The Community Reinvestment Act passed Congress in 1977 by one vote in the House, and was signed into law by Jimmy Carter. The CRA places an affirmitave obligation on lenders to meet community credit needs for low and moderate income (LMI) communities and communities of color, and allows community organizations to challenge banks if they are not meeting the needs of LMI communities. The CRA follows three principle points:
These principles evaluated every 1 to 3 years by the following regulators:
These regulators test the banks, provide grades on the three principles, and publish a CRA Exam outlining the rational for the grades. At this point, community organizations can comment on the bank being tested. Comments include data and analysis revealing how the bank lends, invests, and services in LMI communities and communities of color. The grades are as follows:
If a bank receives a failing grade, either "Needs to Improve" or a "Substantial Non-Compliance", they are blocked by the regulators from purchasing or merging with other banks. At this point, community organizations can develop a Community Reinvestment Plan, or a Community Benefits Plan, to enhance banks practices to improve their lending, investing, and services in LMI and minority neighborhoods. After receiving one of these failing grades, the bank is re-tested by a regulator in one year. At this point, they can be moved back up to one of the passing grades.
A caveat to the rating system is that a banks performance is based on their peers performance. This can be compared to grading a college class' final exam on a curve. Let's say the person who answered the most questions correctly on the final exam answered 50% of the questions correctly. This means that they get an A, as do other students who performed similarly. So these students pass, even though they only knew 50% of the material. Similarly, a bank can receive a passing grade from their CRA exam, but if every other bank has low amounts of lending, then low lending is the standard for a passing grade.
There are two other ways banks can be challenged for their lending, investment, and services:
A Brief Description of CRA
The Home Mortgage Disclosure Act- How to get data available on bank lending
HMDA Rule Summary Of Changes- to come into effect in 2018
Protections you have against credit discrimination
2014 Bank Evaluation Report: are bank grades really reflecting their lending?
Biased Banks, High CRA Scores
Banks are an asset to a thriving community. Just as food deserts are detrimental to a community, so are bank deserts. Communities that do not have access to capital are most likely to fail. No access to capital means homeowners can't upkeep their properties (such as fixing porches, roofs, or heating systems). No access to capital means small businesses cannot sustain, and existing businesses cannot grow. Poor quality housing and lack of businesses result in lower property values, and whole communities can be devastated. All of the deposits that are placed in banks are insured by tax payers, therefore there is a public accountability for the behavior of banks.
Unfortunately, the communities banks abandon are often LMI and minority communities that need the access to capital the most. The banks behavior in LMI and minority communities mirrors the federally sanctioned practice of redlining that existed from the 1930's to the 1970's. To make sure LMI and minority communities receive the lending, investment, and services that they are entitled to and desperately need, community organizations need to challenge the banks that serve their neighborhoods and keep them accountable to serving the community.
Housing experts warn a new wave of foreclosures threatens the Cleveland area- 2012
Mortgage loan officer licensing has reduced choices for Ohio consumers- 2012
Fair Lending Report for Euclid and South Euclid, 2011-2014
Bank Evaluation and Recommendation 2012-2013
Race Strongly Influences Mortgage Lending in St. Louis, Study Finds
The History of Race and Real Estate in Cuyahoga County, 2014 Final Report (with special attention to pages 17, 23, and 24)