Community Reinvestment Act
Also known as: CRA
US 1977 law requiring banks to meet credit needs of all communities they serve, including low-income areas.
The Community Reinvestment Act of 1977 directs federal banking regulators (Federal Reserve, OCC, FDIC) to assess whether insured depository institutions are meeting the credit needs of their entire communities, including low- and moderate-income (LMI) neighborhoods, consistent with safe and sound operation. Examiners assign a public CRA rating from Outstanding through Substantial Noncompliance, and CRA performance is a statutory factor in regulatory decisions on mergers, branch openings, and deposit insurance applications. Major regulatory revisions occurred in 1995 (introducing performance tests for lending, investment, and service), and again in October 2023 with a substantially modernized framework intended to update assessment areas for the digital banking era; portions of the 2023 rule are subject to ongoing litigation.
Core components
- Public CRA rating (Outstanding, Satisfactory, Needs to Improve, Substantial Noncompliance)
- Lending test
- Investment test
- Service test
- Assessment areas (geographic)
- Performance evaluation
- Public comment process
- Statutory consideration in merger and branch applications
Primary use case
Federal examination of bank service to LMI communities; statutory input to bank merger and expansion approvals; framework for community development lending and investment.
Common criticisms
- Critics on the left argue ratings are inflated and the regime lacks teeth
- critics on the right have alleged a role in 2008 subprime origination, a claim economists generally dispute (Federal Reserve and FDIC studies have found CRA loans were not a primary driver)
- 2023 modernization rule challenged in federal court by banking trade groups, with portions enjoined
- assessment-area definitions ill-suited to mobile and online banking models.
Lineage
- Siblings
- Dodd-Frank Act, BSA/AML