutions to help meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation (Section 802). To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions (Section 804).
Enforcement The Community Reinvestment Act of 1977 sought to address discrimination in loans made to individuals and businesses from low and moderate-income neighborhoods. The Act mandates that all banking institutions that receive Federal Deposit Insurance Corporation (FDIC) insurance be evaluated by Federal banking agencies to determine if the bank offers credit in a manner consistent with safe and sound operation (as per Section 802(b) and Section 804(1)) in all communities in which they are chartered to do business. The law does not list specific criteria for evaluating the performance of financial institutions. Rather, it directs that the evaluation process should accommodate the situation and context of each individual institution. Federal regulations dictate agency conduct in evaluating a bank's compliance in five performance areas, comprising twelve assessment factors. This examination culminates in a rating and a written report that becomes part of the supervisory record for that bank.
The law, however, emphasizes that an institution's CRA activities should be undertaken in a safe and sound manner, and does not require institutions to make high-risk loans that may bring losses to the institution. An institution's CRA compliance record is taken into account by the banking regulatory agencies when the institution seeks to expand through merger, acquisition or branching. The law does not mandate any other penalties for non-compliance with the CRA.
Regulations The same banking agencies that are responsible for supervising depository institutions are also the agencies that conduct examinations for CRA compliance.The Federal Banking Agency as defined under 12 U.S.C. 1813(z) These agencies are the Federal Reserve System (FRB), the FDIC, and the Office of the Comptroller of the Currency (OCC). In 1981, to help achieve the goals of the CRA, each of the Federal Reserve Banks established a Community Affairs Office to work with banking institutions and the public in identifying credit needs within the community and ways to address those needs.
Implementation of the CRA by these financial supervisory agencies is enacted by Title 12 of the Code of Federal Regulations (CFR); Parts 25, 228, 345, and 563e with the addition of Part 203 as it relates to sections of the Home Mortgage Disclosure Act (HMDA).FFIEC Links to Federal Agency's CRA Regulations
+ Table I. - Federal Agencies and the CRA's Corresponding CFR Federal Financial Supervisory Agency Code of Federal Regulations e-CFR Notes 1995 2005 Office of the Comptroller of the Currency (OCC) 12. C.F.R. Part 25. et seq. Federal Reserve System (FRB) 12. C.F.R. Part 228. et seq. 12. C.F.R. Part 203. et seq. Federal Deposit Insurance Corporation (FDIC) 12. C.F.R. Part 345. et seq.
The Federal Financial Institutions Examination Council (FFIEC) coordinates inter-agency information about the CRA.Federal financial supervisory agencies reporting CRA data to the FFIEC Information about the CRA ratings of individual banking institutions from the three responsible agencies (Federal Reserve, FDIC, and OCC), is publicly available from the website of the FFIEC.FFIEC Interagency CRA Rating Search These ratings were first made available by the Clinton administration to enable public participation and public comment on CRA performance.
In addition to the regulatory framework in place, each federal financial supervisory agency's Inspector General performs regular audits on any regulatory changes made to see if the intended goals are actually being fulfilled.
History
The original Act was passed by the 95th United States Congress and signed into law by President Jimmy Carter on October 12, 1977 (, ).H.R.6655: Housing and Community Development Act , All Major Congressional Actions, Library of Congress, 1977-10-12 The CRA was passed as a result of national pressure to address the deteriorating conditions of American cities—particularly lower-income and minority neighborhoods.
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. Several legislative and regulatory revisions have since been enacted.
Original act The CRA followed similar laws passed to reduce discrimination in the credit and housing markets including the Fair Housing Act of 1968, the Equal Credit Opportunity Act of 1974 and the Home Mortgage Disclosure Act of 1975 (HMDA). The Fair Housing Act and the Equal Credit Opportunity Act prohibit discrimination on the basis of race, sex, or other personal characteristics. The Home Mortgage Disclosure Act requires that financial institutions publicly disclose mortgage lending and application data. In contrast with those acts, the CRA seeks to ensure the provision of credit to all parts of a community, regardless of the relative wealth or poverty of a neighborhood.Prepared Testimony of Ms. Sandra L. Thompson, Director, Division of Supervision and Consumer Protection, FDIC, before the Committee on Financial Services, U.S. House of Representatives, February 13, 2008.
Before the Act was passed, there were severe shortages of credit available to low- and moderate-income neighborhoods. In their 1961 report, the U.S. Commission on Civil Rights found that African-American borrowers were often required to make higher downpayments and adopt faster repayment schedules. The commission also documented blanket refusals to lend in particular areas (redlining).
The allegations of "redlining" certain neighborhoods originated with the Federal Housing Administration in the 1930s. The "residential security maps" created by the Home Owners' Loan Corporation (HOLC) for the FHA were used by private and public entities for years afterwards to withhold mortgage capital from neighborhoods that were deemed "unsafe". 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.An effective urban strategy must involve private financial institutions. I am asking the independent financial regulatory agencies to develop appropriate actions, consistent with safe, sound and prudent lending practices, to encourage financial institutions to play a greater role in meeting the credit needs of their communities. First, I am requesting that financial regulatory agencies determine what further actions are necessary to halt the practice of redlining—the refusal to extend credit without a sound economic justification. I will encourage those agencies to develop strong, consistent and effective regulations to implement the Community Reinvestment Act
In Congressional debate on the Act, critics charged that the law would create unnecessary regulatory burdens. 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. Community groups only slowly organized to take advantage of their right under the Act to complain about law enforcement of the regulations.Schwartz, A., From confrontation to collaboration? , Banks, community groups, and the implementation of community reinvestment agreements, Fannie Mae Foundation, 3, pp. 631-662 (1998).
Legislative revision history The hidden table below lists the acts of Congress that affected the Community Reinvestment Act directly. The years in which the legislative revisions were made appear in bold text preceding the Public Laws that enacted them. The links to the codification and section notes may provide additional information about the legislative changes as well. Housing and Community Development Act of 1977 − Title VIIIUSC Title 12 − Chapter 30 − Community Reinvestment SEC. 801. This title may be cited as the "Community Reinvestment Act of 1977" Codified to 12. U.S.C. § 2901 →Note← | *short title citation found under section notes [Source: Section 801 of title VIII of the Act of October 12, 1977 (Pub. L. No. 95–128; 91 Stat. 1147), effective October 12, 1977] SEC. 802. Congressional Findings and Statement of Purpose Codified to 12 U.S.C. § 2901 | notes [Source: Section 802 of title VIII of the Act of October 12, 1977 (Pub. L. No. 95–128; 91 Stat. 1147), effective October 12, 1977] SEC. 803. Definitions Codified to 12. U.S.C. § 2902 | notes [Source: Section 803 of title VIII of the Act of October 12, 1977 (Pub. L. No. 95–128; 91 Stat. 1147), effective October 12, 1977; as amended by section 1502 of title XV of the Act of November 10, 1978 (Pub. L. No. 95–630; 92 Stat. 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. L. No. 101–73; 103 Stat. 440 and 526, respectively), effective August 9, 1989; and section 358(1) of title III of the Act of July 21, 2010, (Pub. L. No. 111–203; 124 Stat. 1548), effective July 21, 2011] SEC. 804. Financial Institutions; Evaluation Codified to 12. U.S.C. § 2903 | notes [Source: Section 804 of title VIII of the Act of October 12, 1977 (Pub. L. No. 95–128; 91 Stat. 1148), effective October 12, 1977; as amended by section 909(1) of title IX of the Act of October 28, 1992 (Pub. L. No. 102–550; 106 Stat. 3874), effective October 28, 1992; section 103(b) of title I of the Act of November 12, 1999 (Pub. L. No. 106–102; 113 Stat. 1351), effective March 12, 2000; section 1031(a) of title X of the Act of August 14, 2008 (Pub. L. No. 110–315; 122 Stat. 3488), effective August 14, 2008] SEC. 805. Report to Congress Codified to 12. U.S.C. § 2904 | notes [Source: Section 805 of title VIII of the Act of October 12, 1977 (Pub. L. No. 95–128; 91 Stat. 1148), effective October 12, 1977] SEC. 806. Regulations Codified to 12. U.S.C. § 2905 | notes