The Community Reinvestment Act (CRA) was passed by Congress in 1977. Its goal was to provide credit to local communities without any discrimination. That included low- and moderate-income communities.
The CRA came about because of redlining. Redlining is the practice of discriminating based on race or ethnic background. The CRA was meant to reduce discrimination and close the racial wealth and homeownership gaps.
However, as time went on and banking regulations changed, it was apparent that the CRA wasn't keeping up. In fact, it hasn't been changed since it was introduced. Those same communities the CRA was meant to help had been left behind.
Proposed CRA updates have made their way through regulatory channels. These updates will need to become a bill, and then a law before any proposed changes can be implemented. The good news is that these updates, should they pass, will implement positive changes. These changes include:
- Expanded access to credit in low- and moderate-income communities.
- More consistency and transparency around retail lending with a focus on underserved and rural communities.
- Modern CRA assessment areas to become more aligned with mobile, branchless, and hybrid banking.
- Customization of CRA evaluations and data collection based on the size and type of banks.
- Regulatory agencies will start using a unified approach.
These assessments and analyses will provide insights into banks' performance in areas with less economic opportunity. A positive outcome would be that banks increase their service offerings, credit, and other banking services to these communities. Potentially, more businesses would open, and existing ones would expand. This would ultimately have the effect of improving economic equality.
The bill, of course, must become law before anything is implemented. The balance of control between the Democrats and Republicans will determine the fate of the proposed changes. Efforts have been made previously to revise the CRA but have always gotten bogged down in D.C. Hopefully, this time will be different.
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