On May 5, 2022, the Federal Reserve Board, OCC, and FDIC jointly released a Notice of Proposed Rulemaking (NPR) that would reform CRA regulations. For details, visit the Federal Reserve Board of Governors site.
The Community Reinvestment Act (CRA) can hold banks more accountable to the needs of their communities. Congress passed the CRA in 1977 in response to redlining, the discriminatory pattern of denying credit based solely on the ethnic or racial composition of certain neighborhoods or communities, despite residents being creditworthy borrowers.
CRA made redlining illegal. But for decades prior to CRA’s passage, redlining was a practice explicitly encouraged by federal policy. This led to measurable disparities in economic outcomes for residents of redlined neighborhoods, disparities that persist to this day. For example, people from formerly redlined neighborhoods born in the 1970s and 1980s experienced a wide range of economic consequences of the practice, such as lower rates of homeownership and lower household income. More recently, residents from many of the same neighborhoods have suffered higher rates of COVID-19 complications including hospitalizations and death.
The CRA offers one tool for lenders to play a role in charting a different future for LMI neighborhoods. At its core, the CRA encourages banks to distribute their resources more equitably to traditionally underserved segments of the community. These efforts are then evaluated by the Fed and other regulators, who conduct performance evaluations and assign CRA ratings—ratings that are publicly available—to each bank, detailing their efforts to support the financial needs of those living and working in its geographically defined assessment areas.
How does the regulation do this? The CRA encourages banks to
For more information on CRA ratings and banks’ performance evaluations, visit the Federal Reserve Board of Governors.
This post originally published on July 15, 2021. It was last updated May 11, 2022 to include information about the Federal Reserve Board, OCC, and FDIC jointly releasing a Notice of Proposed Rulemaking (NPR).