Community Reinvestment Act (CRA)

What is the Community Reinvestment Act?

The Community Reinvestment Act was enacted by Congress in 1977 to encourage banks and thrifts to assist with addressing the requirements of the networks where they operate, including low and moderate-pay areas. Under the CRA, insured depository institutions are assessed intermittently to evaluate their efforts to support their networks. The record is then used to assess applications for future branch openings, bank mergers, contracts and bank acquisitions.

More profound definition

Before the CRA was passed, scarcely any banks made loans to consumers with low or moderate salaries. Many banks redlined certain parts of urban communities and would not loan to individuals and businesses in those areas. This passed on most run down areas without access to capital to renew their areas, beside government investment. The CRA outlawed redlining. Since its enactment, the CRA has advanced to likewise incorporate rural networks.
Depository institutions that are regulated by the Office of the Comptroller of the Currency (OCC), the Federal Reserve System, the Federal Deposit Insurance Corp. furthermore, the Office of Thrift Supervision are subject to reporting requirements. The OCC is responsible for assessing banks' records of assisting networks with meeting their credit needs.
Regulators utilize several indicators to assess depository institutions' compliance with the CRA, yet banks are not subject to lending amounts. They are not required to meet a certain number of loans or make a certain percentage of loans to their nearby networks. Moreover, the CRA doesn't command that banks make high-risk loans that would compromise the institution's financial stability.
Under the CRA regulations:

• Small banks with assets of under $1.202 billion are assessed through a streamlined interaction that spotlights on the bank's lending performance.
• Intermediate small banks with assets of more than $300 million and under $1.202 billion are assessed through a test that surveys lending, qualified investments, and services offered to the community to encourage its development.
• Large retail banks with assets of $1.202 at least billion are assessed by their lending and investment activity, and community development services.
• Financial institutions that are considered wholesale or limited purpose are assessed exclusively by their community development activities.

The CRA permits any depository institution, no matter what its size or strategy, to be assessed. Doing so allows institutions to foster performance plans, in view of the community's business needs, and with community input.
The OCC gives the bank a written performance evaluation and CRA rating. The OCC distributes the evaluation schedule in advance to empower the community to give feedback about the bank's performance. Banks are assigned one of the below CRA ratings:

• Outstanding
• Satisfactory
• Requirements to get to the next level
• Substantial noncompliance

On average, the OCC assesses banks at regular intervals, yet small banks are assessed less oftentimes. Banks with assets of $250 million or less that receive an overall CRA rating of satisfactory or outstanding may not be assessed by the CRA more than like clockwork or 60 months, individually.

Community Reinvestment Act model

A few different ways that banks conform to the CRA and invest in their networks are to:

• Give funding to economic development projects in underserved networks to remake areas, give affordable housing, and redesign abandoned commercial structures.
• Cash payroll and government checks for individuals who don't have traditional checking accounts.
• Give free tax arrangement to low-and moderate-pay inhabitants.
• Support representatives' worker efforts in the community.
• Give money to nonprofit organizations inside the community.
• Give free studios and financial education courses to community individuals.

Features

• The Community Reinvestment Act (CRA) guarantees that federally insured banks meet the credit needs of the networks in which they are found, reliable with safe and sound banking practices.
• However regulators take a gander at the lending activity and different data in their evaluation, there are no specific benchmarks banks need to meet.
• The CRA was one of several laws passed during the late 1960s and 1970s to extend access to credit.
• CRA performance ratings are accessible online and upon request at nearby bank branches.

FAQ

What Are the U.S. Fair Lending Laws?

Fair lending laws deny lenders from discriminating in light of specific protected classes during any part of a credit transaction. Several statutes contain federal fair lending laws and regulations, including the:- Fair Housing Act of 1968-Equal Credit Opportunity Act of 1974-Home Mortgage Disclosure Act of 1975-Community Reinvestment Act of 1977

What Factors Can Lenders Consider When Making Loans?

Lending institutions can consider factors pertinent to a candidate's creditworthiness (their ability to pay). It's unlawful for lenders to consider factors that are unrelated to creditworthiness, including the candidate's race, variety, religion, national beginning, sex, marital status, age, and participation in public assistance programs.

What Is Redlining?

Redlining is the now-unlawful biased practice of turning down regarding credit to occupants of certain areas in light of their race or identity. Humanist John McKnight begat the term during the 1960s to depict maps made by the Home Owners' Loan Corporation (a U.S. government agency) that noticeable racial and ethnic minority areas in red, naming them "dangerous" to lenders.