COMMUNITY REINVESTMENT: A REVIEW OF URBAN OUTCOMES AND CHALLENGES

The Community Reinvestment Act (CRA) of 1977 was designed to increase the availability of credit and financial services to lower income andminority borrowers and their communities and to improve on the ways that depository institutions approach lending in these communities. This article examines the literature on the effects of the CRA on lending patterns in urban areas and discusses challenges to community reinvestment regulation in the future. The Community Reinvestment Act (CRA) was enacted in 1977 in response to evi-dence that commercial banks and savings associations were engaging in “redlin-ing ” practices that were contributing to the decline of many inner-city urban areas. Depository institutions would literally or figuratively draw a red line around certain geographic areas and then decline to make loans in those areas on the basis of the racial composition, age of housing stock, or other factors, regardless of the credit-worthiness of individual loan applicants. It was believed that these practices were resulting in the disinvestment and decline of many older, central-city, and typically low-income and minority neighborhoods, and a shift of jobs to surrounding areas. The CRA addressed this problem by recognizing a “continuing and affirmative obligation ” on the part of depository institutions to help meet the credit needs of the local communities in which they are chartered to do business, and by directing the banking regulators to encourage the institutions that they supervise to carry out this obligation. The hope was that by encouraging depository institutions to look fo