What is the Community Reinvestment Act (CRA)?
– The Community Reinvestment Act is a U.S. federal law passed in 1977 that requires federally supervised depository institutions to help meet the credit needs of the communities where they do business, with attention to low- and moderate-income neighborhoods. Regulators review banks’ performance under the CRA and take those reviews into account when banks apply for mergers, new charters, acquisitions, branch openings, or other deposit facilities.
Key definitions
– Depository institution: an FDIC‑insured bank, state‑chartered bank, or savings association that accepts deposits. (Some entities, like certain credit unions and non‑bank lenders, are excluded from the CRA.)
– Redlining: a historical practice where neighborhoods—often those with large racial or ethnic minority populations—were labeled high risk and denied mortgage credit. The federal Home Owners’ Loan Corporation created color‑coded maps that institutionalized this discrimination; the practical effect was to restrict access to housing credit and to discourage investment in those neighborhoods.
– Fair lending laws: statutes and regulations that prohibit discrimination in credit transactions based on protected characteristics (for example, race, religion, national origin, sex, disability, age, marital status, or receipt of public assistance). If someone believes they were discriminated against, complaints can be filed with agencies such as the Consumer Financial Protection Bureau (CFPB) or the U.S. Department of Housing and Urban Development (HUD).
How the CRA works (overview)
– Three federal agencies share oversight of CRA compliance: the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve Board. The Fed is primarily responsible for assessing state‑member banks.
– Regulators evaluate how well a bank serves community credit needs. They consider lending and investment data, among other factors. The process is partly quantitative and partly subjective; the law does not specify numeric quotas banks must meet.
– Each bank receives a performance rating. These evaluations are public: the FDIC maintains an online database of CRA performance, and banks must provide their evaluation on request.
Why the CRA was created (historical context)
– The CRA was enacted to counteract past lending practices that deprived whole neighborhoods—and by extension, families—of access to mortgages and credit. Redlining by lenders and government agencies limited homeownership and home improvement in many minority communities, contributing to long‑lasting differences in wealth and neighborhood investment. The CRA aimed to push banks to make credit available more broadly within their service areas.
Common criticisms and debate
– Some critics say the CRA encouraged looser lending standards and contributed to risky lending prior to the 2008 financial crisis. Other analysts, including some Federal Reserve researchers, have argued that mortgages made under CRA considerations were only a small fraction of crisis‑era subprime lending and thus not a main cause of the housing downturn.
– Another criticism is that the CRA has been only partially effective: some evidence shows non‑bank lenders and credit unions expanded lending to low‑ and moderate‑income borrowers at similar rates to CRA‑covered banks.
– Technological change—especially online banking—has prompted calls to modernize the CRA. Critics argue the current framework places too much emphasis on physical branches, which matters less as digital channels grow. Regulators have pursued rule updates to reflect these shifts; agencies proposed and revised rules over recent years and issued a final modernization rule in 2023 aimed at clarifying objectives, increasing transparency, and adapting to changes in the banking industry.
What regulators and the public can do
– Regulators use CRA performance when evaluating bank applications for mergers and expansions; public CRA evaluations are part of ensuring accountability.
– Consumers who suspect discrimination can file complaints with the CFPB or HUD. Banks must provide their CRA performance evaluation on request.
Practical checklist: How a consumer or community group can check a bank’s CRA performance
1. Identify the bank’s legal name and charter type (national bank, state‑chartered bank, savings association).
2. Search the FDIC CRA database for the bank’s latest performance evaluation.
3. Request the bank’s CRA performance evaluation directly from the bank if you prefer a printed copy.
4. Review the evaluation to see how the bank is serving low‑ and moderate‑income areas and any examiner findings.
5. If you suspect lending discrimination, gather documents and relevant details (application dates, outcomes, communications) and file a complaint with the CFPB or HUD.
Small worked numeric example (simple illustration)
Suppose a community group wants to understand a small bank’s lending pattern. The bank made 200 mortgage loans last year. Of those:
– 40 loans were to borrowers living in low‑ or moderate‑income census tracts.
– 160 loans were to borrowers in other tracts.
Compute the share of loans to low‑ and moderate‑income areas
Share calculation (formula and result)
– Formula: share to low‑ and moderate‑income (LMI) areas = (loans_to_LMI / total_loans) × 100.
– Plug in the numbers: (40 / 200) × 100 = 20%.
– Interpretation: 20% of the bank’s mortgage originations were to borrowers in LMI census tracts last year.
Quick benchmark example (how to judge that 20%)
– Suppose LMI census tracts represent 30% of the bank’s assessment‑area population. Expected loans (if lending were proportional to population) = 0.30 × 200 = 60 loans.
– Shortfall = expected − actual = 60 − 40 = 20 loans, i.e., a 10 percentage‑point gap (30% expected vs 20% actual).
– If instead LMI tracts represented 15% of the population, the bank would be lending above‑proportionally to those areas.
Common caveats and assumptions
– This example counts loan number, not loan dollar amounts; a few large loans can change the dollar share.
– “LMI census tract” is based on tract median income relative to area median income; borrower income and tract income are different measures.
– The bank’s assessment area (the geographic area examiners use) matters: compare lending to the bank’s assessment‑area demographics, not the entire metro region unless that’s the defined area.
– HMDA (Home Mortgage Disclosure Act) data provide loan‑level public records but may omit some small lenders or non‑mortgage products.
– One year of data can be noisy; use multi‑year averages to smooth seasonality and outliers.
Step‑by‑step checklist to analyze a bank’s CRA lending pattern
1. Get the data:
– Download HMDA loan‑level data for the bank and relevant year(s) from the FFIEC/HMDA or CFPB site.
2. Define the assessment area:
– Confirm the bank’s CRA assessment area in its public CRA evaluation or call the bank for the official boundary.
3. Classify tracts:
– Use census‑tract income categories (low, moderate, middle, upper) based on the metropolitan or nonmetropolitan area median income.
4. Compute metrics:
– Share by tract type = loans_in_type / total_loans.
– Dollar share = total_loan_amount_in_type / total_loan_amount.
– Penetration gap = expected_loans_by_population − actual_loans.
– Multi‑year average to reduce noise.
5. Compare and interpret:
– Compare shares to the share of population/households in each tract type.
– Consider lending product mix (purchase vs refinance), origination channels, and bank size.
6. Follow up:
– Read the bank’s CRA performance evaluation for examiner findings.
– If concerns arise, contact the bank or file a fair‑lending complaint with CFPB or HUD (see links below).
Simple numeric recap using our numbers
– Loans to LMI tracts: 40 of 200 → 20%.
– If LMI population share = 30% → expected 60 loans → shortfall of 20 loans (10 percentage points).
– Action: investigate further with multi‑year HMDA analysis and the bank’s CRA report.
Useful official sources
– Consumer Financial Protection Bureau (CFPB) — HMDA data and guidance: https://www.consumerfinance.gov/data-research/hmda/
– Federal Financial Institutions Examination Council (FFIEC) — HMDA/CRA resources and data tools: https://www.ffiec.gov/
– Federal Deposit Insurance Corporation (FDIC) — Community Reinvestment Act resources: https://www.fdic.gov/regulations/resources/cra/
Educational disclaimer
This is educational information about how to compute and interpret simple CRA‑related lending shares. It is not individualized legal, regulatory, or investment advice. For specific concerns about discrimination or compliance, consult the bank’s CRA materials, regulatory agencies, or a qualified attorney or compliance professional.