[49], Niskanen's, and other respondents to the proposed changes, voiced their concerns during the public comment & testimony periods in late 1993 through early 1995. [60], In April 2005, a contingent of Democratic Congressmen led by Representative Barney Frank issued a letter protesting these changes, saying they undercut the ability of the CRA to "meet the needs of low and moderate-income persons and communities". L. No. Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households. Office of the Comptroller of the Currency, Community Reinvestment Act (CRA) Questions and Answers For Bank Customers, Mapping Inequality: Redlining in New Deal American, HOLC "Redlining" Maps: The Persistent Structure of Segregation and Economic Inequality, Housing Discrimination Under the Fair Housing Act, Effects Of Revisions To The CRA In 1995 On Regulatory Enforcement. 95128; 91 Stat. [4][35][108], In an article for the New York Post, economist Stan Liebowitz wrote that community activists' intervention at yearly bank reviews resulted in their obtaining large amounts of money from banks, since poor reviews could lead to frustrated merger plans and even legal challenges by the Justice Department. ", Consumer Financial Protection Bureau. [77] Former Atlantic associate editor Daniel Indiviglio attributes increasing noncompliance with the CRA to the tightening of lending requirements. [93], In a 1998 paper, Alex Schwartz of the Fannie Mae Foundation found that CRA agreements were "consistently successful in meeting their goals for mortgages, investments in low-income housing tax credits, grant giving to community-based organizations, and in opening (and keeping open) inner-city bank branches. U.S.C. In contrast with those acts, the CRA seeks to ensure the provision of credit to all parts of a community, regardless of the relative wealth or poverty of a neighborhood. [53][54], In conjunction with the Gramm-Leach-Bliley Act changes, smaller banks would be reviewed less frequently for CRA compliance by the addition of 2908. "Summary Fact Sheet on the OCCs Final CRA Rule. [7] Such comments could help or hinder banks' planned expansions. I will encourage those agencies to develop strong, consistent and effective regulations to implement the Community Reinvestment Act. What Factors Can Lenders Consider When Making Loans? What Is the Community Reinvestment Act (CRA)? In February 2020, a federal judge rejected the OCCs attempt to dismiss the lawsuit, a key hurdle in moving the claim forward. Average Credit Scores Across Different Racial Groups, How the Choice of a Bankruptcy Type Is Hurting Black Americans, Racial Bias in Medical Care Decision-Making Tools, The Insurance Industry Confronts Its Own Racism, What the Department of Housing and Urban Development Does. The Fed, rather than take any action on New Century, merely waited until U.S. Bancorp sold off some of the warrants, and then said the issue was moot." Federal Reserve Board. Niskanen recommended Congress repeal the Act. Community groups submitted a position paper[86] on March 1, 2022, to the OCC, FDIC and Federal Reserve about the key reforms they wanted to see. These included a consideration of race on CRA exams, more objective measures of performance that reduce ratings inflation, and expanded CRA assessment areas that include not only where banks have branches but also areas with significant amounts of bank lending and/or deposit activity. Heres Why Its Better, Community Reinvestment Act: Final Rule to Rescind and Replace Community Reinvestment Act Rule Issued in 2020, Community Reinvestment Act: Interagency Notice of Proposed Rulemaking to Implement the CRA, The Community Reinvestment Act's History and Future, Policy Statement on Discrimination in Lending. 
[4][5], The Act instructs the appropriate federal financial supervisory agencies to encourage regulated financial institutions to help meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation (Section 802.) I believe it is very important to make a distinction between the two. [15] "Intermediate small banks" were defined as banks with assets of less than $1 billion but more than $250 million, which allowed these banks to opt for examination as either as a small bank or a large bank. the first report by the Federal Reserve, to be delivered to Congress by March 15, 2000, is a comprehensive study of CRA to focus on default and delinquency rates, and the profitability of loans made in connection with CRA; the second report to be conducted by the Treasury Department over the next two years, is intended to determine the impact of the Act on the provision of services to low- and moderate-income neighborhoods and people, as intended by CRA. If you thinkyou've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, you can file a complaint with theConsumer Financial Protection Bureau (CFPB)or the U.S. Department of Housing and Urban Development (HUD). Conversations with experts on their research and topics in the news, Podcast featuring economists and others making their marks in the field, Economic history from our digital library, Scholarly research on monetary policy, macroeconomics, and more. Immediately after, NCRC and the California Reinvestment Coalition (CRC), represented by Democracy Forward and Farella Braun + Martel, filed a lawsuit seeking to vacate the OCCs CRA rule,[82] claiming that it violated the Administrative Procedure Act and was finalized without sufficient data to support the revisions.
", National Community Reinvestment Coalition. [105][106] In November 2000 Fannie Mae announced that the Department of Housing and Urban Development ("HUD") would soon require it to dedicate 50% of its business to low- and moderate-income families." The Federal Reserve uses one of five methods to rank a banks performance based on its size and mission. 103328; 108 Stat. 110315 (text) (PDF), on August 14, 2008, each appropriate Federal financial supervisory agency shall now consider, as a factor in assessing and taking into account the record of a financial institution's CRA compliance, any & all low-cost education loans provided by the financial institution to low-income borrowers. Regulation G requires banks with federally-insured deposits to disclose agreements made with non-governmental entities.
1147), effective October 12, 1977, as added by section 402(b) of title IV of the Act of December 12, 1991 (Pub. [27] Currently banks with assets greater than $1.061 billion have their CRA performance evaluated according to lending, investment and service tests.
CRA regulated banks may also inadvertently facilitate these lending practices by financing lenders. [143], In 2015, Federal Reserve Board economists Neil Bhutta and Daniel Ringo published a summary of available studies on the issue. "[136] Government economists and officials, including Janet Yellen, then President and CEO of the Federal Reserve Bank of San Francisco,[137] FDIC Chair Sheila Bair,[138] Comptroller of the Currency John C. Dugan,[139] and Federal Reserve Governor Randall Kroszner,[140] also hold that the CRA did not significantly contribute to the subprime crisis. 110-180, Hearing on the Role of Fannie Mae and Freddie Mac in the Financial Crisis [of 2008]", United States House Committee on Oversight and Government Reform, "FRB: FEDS Notes: Assessing the Community Reinvestment Act's Role in the Financial Crisis", Public Law 95-128, 95th Congress, H.R. 3488), effective August 14, 2008], [Source:Section 805 of title VIII of the Act of October 12, 1977 (Pub. The agencies must consider these performance ratings when evaluating applications for future approval of bank mergers, charters, acquisitions, branch openings, and deposit facilities. Barr noted that institutions fully regulated by CRA made "perhaps one in four" sub-prime loans, and that "the worst and most widespread abuses occurred in the institutions with the least federal oversight". L. No. Led by the National Community Reinvestment Organization (NCRC),[81] 1,594 or 83% of the 1,922 unique comments submitted disagreed with the OCCs rule; 674 of those comments cited NCRC or used some of the organizations suggested language. The Senator also demanded full disclosure of any financial "deals" which community groups had with banks, accusing such groups of "extortion". You can learn more about the standards we follow in producing accurate, unbiased content in our. We've updated our Privacy Policy, which will go in to effect on September 1, 2022. An institution's record of meeting the credit needs of its entire community is taken into consideration by its supervisory agency when the institution seeks to expand through merger, acquisition or branching. The Community Reinvestment Act (CRA) is a federal law enacted in 1977 to encourage depository institutions to meet the credit needs of the communities where they are chartered, including low- and moderate-income neighborhoods. The "residential security maps" created by the Home Owners' Loan Corporation (HOLC) for the FHA were used by private and public entities for years afterwards to withhold mortgage capital from neighborhoods that were deemed "unsafe". U.S.C. Partly in response to these concerns, Congress included little prescriptive detail and simply directs the banking regulatory agencies to ensure that banks and savings associations serve the credit needs of their local communities in a safe and sound manner. These research-based essays offer insight and analysis focused on advancing an economy where all can thrive. The new language now required the appropriate Federal regulatory agency to prepare a written evaluation after completing the examination of an institution's record in meeting the credit needs of its entire community, including any low- and moderate-income neighborhoods within it. L. No. Financial Institutions; Evaluation, [Source:Section 804 of title VIII of the Act of October 12, 1977 (Pub. [83], In January 2021, with the inauguration of President Joe Biden, the OCC went under new leadership, and on December 14, 2021, the OCC fully rescinded its disastrous 2020 CRA rule. According to a news release, the proposed changes received more than 7,500 comments from stakeholders in response to the notice of proposed rulemaking announced on Dec. 12, 2019. The Home Mortgage Disclosure Act requires that financial institutions publicly disclose mortgage lending and application data. [109] According to Manhattan Institute scholar Howard Husock, the CEO of a midsize bank reported that 20% of his institution's CRA-related mortgages were delinquent in their first year and probably 7% would end in foreclosure. 1479: Community Reinvestment Modernization Act of 2009", "U.S. Rep. Eddie Bernice Johnson wants CRA expanded to non-banks", "Proposed Rule: Community Reinvestment Act Regulation Hearings", "Revisiting the CRA: Perspectives on the Future of the Community Reinvestment Act - Volume 4, Issue 1", "Is the Obama Administration Pressuring Banks to Make More Subprime Loans? eliminating the option of alternative weights for lending, investment, and service under the large, retail savings association test; defining institutions with assets between $250 million and $1 billion as "intermediate small savings associations" subject to a new community development test; indexing the asset threshold for "small" and "intermediate small" savings associations annually based on changes to the Consumer Price Index (CPI); and. He predicted the proposed changes would be very costly to the economy and the banking system in general. The CRA Handbook (1998, McGraw Hill) carefully examined over 1,500 CRA exams under the 1995 reforms and identified further CRA Grade Inflation and made specific recommendations to improve the law's effectiveness, primarily through more objective and quantifiable standards. Additionally, this guidance will generally not apply to: . L. No. L. No. "File a Complaint. The commission also documented blanket refusals to lend in particular areas (redlining). "Policy Statement on Discrimination in Lending.". Ballooning mortgages on rental properties threatened to require large rent increases from low and moderate income tenants that could ill afford them. Answers on everything from accountability to the Feds role, Regular review of community and economic development issues, Podcast about advancing a more inclusive and equitable economy, Interesting graphs using data from our free economic database. Redlining is the discriminatory practice of denying services (typically financial) to residents of certain areas based on their race or ethnicity. 1469), effective November 12, 1999]. Among other things, this would expand the range of persons served to include middle-income households. The FDIC related provisions of the new Gramm-Leach-Bliley Act, along with the addition of sub-section 2903(c) directly to Title 12, insured any bank holding institution wishing to be re-designated as a financial holding institution by the Board of Governors of the Federal Reserve System would also have to follow Community Reinvestment Act compliance guidelines before any merger or expansion could take effect. These evaluation reports were divided into separate sections - one confidential; allowing the evaluated institution to retain its proprietary and personal information integrity at the same time the beginnings of the related databases were being compiled, and the other made public; intended to increase access and oversight of the CRS examination process.