The Community Reinvestment Act After Fifteen Years: It Works, But Strengthened Federal Enforcement is Needed

The Community Reinvestment Act (“CRA”) was adopted to curb redlining, the discriminatory mortgage lending practice whereby lenders refuse to make loans to certain geographic areas based on the racial or ethnic composition of those areas or the age of their housing stock. The law reflected Congressional judgment that lending institutions were overlooking important credit needs within their local communities and that the banking regulators’ efforts were inadequate to deter this neglect. Although the law was rarely enforced, some organized community groups made it work. Today’s climate of bank restructuring presents new challenges to making the law effective. Despite its apparent success, or perhaps because of it, the CRA remains a controversial law. This article argues that the CRA continues to serve an important role. The CRA clarifies the public responsibilities of federally insured financial institutions to their local communities in three ways: 1) it affirms the obligations of banks and savings institutions to meet the credit needs of low and moderate income communities; 2) it directs banking and thrift regulators to evaluate as part of their regular on-site examination the extent to which lenders are meeting local credit needs; and 3) it permits regulators to impose sanctions on lenders with weak records