Community Reinvestment Act (CRA)

The Community Reinvestment Act (CRA) rates large financial institutions based on three practices:  their lending, their investments, and their services.  Financial institutions must demonstrate to regulators that its activities in each of these three sectors are adequately serving the communities in which they have market presence.  The text of the law explicitly "encourage[s] such institutions to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions."

Congress passed CRA in 1978, and in 1995 it was revised under the Clinton Administration to prevent financial intuitions with poor CRA compliance records from participating in mergers.  However, the main responsibility for enforcing CRA lies with consumer protection groups like Greenlining.  CRA as it is currently implemented has weak disciplinary powers for non-complying institutions.

Additionally, only financial institutions that were considered commercial banks prior to the passing of the Gramm-Leach-Bliley Act in 1999 are covered under CRA.  This means that investment banks such as Bear Stearns and insurance companies such as AIG that were formerly not allowed to engage in commercial banking activities and that then did so are not covered under CRA.  This unequal application of CRA represents a market imbalance, since the antiquated law requires some competitors to comply with the Act, while others do not.

Greenlining therefore believes that CRA should be expanded to cover insurance companies, credit unions, investment banks, and other essential parts of an interrelated financial services industry.  This is especially relevant in the post-stimulus era, since taxpayers bailed all these out, as well.

Also, while CRA requires banks under its jurisdiction to operate in lower-income communities based on "safe and sound" principles, those not covered under the Act are not bound by this provision.

Related Publications

Advocate's Guide to CRA
Find out what the Community Reinvestment Act (CRA) is, and how it can provide communities with the power to demand that financial services corporations be held accountable to all communities.

Did The Community Reinvestment Act (CRA) Cause the $700 Billion Dollar Bailout and the Failure of Global Financial Institutions?

The Community Reinvestment Act has done much to increase assets in lower-income communities, yet the right wing media has blamed it for being a cause of the current financial crisis. Their arguments simply do not add up.

Related Resources

Hearing of the Financial Services Committee
On September 16, 2009, Greenlining executive director Orson Aguilar testified before the House Financial Services Committee, headed by the Hon. Barney Frank, on the importance of CRA to the preservation of "safe and sound" banking practices, and on the need to extend CRA to regulate all financial services.

• Read the text of the testimony HERE.
• Video:  Orson Aguilar Testifies at House Financial Services Committee

Video:  CRA Myths and Facts

An interactive look at some of the common misconceptions about CRA promulgated by the right-wing media.